Budget spares Super Rich

Budget spares Super Rich

By M.D. Nalapat | 9 March, 2013
The money of the affluent comes from dividends and capital gains, which are not taxed.

Palaniappan Chidambaram believes officialdom in India to be 100% honest, which is why he has loaded the Income-Tax Department with powers that have made a mockery of the 1991-96 reforms allegedly midwifed by Manmohan Singh. In his latest budget, the Union Finance Minister has granted his men still more authority to take away the liberty and the property of those whom they choose for such treatment. "The taxman is watching," claimed the Finance Minister, even as the Income-Tax Department gladdened the hearts of newspaper proprietors across India by commissioning advertisements touting the superb services that the money collected from taxpayers was providing for them. Aaykar Bhavan is apparently located in a different country, for in India, the roads are awful, the piped water unsafe, and state schools and health facilities behind the times even for the 19th century.

If Chidambaram's earlier tax on withdrawals over Rs 10,000 was a joke passed off as serious policy, then clearly he has not lost his sense of humour, coming up with a 10% surcharge on annual income above Rs 1 cr, "to make super-rich pay a higher share" of the total tax pickings. It is a debatable point whether a yearly income of Rs 1 cr qualifies an individual to be labelled as "super rich", except perhaps in some corner of the Andaman Islands. What is more pertinent is that the Finance Minister has in fact spared the super rich entirely while levying this surcharge. The reason is that the bulk of the moneys got by the affluent come from dividends and capital gains, neither of which gets taxed. According to tax rules, just 12 months qualify as "long-term", thereby ensuring exemption from capital gains tax. Thus an individual holding shares for 12 months and a day can sell all of them at a huge profit, and in the process pay zero income-tax. The same exemption applies to dividend income. On paper, this concession is meant for the "retail" investor, but the reality is that the concession (of zero tax on dividend income) benefits almost entirely the actual super rich of the land.

Chidambaram may be forgiven for not knowing that the Super Rich get most of their takings via the dividend and capital gains route. After all, each day so many files reach his table that he scarcely has the time to think. And what of our politicians and their cohort of obliging officials? The bulk of them are "poor farmers", holding vast tracts of agricultural land on which again they pay zero tax, or hold their financial assets in hard cash, thereby once again avoiding income-tax. It is only the salary man, who will have to pick up the tab for Chidambaram's populist gesture, not the Super Rich. Indeed, if the Finance Minister was to really force those of sufficient means contribute to national development, all he has to do is to get every official and politician to contribute a year's bribe to the exchequer. The sum deposited ought to be more than enough to more than halve the fiscal deficit. The more powers that are given to such a venal force, the greater their pickings. Is it that the Finance Minister is unaware of this fact, or is it that he is too much a part of the system to deny himself the pleasure of adding to black money in the country by empowering those to whom the taking of a bribe is second nature?

And finally, what about those favourites of Manmohan Singh, the FIIs? These have been given a licence to speculate at will in India, boost commodity prices and distort trades, and thereafter take back billions of dollars each year in the form of their profits, cloaked under different heads. While in other countries, such entities pay billion-dollar fines for their misdemeanours, in India they are given unlimited access to both North and South Blocks as well as Mint Road. Were this loophole of zero tax on FII outflows to get plugged, it would have an immediate and beneficial impact on the Current Account Deficit. But for that, the Finance Minister will need to go after the real Fat Cats, and not play his usual jokes on public opinion.

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