Opinion Oxfam inequality report: Taxing the ‘obscenely’ wealthy may not be the right solution

In the Indian context, the report raises two important points — the lower corporate tax rate in lieu of incentives and the introduction of GST — which are seen by the report as costly experiments in tax policy in India. However, the validity of such claims needs to be examined. The corporate tax cuts brought the statutory tax rate down from 30 per cent to 25.17 per cent. The statement of revenue foregone pegs the “cost” of this measure at Rs 1.03 lakh crore. However, it is commonsensical that this is not the equivalent of revenue that would have been realised had there been no incentive. The jury is out on the investment impact of the measure but where such a tax cut would have positively impacted investments, the same revenue would not have been realised in its absence. Further, the comparison of corporate tax collections is unfair as the simplified regime for corporate taxes was introduced after 2019. Even in FY2021 the tax collections clocked record growth and were above pre-pandemic levels. The other criticism in the paper is of the GST and its disproportionate impact on the lowest deciles. The paper uses NSS 2011-12 to establish that the bottom 50 per cent pays six times more indirect tax as a percentage of income as compared to the top 10 per cent.

The current income tax system exempts incomes up to Rs 5 lakh from tax and the GST rate structure places a higher burden on luxuries. In fact, the upward trend in the GST collections post 2021, despite the K-shaped recovery, accompanied by higher retail sales of luxury goods, indicates that the tax may, on the contrary, be progressive. Further, an indirect tax can be more efficient in a tax system where compliance in direct taxes is not broad-based. Therefore, the report underplays the importance of indirect taxes. Even on direct taxes, in recent years, India implemented the surcharge on top incomes taking the marginal tax rate to 42.74 per cent.

In light of the results presented in the report, it is also important to inquire into the computations. While it is estimated that the total wealth held by India’s richest is a staggering Rs 54.12 lakh crore, how many of the assets counted are a part of private wealth or are held in the form of trusts or companies? Merely adding this to wealth does not make it taxable. The legal title may forbid the authorities from levying such a tax, which is why the global report argues for a registry of assets. There are however limitations to establishing the title even when using the latter to establish ownership.

Although the report carries the right message about rising inequalities and the need for tax reform, it misplaces this in generalisations. A siloed approach to tax policy, with interlinkages between different taxes that apply to the same base, is not meaningful. In the past, countries, including India, have used a wealth tax but the collections were a pittance, making it a costly tax to implement. Ignoring the historical context weakens the argument. To add to this, not everything is fixed by taxes. The role of other macroeconomic policies, like low interest rates and regulatory interventions, should not be ignored.

From the estimates, the revenue that India is expected to earn from the implementation of the wealth tax would lead to a tax gain of 10 per cent of current direct tax collections. The report leaves one to wonder why the same end cannot be pursued through a gradual increase in overall tax progressivity, instead of relying on a tax that hinges precariously on volatile asset prices.

The writer is assistant professor, NIPFP