The 1% bogey, again PDF Print E-mail
Wednesday, 18 January 2017 00:42
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Oxfam slams them, but only top 1% pay income tax


Though the Oxfam analysis of how the top 1% of Indians own 58% of the country’s wealth – at the global level, Oxfam says the wealth of eight persons equals that of the bottom 50% – suggests the wealthy are cornering all the benefits of growth and signals that finance minister Arun Jaitley must find new ways to tax them in the coming budget, this is a distortion of reality. After all, even though the rich have grown wealthier, incomes of the 99% have also grown rapidly over the years, which is why poverty levels have fallen as fast as they have – faster growth is what will make poverty fall even more, not wealth redistribution. There is, of course, the question of how reliable the data is since the wealth is essentially based on the stock-market value of the shares owned by the rich which, by its very nature, tends to be volatile and, if the shares are offloaded in large amounts, the overall values will fall.


What is more important is that, in the case of India, it is only this top 1% that pays all income taxes. A look the direct taxes data put out by the government for assessment year 2014-15 makes this clear. A total of Rs 191,208 crore of tax was paid on personal incomes by a total of 1.9 crore persons – that’s the top 1.5% of the population. Do a deeper dissection and you see that the top 0.1% of the population – 12.5 lakh people – paid Rs 134,143 crore of tax in 2014-15, or 70% of the total collected in that year through income taxation.


Certainly, there is a case for reducing the subsidies cornered by the rich – the Economic Survey estimates this at Rs 103,249 crore, but this is for the top 70% of the population, not the 1%. Also, keep in mind the tax paid by the top 1.5% of the population is 78% of the Rs 244,716 crore spent by the government on all manner of subsidies for the poor in assessment year 2014-15. Indeed, given how 50-60% of subsidies get stolen, there is a case for the finance minister streamlining these to ensure only the poor get them – the Uniform Basic Income being talked of is one way of doing so. Can the rich pay more taxes? Juxtapose the tax data with a theoretical income distribution and you find that, while tax compliance ratios are in the 20-25% range for most income groups, they fall to 10% for those in the Rs 10-15 lakh income bracket – that suggests tax rationalization can improve collections. Also, since those who get their incomes from dividend end up paying just the dividend distribution tax (DDT) of 10% while they may be in the 30%+surcharge bracket, the finance minister may want to go back to the old withholding tax scheme in place till 1997 – but keep in mind DDT was brought in because it is easier to collect. The securities transaction tax (STT) is another such tax – while the prime minister spoke of how those investing in markets needed to contribute more taxes, tax collections through STT – Rs 7,388 crore this year – are relatively easier. Whether it makes sense to tax savings – that is what the wealth amounts to since, when the shares/property change hands or earn incomes, they are taxed even today – also needs to be kept in mind in a country where the attempt has to be to stimulate both investments and savings. 


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