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Economy Survey sharpens debate over 'super-rich tax'
-The Times of India

Amid the debate on a super-rich tax, the pre-Budget Economic Survey on Wednesday argued against raising tax rates significantly; instead, it said that the focus should be on people who have a taxable income but don't pay any income tax.

"It is much better to achieve a higher tax-GDP ratio by broadening the base which is taxed rather than increasing marginal tax rates significantly — higher and higher tax rates impinge more and more on incentives to undertake taxable activity, while encouraging tax evasion," the Survey said.

Economist C Rangarajan and Wipro chairman Azim Premji are among a few prominent individuals who have suggested that the government draw upon the US experience to levy higher tax on the wealthy. Several other countries, including Japan and France, too have opted for higher rates for the super rich.

There is an equally strong voice, which includes former finance minister Yashwant Sinha, that has spoken out against the proposal, arguing that the move will only affect existing taxpayers and result in further tax evasion. Industry chambers have said that higher rates will impact investor sentiment.

Last month, finance minister P Chidambaram told overseas investors that he would not increase tax rates. But days later, he told a TV channel that 'there is an argument' that when the economy requires, government requires more resources, the very rich willingly should pay a little more .

During the years of 8-9% growth, the government failed to initiate expenditure reforms resulting in a high subsidy bill. With the downturn, it faces a widening fiscal deficit as tax growth has moderated, prompting it to look at ways to collect more revenue.

The Survey, which is the finance ministry's pre-budget report card, seems to have taken the line that a steep increase in tax rate for the super rich may not be a good idea. But chief economic advisor Raghuram Rajan, who is the author of the document, refused to answer any queries on the issue.

The Survey suggested that increasing the tax-GDP ratio to above 11%, a level seen in 2007-08, was in the interest of sustaining the fiscal consolidation process in the long run. The deterioration, to 9.9% in 2010-11, has mainly been on account of the economic slowdown since the 2008 financial crisis.

The document pointed out that there was marked slowdown in growth in collection of indirect taxes such as excise and customs. From tax data trends available till December, growth in corporation tax, customs and central excise have been lower than estimated.