Suddenly, and a month before Budget 2015, the ghost of estate tax seems to be raising its head again. The tax was abolished by the V.P. Singh government in the 1980s and was generally opposed to by people across income groups. Now, in a piece in the Indian Express, Pratap Bhanu Mehta makes a case for an estate tax in India.
The column in the Indian Express says:
Regulating inheritance was thought to be the central feature of a democracy: it would prevent the congealing of new undeserving aristocracies.
But is the Indian intelligentsia and super rich ready to accept such a tax? There are already murmurs of dissent. India Today Editorial Director Shekhar Gupta tweeted:
The estate tax — also dubbed inheritance tax or death duty — has been endorsed by a number of top economists, from Vijay Kelkar, to Deepak Nayyar. Successive Finance Ministers have talked about the need for introducing such a tax (The UPA's P. Chidambaram, most recently). Even the current NDA Minister of State for Finance Jayant Sinha, in a previous avatar, talked about the tax in an interview with Outlook.
"If you look at the Progressive Era that followed the Gilded Age in the US, they actually broke up all those great trusts and prevented the accumulation of wealth and power in the hands of a few. A very important structural reform—the estate tax—was also put in place. We need structural reforms like that in India. Anybody who has an estate of say, over Rs 25 crore, will pay an estate tax—so that it gets only the people who have accumulated very large amounts of assets. That's a way of making sure that the next generation has a level playing field. This is because the power of compounding is such that if you had a million rupees in 1900 in Mumbai, you would have become one of the great business dynasties of Mumbai that we see around us (today)."
The issue of estate tax, or taxing the super rich, has been raised in some Outlook stories in recent years.
The Outlook story said:
"At a broader level, isn't it time that India's super-rich contribute a fair share to tax revenues…? Two decades after liberalisation, this question is being asked with increasing frequency, within government, by economists, tax experts and social commentators. Many are convinced wealthy people and corporations need to be taxed more, plus several say they should also lose the big tax breaks."
Estate tax is particularly disliked in many countries though most of them have it in some form. In the US, it is 18-45 per cent, in the UK, 40 per cent, in France 5-40 per cent and in Italy, it is just 4-8 per cent.
The debate in India is alive and relevant because the country has anywhere between 300 million to 500 million poor people. On the other hand, India has over 1.27 lakh people with minimum investible assets of $1 million and at over 50 people who are worth at least $1 billion each.