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Updated: January 24, 2013 13:19 IST

Chidambaram not averse to higher taxes for super rich

PTI
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Mr. Chidambaram said tax rates that were announced in 1997 (in the Budget he had presented then), have remained and have survived four governments and four finance ministers. File Photo
The Hindu
Mr. Chidambaram said tax rates that were announced in 1997 (in the Budget he had presented then), have remained and have survived four governments and four finance ministers. File Photo

Finance Minister P. Chidambaram, who has talked about a stable tax regime during his meetings with foreign investors in the last two days, has said 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, he told CNBC TV18.

However, he hastened to add, “But that is not a view I am expressing. That is simply an argument that I have heard and I am repeating.”

Mr. Chidambaram said tax rates that were announced in 1997 (in the Budget he had presented then), have remained and have survived four governments and four finance ministers.

On the Budget to be presented next month, he said the Budget is not drawn up keeping an election in mind. “The election is a good 14 months away from the Budget. The Budget will be a responsible budget”.

The Finance Minister said if on February 28 he could show that the government has kept fiscal deficit below 5.3 per cent and if Budget estimates show that the next year’s fiscal deficit will be below 4.8 per cent, then he can show a healthy growth in revenues over next year. “I think that is the time when rating agencies should consider moving us from. I mean improving the outlook and then improving the rating,” he said.

Several experts including chairman of Prime Minister’s Economic Advisory Council (PMEAC) C. Rangarajan have underlined the need for imposing higher rates of taxes on super rich.

Yesterday, Wipro Chairman Azim Premji had said the suggestion for taxing the super-rich was a “politically” correct thing to do, but expressed doubts whether the government will actually implement the proposal.

India taxes income at three rates - 10 per cent, 20 per cent and 30 per cent. These rates were fixed in 1997.

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If a pertinent question is asked “Are the super-rich paying enough
tax?” The answer will definitely be ‘Probably not’.
In reality, many economists believe governments can extract more money
from their wealthiest citizens without chasing them out of the country
or hobbling economic growth. Most clashes on high-end taxes begin with
the tricky question of justice. The starting point for this debate is
one of necessity. Public anger is also roused by the fact that some of
the super-rich pay an extremely low tax rate indeed. Few believe this
is practical or desirable. Instead the pain will have to be more
evenly spread throughout society. There is a compelling case for
demanding a bigger contribution from the super rich.
Research from the Organization for Economic Cooperation and
Development has established a hierarchy of which taxes are most and
least harmful for long-term economic growth. They determined that the
corporate income tax is the most harmful for long-term economic
growth, followed by high personal income taxes. Consumption taxes and
property taxes were found to be less harmful to economic growth
relative to taxes on capital and income.
If lawmakers decide that new revenues must be part of any long-term
effort to solve the budget crisis, they must choose the least harmful
way of raising new revenues or else they risk compounding the crisis
by slowing economic growth.
The number one recommendation for raising revenue is the simplest:
economic growth. This may seem obvious, but whether or not we have
sufficient new economic growth to generate more revenue is directly
dependent upon the rest of the economic policy decisions.
The value of mineral rights owned. Privatizing certain government-run
enterprises would also turn tax-subsidized operations into tax-
generating ones.
The least attractive options include raising individual income tax
rates, increasing the estate tax, and raising rates on capital gains
and dividends.
Government should examine ideas that would allow effective tax rates
to rise for the wealthy without technically raising the top tax rate
of 30 percent.
One possible change would tax the entire income earned by those
making more than a certain level —Rs 10,00,000 or so — at the top rate
of 30 percent rather than allowing them to pay lower rates before they
reach the target, as is the standard formula.
Another proposal that would have eliminated tax brackets lower than 30
percent for affluent families, taxing the first rupee of taxable
earnings at the highest tax bracket.
Any changes brought in should be specifically aimed at improving
country’s economic performance while raising greater tax revenues and
boosting business performance around the country. Businesses and
factories should not be allowed to claim depreciation on buildings
since the construction costs are going up every year and values
increasing.
Providing public services is a core function of governmental agencies.
With tax revenue impacted and increasing tax rates difficult, it is
essential that the fees for services accurately reflect the cost of
providing those services to the public by the government.
Account for the actual cost for fee-based services ensuring that
governmental agencies recover the costs for those services.
Manage revenue sources to ensure that fees owed are paid.
Recover all costs for damage and repair to public properties.
Recover all costs for emergency, safety, and protection services.
Recover the costs of inspections and especially repeated inspections
for recurring violations,
Recover all cost for permits and processing are some of the feasible
suggestions.

from:  Prof.P.Madhu Sudana Rao
Posted on: Jan 27, 2013 at 12:06 IST

Govt is already a big burden on the people of india. The higher taxes
will increase that burden. The govt should try to cut its spending
rather than increasing taxes. End all subsidies. Shrink the size and
scopr of the govt. Cut the taxes which will create jobs.

from:  Satish
Posted on: Jan 24, 2013 at 16:23 IST
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