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Pissing In The Wind
It is tricky business because the piss can blow back on you. But it’s time for the finance minister to do just that. By taxing the super-rich
COMMENTS PRINT

Veteran economist Surjit Bhalla, writing in The Indian Express, has launched a vigorous campaign against any move to tax the super-rich. The rich, he argues, are already doing more than enough and taxing the rich would be akin to pissing in the wind.

But Mr Bhalla, it would seem, has missed the wood for the forest. Because the rich in India are neither paying any dividend tax nor any inheritance tax, nor any long-term capital gains tax for that matter. And judging by the dismal wealth tax collection, a laughable one thousand crore or so--which is not even one per cent of the estimated net worth of India’s richest Indian, Mr Mukesh Ambani--they are not paying the wealth tax either. In short, they are having a ball.

Because the super-rich do not depend on their salary and pay a piffling amount as income tax.

So, contrary to what Mr Bhalla is advocating, taxing the rich should have nothing to do with income tax at all.

An application under the Right to Information Act, filed by someone in Mumbai, sought to know how much income tax was paid by the Reliance Industries chairman , Mukesh Ambani. Not surprisingly, the Income Tax Department sent the request to Mr Ambani , since it involved ‘third party information’ and personal information to find out if he had any objection if the information was released by the department. And sure enough, Mr Ambani’s office wrote back to block the information.

Mr Ambani, like all other taxpayers, is perfectly within his rights to guard the amount he pays as income tax. But one does wonder why he has no objection to being hailed, year after year, as the richest Indian and his net worth estimated in US Dollars. Forbes does it every year and informs us that Mr Ambani’s net worth last year was over $ US two billion or approximately Rupees one lakh crore.

Nor does Mr Ambani seem to have a problem with a financial newspaper disclosing that he received Rs 2,700 crore by way of dividend in 2011-12 from Reliance Industries for his promoter’s shares. Since so much about his wealth is already in the public domain, one would have thought that he would not mind disclosing the income tax that he paid. Indeed, he did not mind letting the media know that he had voluntarily taken a 66 per cent cut in his salary. Media reports informed that while the Reliance Board had approved a salary of Rs 33 crore per annum for the chairman, Mr Ambani voluntarily opted to scale it down to Rs 15 crore.

What is, however, public knowledge despite Mr Ambani’s possible discomfort is that neither he nor his brother, Anil Ambani, figured among the top 200 income taxpayers of the country in the year 2007-08. Their mother, Kokilaben, however paid Rs 4.46 crore and was placed 195th in the list, according to a report in The Times of India ( 03/08/2008). Clearly the two brothers paid less income tax than their mother in that particular year.

The same report mentioned, however, that Mayawati, who went on to become the chief minister of Uttar Pradesh, had paid an income tax of Rs 26.26 crore, Shah Rukh Khan Rs 34.2 crore and even Sachin Tendulkar, cricketer, Naresh Trehan, the cardiologist and Mukul Rohatgi, the lawyer, paid income tax that ranged from Rs 4.85 crore  (Rohatgi) to Sachin Tendulkar, who paid an advance tax of Rs 8.8 crore.

Another TOI report in 2010 provides the list of the top 10 income tax payers of the country till December, 2009, the last quarter. Sure enough, the Ambani brothers were conspicuous by their absence. Indeed, none of the ‘richest Indians’ made the list, which had two mine-owners from Odisha, K.S. Ahluwalia and Indrani Patnaik; another mine owner from Goa, Radha Timblo; and an industrialist from Mumbai, Mahesh Garodia.

The highest advance income tax till the last quarter that year, the report said, was Rs. 97 crore and was paid by Analjit Singh. Ahluwalia, Patnaik, Garodia and Timblo paid advance tax of Rs 46 crore, Rs 75 crore, Rs 39 crore and Rs 30 crore till that quarter.

There is of course a very good reason why the movers and shakers of Indian industry do not figure among the top income taxpayers. They derive their income from their investment, by way of dividend, for which they are not required to pay any tax at all. So, although a report in The Economic Times ( 16/09/2011) claimed that Azim Premji, Mukesh Ambani and Rahul Bajaj received dividend worth Rs 1,345 crore, Rs 1,241 crore and Rs 917 crore respectively, they paid no tax on this income. And assuming that Mukesh Ambani’s annual salary of Rs 15 crore is the highest among them all (Mr Premji apparently takes home a salary which is less than a crore and is said to be even less than his Chief Finance Officer), then they would probably have paid an income tax around Rs five crore each. We do know that Mr Ratan Tata, for example, paid an income tax of Rs 4.41 crore last year.

The dividend tax was withdrawn in 1997 by the then finance minister. It was replaced by a Dividend Distribution Tax to be paid by the companies. The rate of the Dividend Distribution Tax currently is 16 per cent, much lower than the highest income tax slab of 30 per cent. In other words, even those who receive several hundred or thousand crores by way of dividend, are indirectly taxed at the same rate as a small investor, who receives dividend worth ten or twenty thousand Rupees. Clearly, it is not fair. Economists, notably Surjit Bhalla, have questioned any attempt to further tax the super-rich as a futile, populist move on the ground that a higher income tax slab for the super-rich would yield very little additional revenue. They are right when they speak of a surcharge or a higher slab for income above Rupees one crore, for example. But the discourse on the tax paid by the super-rich cannot be allowed to be hijacked by such specious arguments. Because the super-rich are under-taxed in India because of the government’s reluctance to re-introduce the dividend tax, the inheritance tax and the long-term capital gains tax and its failure to collect adequate wealth tax.

Taxing the salary income of the super-rich, as illustrated earlier, is unlikely to be very meaningful. But even a 20 per cent dividend tax would have yielded over Rs 600 crore from just three of the richest Indians in 2011, namely Premji, Mukesh Ambani and Rahul Bajaj. And it would still have left a post-tax dividend income of approximately Rs 1,000 crore each for the first two and over Rs 700 crore for Mr Bajaj, not insubstantial amounts by any stretch of imagination. True, they are helping build the nation with their enterprise and investment, creating wealth and generating employment. But they do that with national resources like land, water, minerals and forests and with considerable hand-holding by the government by way of exemptions. It cannot be an argument against the re-introduction of the dividend tax, something that the finance minister is unlikely to do. He is far more likely to tax the super-rich at a higher rate, which would establish the government’s populist, socialist or inclusive credentials and will also keep the super-rich happy. But if opening up the economy has steadily added to the number of millionaires and billionaires in the country, they owe it to the people to contribute a lot more to the tax pool than they have been doing so far.

COMMENTS PRINT
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