The taxation silly season is here

High taxes on the rich is the latest fad, but it is a waste of time

One of the biggest constants at the budget time of each year is to talk of how low India's tax-to-GDP ratio is. And with the naturalness that comes from being so bright, we know how to fix this. Just look at Mukesh Ambani's Rs 1,23,000 crore of wealth ó a euphemism for the market value of the Reliance shares various companies controlled by him own ó just tax this at 10 per cent and India's personal income tax collections will rise 8.3 per cent. Then there's Ratan Tata, Sunil Mittal, Azim Premji; never mind that while taxes are levied on incomes, Mukesh Ambani's "wealth", even if the number were to be true, is, however, the sum of his accumulated savings, on which taxes have already been paid earlier, during the income-generation phase.

If this taxation silly season wasn't bad enough, the current global fad seems to be soaking the rich. In France, Francois Hollande wants to tax the rich at 70 per cent rates and in the US, Barack Obama has succeeded in his attempt to tax the rich at a higher rate. There are several "facts" to support the argument, needless to say ó while India's tax-to-GDP ratio is under 17 per cent, Norway's is 41 per cent, Germany's 37 per cent, the UK is at 34 per cent and the US at 24 per cent.

But none of these countries have 30-40 per cent of their people below a decently drawn poverty line. Just adjusting for this would take India's effective tax-to-GDP ratio to 28.3 per cent, a number that's higher than that of the US. In any case, there are huge variations in tax-to-GDP ratios, even among developed countries. The US's 24 per cent, for instance, looks tiny compared to Norway's 41 per cent, but huge compared to Singapore's 13.4 per cent and Hong Kong's 13.9 per cent.

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