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Even those with Rs 12 lakh annual income may find life more taxing

Source : BUSINESS_STANDARD
Last Updated: Tue, Jan 08, 2013 19:32 hrs
An employee counts Indian currency notes at a cash counter inside a bank in Kolkata

As ideas are being mooted on taxing people with high incomes at a higher rate, in line with the practice in the United States, the usual question that comes to mind is: Who will fall under this category of taxpayers? Many economists believe, in India's context, even those with about Rs 12 lakh annual taxable income would be part of the category of high income group.

For such a tax in India, Rs 12.77 lakh a year could be the threshold, says former chief statistician Pronab Sen.

As part of the fiscal cliff deal, the US recently increased tax rates for individuals with incomes above $400,000 a year and couples with those above $450,000 a year. In the US context, $400,000 or $450,000 means roughly 3.5 times its per-household gross domestic product.

So far as India is concerned, the size of economy stood at Rs 89.80 lakh crore in 2011-12, when there were 246 million households in the country. This means India's per-capital annual household income in the year was Rs 3.65 lakh. Taking 3.5 times as the standard to determine the category of individuals to be taxed at a higher rate, the figure would translate into Rs 12.77 lakh a year, said Sen, now the country head of International Growth Centre, a research institute.

Other economists Business Standard spoke to did not come on record but said they agreed with Sen's calculation.

Prime Minister's Economic Advisory Council Chairman C Rangarajan, who mooted the idea of higher tax rates for high-income people, however, said one needed to examine how a threshold could be calculated.

On Rs 12.77 lakh a year, Sen said: "It is not a huge amount, considering even a government joint secretary earns that much. We are not talking of super-rich in India's case," he said.

The idea of a higher rate for the wealthy has, however, found little favour with economists. Sen said taxing high-income people at a higher rate was very difficult in India, as most of them had access to the global economy. "They could distribute assets in a way that authorities find it very difficult to get at those."

Rangarajan said there were two ways to look at taxing high-income people. "One is to introduce a new slab for the super rich, like in the US; the other is to keep the same slab and impose a surcharge on that limit."

However, one needs to look at the income tax returns and see whether or not substantial tax would be collected, he said.

Rajiv Kumar, an independent economist who attended a pre-Budget meeting with Finance Minister P Chidambaram yesterday, said the idea of imposing surcharge was even less favourable as it would complicate the tax structure.

"We should go for one rate. An additional two per cent on 30 per cent would only complicate the matter."

He added not even one economist at the meeting was in favour of raising tax rates for the super rich, as that might scare investors away. "At this point, the economy needs investments and rise in taxes would disturb the investment environment," he said.

Surcharge used to be imposed at the rate of 10 per cent on an annual income of Rs 10 lakh a year in India. But it was done away with in Budget 2009-10. The previous year, surcharge had brought Rs 10,034 crore to the government kitty, constituting 8.18 per cent of income tax collection that year. There were 1.37 million people earning Rs 10 lakh to Rs 20 lakh a year, constituting 4.3 per cent of the total number of assessees.

In that year, there were 0.4 million taxpayers who earned over Rs 20 lakh a year, accounting for 1.3 per cent of the total number of assessees. They paid Rs 93,229 crore, contributing 63 per cent to the total income tax mop-up.


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