Editor’s Blog
N. Mohan
Mobile : 93228 95820
Email : mohan@ bankingfrontiers.comJuly 2019 - Vol. 18 No. 3
Group Publisher : Babu Nair
Group Editor : Manoj Agrawal
Editor : N. Mohan
Editorial
Mehul Dani, Ravi Lalwani, V. Raghuraman
Research Editors
Prof Venugopal Iyengar, V. Babu,
Ratnakar Deole, W.A. Wijewardena,
Sanchit Gogia, K.C. Shashidhar,
Dr L.S. Subramanian, Ajay Kumar
Advisor-Alliances
Ateeq Siddique
Marketing
Kailash Purohit, Sandeep Nikale,
Jikkumon Philipose, Upesh Seth,
Reshma Mandal
Events & Operations
Gautam Magare, Shirish Joshi,
Stalin Saldhana, Pramod Jadhav,
Amit Gupta, Shweta Kadam,
Ashish Verma, Wilhelm Singh,
Natasha Vaz, Sneha Agrawal
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Taxing the rich at higher levels
T
he Union budget for 2019-
20 has proposed that
individuals earning more
than `50 million a year will be
required to pay a surcharge of
37.5% on their income tax. This
surcharge is over and above the
30% income tax such individuals
are paying at present and the
effective impact of the proposal
and the various existing taxes on
such individuals will be that they
will end up paying more than 42%
income tax. The finance minister justified the increase stating the measure is in lieu of
the increasing income levels.There are pros and cons. While the finance minister said the rich has to contribute more
to nation building, and the rich in countries like the US and China pay higher taxes than
those proposed (the government officials put the highest tax slabs at 45% in China
and South Africa, and 50.3% in the US), the question one needs to ask is how much
can the government expect from the proposal. India has just about 100,000 people
who fall in this bracket and the increased tax they would pay is insignificant. And the
proposal may become counter-productive too as such HNIs may decide to move to
less taxed environments as today one can operate beyond the national borders and
be effective at the same time. Dubai and Singapore are the immediate destinations
with low tax regimes. Others can find ingenious ways of setting up enterprises and
transferring their income to these enterprises, which will be required to pay just 25%.
Or, they can manipulate their income/wealth in ways to show a low current income
which attracts higher tax rates and more capital income (like long term capital gains or
dividends) where tax rates are lower. There are entrepreneurs who draw `1 salary and
reimbursements worth millions of rupees.One of the basic premises in levying taxes is that the government spends a major part
of this revenue in welfare measures. For example, in the so-called high-end tax regimes
like the US or the Scandinavian countries, there are universal health care schemes and
subsidized educational programs that benefit the citizens. Also, these governments
support the less privileged through social security measures. India is still to migrate
to such levels.
Imposing higher taxes on the wealthy may be good politics since it may not affect the
majority. But, if increasing revenue is the target, this is definitely not the way. However,
when the markets reacted strongly, this may not be the reason, but there are simple
enough facts that the government should be looking at in order to be practical.