According to an Oxfam report, the income of 84 per cent of households in the country declined in 2021, but at the same time, the number of Indian billionaires grew from 102 to 142.
Nobel laureate Abhijit V Banerjee said, “Given the amount of inequality now, wealth tax is completely sensible and more redistribution is required.”
The Finance Minister is likely to reintroduce the erstwhile Inheritance Tax or Wealth Tax or both this Budget. Before that, let’s understand what these taxes are:
Inheritance Tax
Inheritance Tax is levied on the value of assets passed on to legal heirs through inheritance. After independence, the Central Government introduced its first-ever inheritance or estate duty under the Estate Duty Act, 1953, and continued till 1986. Like Income Tax, Inheritance Tax was levied on a slab basis ranging from 7.5 per cent to 85 per cent of the principal value of the assets or estates whose value in those times exceeded Rs 20 lakh.
Benefits of inheritance tax
1) To mobilise funds for free Covid vaccinations, advanced healthcare facilities and other applications in public infrastructure; 2) To set off the revenue loss due to the abolition of the wealth tax; and 3) Most importantly, this will bring an economic equilibrium, to some extent, and reduce wealth concentration.
Oxfam’s ‘Inequality Kills’ Report that was published in January 2022, said that in 2021 the collective wealth of India’s 100 richest people stood at a record high of Rs 57.3 lakh crore compared to the bottom 50 per cent of the population in national wealth at 6 per cent.
With this, India now has the third-highest number of billionaires in the world, after China and the US, and more billionaires than France, Sweden and Switzerland combined.
In November 2017, the Central Government has constituted a Task Force to review and draft a new Direct Tax Law in consonance with the economic needs of the country.
On August 18, 2019, under the head the Task Force Akhilesh Ranjan, it submitted its report to the Finance Minister. However, the Report has not yet been made public.
Inheritance Tax – In other Countries
Few developed countries like the UK and the US have an inheritance tax system. The US has three types of taxes on estates or assets being passed on to the next generation, they are Gift Tax, Estate Tax, and Inheritance Tax. The rate of Estate Tax stands at 40 per cent.
Whereas the UK has a unified regime of Inheritances Tax System with the standard tax rate at 40 per cent, which is charged on the estate with a specified threshold, currently £325,000.
If the estate is given to the children or grandchildren, the said threshold will be £4,25,000. However, like India, many other countries such as China, Singapore, Hong Kong, Australia and the Gulf countries have repealed their inheritance taxes over a period of time.
Wealth Tax
Wealth tax was being levied on individuals, Hindu Undivided Families (HUF) and companies in India since independence by the Central Government under the erstwhile Wealth Tax Act, 1957 on certain benefits derived from ownership. Arun Jaitley, then Finance Minister while presenting the Union Budget for 2015-16, abolished the tax quoting “low yield” and administrative issues.
He replaced it with an additional surcharge of 2 per cent on those with a taxable income of over Rs 1 crore.
Further, in 2019, Finance Minister Nirmala Sitharaman, while presenting her maiden Budget for 2019-20, increased the surcharge on those earning Rs 2.5 crores to 3 per cent and those earning above Rs. 5 crores to 7 per cent.
Taxability – Under which head?
The Finance Minister is likely to bring an exclusive Chapter to the Finance Bill / Act 2022 titled ‘Equalisation Levy’ or amend the Head ‘Capital Gains’ and to levy Inheritance Tax between 25 per cent to 40 per cent.
Wealth Tax – In other Countries
Prior to the 2020 United States presidential elections, Presidential candidates Bernie Sanders and Elizabeth Warren proposed to levy wealth tax at varied rates between 1 to 8 per cent.
More than a dozen European countries used to have wealth taxes earlier. However, Austria, Denmark, Finland, France, Germany, Iceland, Ireland, Italy, the Netherlands, Luxembourg, and Sweden repealed their wealth taxes later.
Currently, Norway, Spain, and Switzerland continue to levy the tax.
Conclusion
In the interest of revenue and other benefits they promise, the Finance Minister should consider reintroducing the Inheritance Tax and Wealth Tax, at least for a limited period of five to ten financial years starting from April 2022, if not perpetually. We will have to wait till February 1, 2022, to see what happens.
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