Mr Jaitley, India’s Wealth Tax Act is a comic legislation; it needs an overhaul

Our tax laws bristle with contradictions and inequities, none so more conspicuously than the Wealth Tax Act, 1957. It says all motor cars except those used as taxis are taxable even as it leaves paintings bought from Sotheby severely alone. Granted wealth tax is payable only on net wealth in excess of Rs 30 lakh but if a person has a ramshackle Maruti 800 valued at say Rs 50,000 as well as jewellery valued at Rs 50 lakh, he would have to pay tax on Rs 20.5 lakh. The humble small car would have suffered tax even as the starkly visible symbol of wealth, painting, cocks a snook at the taxman. It has been a comic piece of legislation, this Wealth Tax Act, after 1992 when it was revamped in the name of targeting non-productive assets alone. The six supposedly non-productive assets are buildings, vacant urban land, jewellery etc, motor cars, aircraft-yachts and unaccounted cash. [caption id=“attachment_2048431” align=“alignleft” width=“380”]  Reuters[/caption] Unaccounted cash in the hands of companies is a dead letter because nobody declares it. Period. So are aircraft because even private executive jets pass muster under the exemption for commercial use. So much so that just four types of assets are taxable and arguably none of them are strictly speaking non-productive. Race aficionados’ horses, art buffs’ paintings and sculptures are all exempt from tax thanks to this invidious classification. If a person has two economically weaker section (EWS) flats each valued at Rs 50 lakh and both are self-occupied, he has to pay tax on one of these because only one residential property is exempt from tax. In the event, a moneybag sitting in his palatial Golf Links bungalow valued at Rs 300 crore would laugh up his sleeve at the rank stupidity of our law – this property of his would qualify for exemption if it is the highest valued property in his immovable property portfolio. Wealth tax garners about Rs 3,000 crore or thereabouts to the exchequer. Its use lies in its juxtaposition role – assessing officer is supposed to assess the reasonable of one’s income in the light of the size of his wealth. The Election Commission of India too mandates disclosure of a candidate’s wealth together with those of his spouse, the idea being people should be able to formulate a fair opinion about the financial probity of the candidate. It is another matter that the EC and the income tax department do not function in tandem like cheetahs hunting in pairs so as to get at the jugular of tax evaders. Be that as it may, the issue is wealth tax law’s rationale is not as much to garner revenue for the exchequer given the fact it is a soft tax as to properly assess one’s income. For doing this, one must be asked to declare all his assets. It is strange that while a person is mandated to declare the jewels lying in his bank locker, he is not mandated to disclose how much lies in his savings and term deposit accounts because bank balances do not figure in the small list of six taxable assets. Colombia’s tax system is worth learning from, if not emulating. It asks people to calculate their wealth and find out tax thereon at the rate of 3%. It also asks them to prepare their income statement and calculate income tax thereon. Greater of the two is what is payable as income tax. What the tax authorities in India must do is to keep both the income and wealth tax returns side by side and then make assessment. Inconsistencies would stand out then loud and clear. To wit, if one’s wealth is Rs 400 crore but income declared is just Rs 1 crore, the tax officer must become alert though not jump to hasty conclusions. For this to happen, the wealth disclosed must be comprehensive and not select few.