World Inequality Lab report  : 2024 : A tax package

India’s top 1 per cent income and wealth shares have reached historical highs and are among the very highest in the world.

What report suggests?

It suggests raising phenomenally large tax revenues while leaving 99.96 per cent of the adults unaffected by the tax.

• Outlining a baseline scenario, the report said, a 2 per cent annual tax on net wealth exceeding Rs 10 crore and a 33 per cent inheritance tax on estates exceeding Rs 10 crore in valuation would generate a 2.73 per cent of Gross Domestic Product (GDP) in revenues.
• a tax justice package comprising an annual wealth tax and an inheritance tax. Much has been written about the possible pros and cons of such taxes and the debate must continue.
• Given the extreme concentration of wealth at the very top, coupled with deeply rooted caste inequities, we believe such policies would be an important step towards a more equitable growth path for India.
• An inheritance tax would directly tackle the unfair advantage that unearned dynastic wealth renders to individuals solely based on the accident of birth, which is only exacerbated by the caste system, it said.
• However, the report noted that since the inheritance tax comes into force when wealth is bequeathed (i.e. upon the death of the dynast), hence, it delivers relatively small tax revenues on an annual basis.
• On the other hand, a small wealth tax would deliver significant annual revenues (given the larger base) while also dampening accumulation at the very top, it said.
• The tax package needs to be accompanied by redistributive policies to support the poor, lower castes, and middle classes. The report cited an example of how the baseline scenario would allow doubling the current public spending on education, which has stagnated at 2.9 per cent of GDP over the past 15 years.
• The paper had pointed out there is evidence to suggest the Indian tax system might be “regressive when viewed from the lens of net wealth”.

• A restructuring of the tax code is needed, the paper had said, suggesting that a levy of a “super tax” of 2 per cent on the net wealth of 167 wealthiest families would yield 0.5 per cent of national income in revenues and create space for investments.