How to address growing inequality without coming out as a wealthy-hater

How to address growing inequality without coming out as a wealthy-hater

Raising taxes on the wealthy will discourage saving in a nation such as India. Furthermore, the highest income tax rate of 40%, which includes the cess and surcharge, is already too high. Therefore, how can the government prevent income and wealth disparity without taking a "business and anti-rich" stance? 

Reduced tax rates, a larger revenue base, and the closure of tax loopholes are the answers for a nation like India.

Rich and affluent families have a lower marginal propensity to spend than do poorer households, therefore rising income and wealth inequality restrain the expansion of private consumption, which in turn restrains the growth of private capital expenditure and GDP. Political instability and societal unrest may result from it if left untreated.

According to The World Inequality Lab, the richest 1% of Indians own a startling 40% of the nation's wealth and get close to 23% of the nation's yearly national income. That is concerning. Thus, many suggest substantial increases in effective taxes on rich Indians in order to address this problem, such as inheritance taxes or higher taxes on capital gains and real estate investments.

In a nation where a sizable portion of the populace believes that the wealthy have risen to their position by unjust methods, such as tax evasion and/or deliberate defaults on loans obtained from state-owned banks, trying to tax the wealthy more is also a wise political move. People like Choksis, Mallyas, and Modis contribute to the belief that the wealthy and affluent are dishonest people. It makes sense that Rahul Gandhi, the head of the Congress Party, has said that his organization will carry out a national study for income redistribution if elected to office.

Whatever the benefits of these suggested fixes, taxing the wealthy more will discourage saving in a nation like India where the majority of people put money down for their future. Furthermore, a lot of people are unaware that India already has an excessively high top income tax rate of 40%, which includes a cess and surcharge. Raising it further would thus penalize those who honestly pay their taxes and encourage others—the rich who do not get a salary, in particular—to conceal their income and avoid paying taxes. Reducing tax rates, expanding the revenue base, and closing tax loopholes are the answers for a nation like India.

Alternative Remedies for Increasing Taxes

Raising taxes may force the ultra-rich to relocate to tax havens given the fierce rivalry throughout the world to draw in the wealthiest. By 2023, it's predicted that up to 6,500 millionaires would have departed India. At a time when net domestic savings are at a five-decade low and foreign direct investment inflows are slowing down, this flight will reduce India's savings rate, which would limit investment and GDP growth. This does not imply that New Delhi should be tolerant to thieves and thugs. money obtained by unlawful or immoral methods must be distinguished from money gained legitimately, and only the latter should be discouraged.

Second, indirect taxes—which have a propensity to be regressive and promote economic inequality—have become more and more important to the Indian government. Therefore, a higher proportion of direct taxes to the nation's total tax income is required. Raising the highest income tax rate is not a recommended way to do it, however. Lowering the rates of direct taxes and expanding the tax base to include wealthy farmers, for example, under income taxation would be a wiser course of action. All earnings, including those from agriculture, should be subject to income tax without exception. Its exemption from taxes has made it a key tool in money laundering, which is the process of turning unreported funds or bribes into legal currency by passing them off as agricultural revenue. It seems sense that politicians, movie stars, and high-ranking bureaucrats all identify as farmers.

Third, taxing non-financial and financial revenues at varying rates, such as income from a paid position, contributes to the disparity of wealth and income. To promote retail involvement in financial markets and divert them from less profitable and speculative investments in land and gold, India will have to put up with it for the time being.

Four, as a large portion of bank deposits are held by small savers, including individuals and small enterprises, and since high and sticky inflation and high effective taxation erode much of the profits, indexation advantages should be extended to all debt investments, including bank deposits.

Last but not least, helping small businesses and first-time entrepreneurs honestly is the greatest method to combat income and wealth disparity. This will boost competitiveness in the market and discourage rent-seeking, which contributes to income disparity. Even with all of the talk about business facilitation, the reality is much more challenging. The simplicity of implementing business changes must be considered from the viewpoint of small company owners by New Delhi.

It's now simple to register a firm, but it's more difficult to shut down a non-viable one. It is hard to comprehend that moving an LLP or private limited company's registered address from one state to another is a nightmare, regardless of the company's size or sales turnover. This needs to alter.

All firms, including limited liability partnerships (LLPs), should be eligible to receive the same tax advantages that are presently exclusively accessible to corporations. That will aid in formalization as well without adding unduly to the cost of compliance. In addition, to reduce regulatory cholesterol, quarterly tax payments and yearly tax filings akin to income tax should be used in place of monthly GST payments and filings.

GST registration should be optional rather than required up to a Rs 1 crore yearly sales volume. When firms with GST registrations attempt to claim input tax credit, it might cause issues. It would be better to promote the usage of the "reverse charge mechanism" to solve this issue rather than imposing GST on smaller businesses.