“To hunt crocodiles, water was drained from a pond. While crocodiles were not found as they had moved up to land, the smaller fish died.” — from a school magazine
The Union Budget will be presented soon. The twin disruptions of demonetisation and GST have left the poor in India poorer and the rich, richer. This is no empty rhetoric of a roadside romantic. These are the findings of the World Inequality Report 2018 released recently. The the top 1% income earners received 6% of the total income in the early 1980s; it went up to 15% in 2000 and today stands at 22%. IMF research papers give country-wise figures of the share of the billionaires in the GDP of each country.
The worth of dollar billionaires is most skewed in Russia, the U.S. and India which are home to a substantial number of billionaires. The World Inequality Report points out that inequality actually declined in China in the past decade and growth was faster compared to India. China’s per capita income was five times that of India in 2016.
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Data from India’s Income Tax department showed that 59,830 individuals reported gross total income more than ₹1 crore. Over 30,500 individuals reported earning salary income of over ₹1 crore. Five individuals reported earning salary income between ₹100 crores and ₹500 crore. Thirty two persons showed gross total income over ₹100 crore. Only one individual showed the income over ₹500 crore.
French economist Thomas Pikkety, in his ‘Capital In The 21st Century’ analysed data from 20 countries over the past three centuries. In page 491 of his classic, he attributes the reason for growing inequality in India to the low tax to GDP ratio. Fiscal policies fail to reduce inequality levels because of low tax to GDP ratio.
Agricultural income is not taxed with 2,746 cases showing agricultural income of ₹1 crore and more in the last seven years.
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Tax on the super-rich is a flea bite. There should be a separate, higher rate for the super-rich instead of a surcharge.
The 10% tax on dividends above ₹10 lakh is a mirage; it should have been at least 25% with exemption for dividends up to ₹10,000.
Additional resource mobilisation is concentrated on indirect taxes with a slew of relief measures in direct taxes, benefiting only the rich.
The stock market boom calls for revisiting the present policy of exempting long term capital gains on shares held for 12 months and more. India’s market to GDP ratio stands at 104%.
Inheritance tax, abolished in 1987, should be reintroduced.
Think of the poor
Every time the question of taxing the super-rich is raised, the affluent lobby comes out with the criticism that growth will be affected adversely and there can be a flight of capital to lower tax jurisdictions. Think of the poorer sections. The International Food Policy Research Institute has come out with a Global Hunger Index. India is Ranked 100 among 119 countries behind North Korea, Bangladesh and Iraq this year. It was ranked 97 last year. The remedy lies in introducing Universal Basic Income as done in rural Kenya.
In contrast, there has been steady growth in the numbers belonging to the million-dollar salary club from 94 in 2013-14 to 100 in 2014-15 and 119 in 2015-16. It now stands at 120.
The total compensation its members earn has risen from ₹1,528 crore in 2015 to ₹1,979 crore in 2017. Average compensation is about ₹17 crore. Among 190 CEOs in the club, 61 are professional CEOs and 59 are promoters. Promoter CEOs gained from equity appreciation and commissions. The Ambanis, the Birlas and the Marans figure at the top of this club.
(T.C.A. Ramanujam is former chief commissioner, Income Tax, former member, ITAT, and an advocate. T.C.A. Sangeetha is an advocate.)