As the argument in favour of a tax on the rich gains currency, the finance ministry is reportedly looking at the possibility of a higher tax on the ‘super rich’, with the possibility of a surcharge on those with an annual income of over Rs 1 crore among the options on the table.
An official source said that the proposal is likely to form a part of the Budget 2013-14 and the ministry is analysing the feasibility of the option. Currently, the taxpayers earning above Rs 10 lakh per annum have to pay tax at the rate of 30 per cent, the highest rate in the three-tier tax slab. The taxpayers have to pay an education cess of 3 per cent on the tax paid. Currently, income is taxed at three rates — 10 per cent, 20 per cent and 30 per cent — fixed in 1997. If the proposal is introduced, those earning above Rs 1 crore will have to pay tax along with education cess and the surcharge levied. A surcharge is essentially a tax on a tax.
On Thursday, in an interview to a TV channel, finance minister P Chidambaram, who spoke about a stable tax regime during his meetings with foreign investors, maintained that the argument for taxing the “very rich” “a little more” should be considered. “I believe in stable tax rates.”
“However, I must concede that there is an argument, underline the word argument, that when the economy requires, when the government requires more resources the very rich should willingly pay a little more. That is not to say that tax rate should not be stable. I think we should have stability in tax rates but we should consider the argument whether the very rich should be asked to pay a little more on some occasions,” he was quoted in the interview.
Currently, as per the finance ministry data, of the 3.24 crore taxpayers, over four lakh earn above Rs 20 lakh and contribute more than 60 per cent to the total tax collection. On the other hand, those earning below Rs 5 lakh comprise 89 per cent of the taxpayers and contribute only 10 per cent to total tax collection. On Wednesday, Wipro chairman Azim Premji had said the suggestion for taxing the super-rich was a “politically” correct thing to do, although he had expressed doubts if the government would actually implement it.
Sanjay Sanghvi, tax partner at Khaitan and Co, said that the idea of taxing the “super rich” stems from the fact that the government is faced with a huge fiscal deficit and is looking at new sources of revenue. “Government is thinking of addressing fiscal deficit and the thought process is that it may not matter to those who are in high income bracket, if they pay a little more tax.” He added that the move is not likely to have any negative ramifications in form of enhanced tax evasion.
The fiscal position of the economy has been deteriorating with the government revising the fiscal deficit target for the current year to 5.3 per cent of GDP as against 5.1 per cent of GDP targeted in the Budget 2012-13.