Budget 2019: Not The Right Time To Introduce Taxes On Super-Rich, Say Analysts

Amarpal Chadha: If tax like this comes, I’m sure it will have a leeway for limited number of households. Globally, while the wealth tax is going out, we still see multiple countries having inheritance tax. So, it’s not that something only India will do but it is all across.

If you look at how it will get implicated in our own country, we need to look at our status while we draft this law. I’m assuming if in this scenario the law comes then it will give leeway for household assets and try to capture people who are really high net worth. If you need to collect taxes, you need to grow the base. We have got large number of tax filers but still our tax collection is very small. That’s the focus area by getting into high net worth. Unless we target right audience, I feel inheritance tax would not get that kind of collection unless it is levied with lot of thought into it.

Girish Vanvari: Absolutely and that’s a possible solution. Today we have three slab rates going up to Rs 10 crore and more for third slab. If there was case that something more than Rs 10 crore should be taxed at 40-45 percent which is the phenomena across the world and the tax rates are higher across the world like 40+ for super-rich category.

So, is there a case to have a fourth threshold beside the three which we have or fourth slab or income above a particular threshold—all those things are permutations and combinations which one could look at. That’s a better option than taxing wealth, which is according to me, capital formation for the country which just started to happen.

Vivek Gupta: Should we have additional slab for super-rich beyond Rs 5-10 crores in personal tax situation? It’s debatable. In India, the number of people, including super-rich, from net worth perspective to declare annual incomes of more that Rs 10 crore would be very little. While I don’t have absolute data to suggest what kind of taxes could that mop up, I don’t know whether it could be material revenue generating number. From equity perspective, perhaps it sounds good. But on revenue perspective, an additional slab does not achieve much.

Perhaps slabs improvement at lowest end can be done. One wants to see, given where the real estate is, something can be done in respect of housing. From personal tax standpoint, interest deductions can go up and there can be some additional benefit provided. That will super charge real estate industry, which is going through its own stress, particularly through its stress in financial and NBFC sector. That might start some degree of capital flow happening there. Real estate is a job generating sector. Job generation will be core part of this budget. Beyond that, I don’t think they will tinker much on Rs 5-10 lakh. Let’s see what happens.

I think they should resist the temptation of increasing the surcharge which is already at 15 percent for amounts above Rs 1 crore. I think they will resist it. this budget will focus far more on capital formation and on non-tax measures to increase revenue from tax standpoint. If no taxes are increased, that will be broad expectation. Some sectors like housing given some degree of incentivisation in terms of tax provisions.

Girish Vanvari: When we look at land and real estate, there are three angles to it. The first is land reform which are much awaited that digitisation and centralisation of land records and tracing people who own the asset.

Second part is state-oriented which is stamp duty rate. Third part is, should there be tax on ownership which is wealth tax on land and properties. One first part of it, land reforms are overdue. They should look at trend of government with the Benami Law where there is substantial beneficial ownership. Land reform will get an impetus. It can happen outside the budget and doesn’t need to be in budget. It may be just be an announcement.Stamp duties are state subject and so I won’t touch upon it. Each state has its own rate and it has been big source of revenue for most states.

Third part is, on wealth tax and ownership of land or ownership over a particular size of land. You can’t take land in isolation. Taxation and ownership of wealth is a bigger change in taxation policy which should not be taken knee jerk only for land. As the time is right, new tax will come in which can be thrown and debated in future.

Amarpal Chadha: Land reforms have been on for some time. There’s a lot more to do. From Indian culture perspective, we put lot of emphasis on land as a security. Having assurance of land ownership records, the whole journey is to take land records in place, not only from tax perspective but also from security perspective.

This is a journey. Benami, black money, all these discussions play big time in the real estate discussions. We have come some distance from that point. There is still lot to do on land reform. Taxing vacant land or taxing agricultural land, all of these are under active discussions. It impacts each and every individual.

Amarpal Chadha: Yes. It’s good to have direction. We need to look at fact of re-emphasis on budget and strategy for the country. We’re looking at long-term sustainability employment generation for five years. It will be more capital. I expect more journey kind of statements rather than immediate actions.

Vivek Gupta: There are 2-3 key messages from our survey. People expect continued moderation of corporate tax rates in line with that announced by then Finance Minister Arun Jaitley 4-5 years ago. That’s clear expectation coming from corporate sector and from people who was surveyed.

There is expectation that either in this budget or with direct tax code coming in some of the irritants to important transactions for the economy-like transaction occurring under Insolvency and Bankruptcy Code or raising of money by startups, some of those irritants will be smoothed out and cleaned up. There is very clear thread where corporate sector is clearly saying that we expect that clean up to happen. We believe this government is vested with that kind of moral authority and this government will take it forward meaningfully.

The preponderant view on this debate is similar that it is the time to focus on capital investment. I don’t think there fundamental disconnect with fact that ultimately tax inheritance is by social equity perspective is perhaps justifiable. Equally, there is strong voice to say we don’t want flight of human as well as entrepreneurial capital. We don’t want flight of real capital. Therefore, now is not the time to tax capital but unleash more capital formation in the economy. These three points stand out from our survey as our key takeaways from what corporate India feels.

Girish Vanvari: Gift tax and inheritance tax go hand-in-hand. If you tinker with gift tax, then you somehow need to (modify) inheritance tax. I don’t think gift tax should be taken in.

There is lot of hope that growth will be bolstered. There will be government spend and corporates will be encouraged to create jobs. The anxiety is what will happen to fiscal deficit. Will they go for higher fiscal deficit and spur demand? And the anxiety of taxation on all super-rich arises. This is the way I will look at it.

Amarpal Chadha: People expect a balanced view of the tax system. If you’re looking at personal tax, I will put entire thing in one bucket of social security system—wealth tax, inheritance tax and see how it impacts life cycle of an individual and how he bequeaths his assets to next generation. It needs to be looked in sync.