View: Government should reinstate wealth tax in Budget 2017

9:12 AM
Wealth Tax, which was in force since 1957, was abolished in the 2015 Budget. I think this was a big mistake and, therefore, the government should reinstate the wealth tax at the earliest, preferably, in the 2017 Budget itself.

"Ease of tax administration" was the main reason cited by the FM Arun Jaitley for the abolition. And to compensate the tax loss due to this, he has imposed an additional surcharge on high income earning assesses. This is totally against the concept of natural justice and amounts to taxing the same person again and again.

Some argue "why tax assets bought with post-tax income"? This is not a correct argument because we are now paying tax on all gains generated from assets invested out of our post-tax income.

For example, assume that we are investing in a bank's recurring deposit (RD) or fixed deposit (FD) from the post-tax salary income. The interest on RD or FD is taxable even though we already paid tax on the salary income.

More importantly, wealth tax was based on sound economic logic of "taxing unproductive assets". Why only unproductive assets? Because the income generated from productive assets are already taxed. In the above example, there will not be any wealth tax on the money deposited in the bank, because it is used for productive purposes.

Wealth tax would have been applicable, on the other hand, if someone decided to hoard currency notes at home (i.e. instead of depositing it in bank). And any cash held above Rs 50,000 would have been counted for computation of wealth tax.

Similarly, there will not be any wealth tax on residential or commercial property that is rented out, because it is meeting a basic economic need. Real estate properties that were not rented out, however, would have been counted for the computation of wealth tax. Real estate investors booking 10-15 flats in several buildings and keeping them under lock for years is a gross waste of national resources and, therefore, needs to be discouraged.

It is estimated that around 10% of the houses in Mumbai, which is reeling under severe housing shortage, are estimated to be locked up like this.

Gold, both in bullion and ornament form, is another unproductive asset that Indians hoard in large quantities and, therefore, was part of the wealth tax earlier.

Since gold is a major item in our import list and drains out more than Rs 2 lakh crore of foreign exchange every year, there is no need to treat this hoard with kid gloves. In addition to collecting tax, wealth tax also used to generate good data that was beneficial in preventing income tax evasions.

For example, it would have been difficult for someone to declare a wealth of a few crores and at the same time, not show any income. No, I am not asking to make a separate tax filing and collection department for this. This can be managed as part of the income return itself.

Some wealth tax details are now getting captured under income tax return. But as per the current structure, only persons with income above Rs 50 lakh are supposed to file "assets and liabilities".

That means the details of hoarders of unproductive assets, whose annual income is below this limit, is not getting captured now.

Since determining the cost of inherited or gifted assets, assets purchased long back, etc., will be difficult, it is better to keep physical threshold for these unproductive assets for reporting.

Source: Economic TImes

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