“Please pause, if need be, to let that sink in” is what Bharti et al., write after they state that the top 0.001% of the Indian Population i.e., less than 10,000 persons own wealth 3 times that of the wealth held by the entire bottom 50% i.e., 46 Crore individuals.[1] This statistic indicates the lack of policy in India that has allowed for the staggering inequality to persist and rise.
In a recent paper by Nitin Kumar Bharti, Lucas Chancel, Anmol Somnchi and Thoms Piketty-a new tax justice proposal has been forwarded to tackle the inequality crisis in India. In a previous study by these four, it was revealed that economic disparities in India have reached historical highs.[2] The proposal involves the introduction of both a Wealth Tax and an Inheritance Tax, which are currently absent in the country. The authors argue that these taxes would not only generate substantial revenues for the government, but also reduce the extreme inequality and social exclusion that plague the Indian society. In this article, we will examine the main features and implications of the proposal, and the challenges and opportunities for its implementation.
Wealth Tax
The proposed wealth tax is an annual 2% tax on net wealth exceeding Rs 10 crore. Net wealth is defined as the total value of all assets (including financial, real estate, business, and personal assets) minus the total value of all liabilities (including mortgages, loans, and debts). The authors estimate that this tax would affect only 0.04% of the adult population, who collectively own about 39% of the total wealth in India. The rationale behind targeting the ultra-wealthy is that they have benefited disproportionately from the economic growth and liberalisation in the past three decades, while paying very low effective tax rates. The authors also argue that the wealth tax would help to curb the excessive concentration of wealth and power at the top, which undermines the functioning of democracy and social justice.
Inheritance Tax
The proposed inheritance tax is a 33% tax on estates exceeding Rs 10 crore in valuation. The tax would be levied on the beneficiaries of the estate, not on the deceased. The authors estimate that this tax would affect only 0.04of the adult population. The rationale behind introducing the inheritance tax is that it would reduce the intergenerational transmission of wealth and privilege, which perpetuates the caste and class hierarchies in the Indian society.
There are graded proposals for tax justice packages-Baseline, Moderate and Ambitious. The following is the way they propose how different percentages levied on wealth-as wealth tax and inheritance tax, and how it will result in how much percentage of GDP.
| Baseline | Moderate | Ambitious | |
| Wealth Tax | 2% on net wealth>10 Crores | 2% on net worth>10 Crores
4% on net wealth>100 Crore | 3% on net wealth>10 Crore
5% on net Wealth>100 Crores |
| Inheritance Tax | 33% on Estates > 10 Crores | 33% on Estates > 10 Crores
45% on estates>100 Crore | 45 % on Estates > 10 Crores
55% on estates>100 Crore |
| Adult Affected | Top 0.04% | Top 0.04% | Top 0.04% |
| Annual Tax Revenues as % of GDP (2022-23) | |||
| Wealth Tax | 2.45 | 4.23 | 5.46 |
| Inheritance Tax | 0.28 | 0.36 | 0.62 |
| Total Package | 2.73 | 4.59 | 6.08 |
Source: Nitin Kumar Bharti et al., 2024, Towards Tax Justice and Wealth Redistribution in India, The India Forum.
Revenue Generation
The authors estimate that in a baseline scenario, the wealth tax and the inheritance tax would generate a massive 2.73% of Gross Domestic Product (GDP) in revenues. The authors claim that this would raise phenomenally large tax revenues while leaving 99.96% of the adults unaffected by the tax. They also suggest that the revenue estimates are conservative, as they do not account for the potential behavioural responses of the taxpayers, such as increased compliance, voluntary disclosure, and asset valuation, along with those who might have assets in foreign nations. As the governments show initiative to tax the same and very tiny amount of population more, they will have huge increase in revenues to fill the gaps that have been persistent in terms of investment in important sectors like education and health.
Redistributive Policies
The authors emphasize that the taxation proposal should be accompanied by explicit redistributive policies to assist the poor, lower castes, and middle classes, who have been largely left behind by the economic growth and liberalization. They propose that the revenues from the taxes should be used to not just finance Direct Benefit Transfers but also spending on other social sector needs. They also propose that the revenues should be used to increase the public spending on education, health, and social protection, which are essential for human development and social mobility. For example, the baseline scenario would allow nearly doubling the current public spending on education, which has stagnated at 2.9% of GDP over the past 15 years. The authors argue that these policies would not only reduce poverty and inequality, but also ensures that the benefits of globalisation.
The proposal also notes that these two branches of tax will mitigate the inequalities that have been exacerbated by the inherent class inequalities in the society, thus any policy aiming to reduce income inequalities will have a positive impact and by extension “a small role in weakening the rigid link between social and economic inequalities in India.”
Conclusion
Article 38(2) of the Indian Constitution states that the state shall strive to minimise the inequalities in income, and endeavour to eliminate inequalities in status, facilities, and opportunities, not only amongst individuals but also amongst groups of people residing in different areas or engaged in different vocations.
Article 39(c) of the Indian Constitution states that the State shall in particular direct its policy towards securing that the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment.
This is not to say that this proposal should be taken at its face value and implemented. Legitimate criticism of all economic proposal only strengthens the economic plan that the country will adopt. For example, former RBI governor and leading economist-Raghuram Rajan has criticised the proposal by stating that no country has collected inheritance tax enough to make a difference, and “despite the efforts to tax wealth, the actual collection remains minimal”- Business Today reported. While Raghuram Rajan’s criticism of Piketty’s proposals and wealth redistribution and taxing the ultra-rich is not new, it presents a more acceptable form of engagement with the idea of inheritance tax or wealth tax to tackle inequalities rather than branding the proposal as some sort of political blasphemy. Measures at reducing concentration of wealth or inequalities are not some radical measures that a new leftist cabal is pushing forward in the Indian Polity but are Directive Principles of State Policy enshrined in the Constitution. Therefore, a discussion with the aim of realising Constitutional Goals rather than panic ridden rhetoric over taxing the ultra-rich will do better for India’s progress.
(The author is a legal researcher with the organisation)
[1] Nitin Kumar Bharti, Chancel, L., Piketty, T. and Anmol Somanchi (2024). Towards Tax Justice and Wealth Redistribution in India. [online] The India Forum. Available at: https://www.theindiaforum.in/economy/towards-tax-justice-and-wealth-redistribution-india [Accessed 24 Jun. 2024].
[2] Bharti, N.K., Chancel, L., Piketty, T. and Somanchi, A., 2024. Income and Wealth Inequality in India, 1922-2023: The Rise of the Billionaire Raj.
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