DESCRIBING INDIA’S decision to impose a wealth tax way back in 1957 as trying “to do too much too fast”, French economist Thomas Piketty, regarded most for his passionate advocacy of taxing the wealth of billionaires to reduce inequalities, says there’s no way the government can increase tax on the upper middle class and middle Indian entrepreneurs unless it demonstrates people at the top pay a higher tax rate.
In an interview to The Indian Express, Piketty, who was a plenary speaker at the Delhi School of Economics on Saturday, said, “Building a sophisticated tax system to tax income and wealth is complicated. It is difficult even for rich countries. Today, what is different is you could do it much better because you have information technology, lots of new ways for better tax administration, and you could get quite a lot of tax revenue just by having a wealth tax targeted at the very, very top of the distribution.”
But does a tax on wealth when India is a developing economy make sense? Piketty immediately draws parallels with China, which he says, imposed a 25 per cent tax when it was in a similar phase. “I hear this at times… we should wait to become richer before being concerned about inequality, and that inequality is a sort of rich country privilege or a rich country concern. But this is not what history tells you. If you don’t reduce inequality early, you are stuck in some kind of low productivity trap where a large part of the population doesn’t have access to the basic goods and opportunities and assets. That’s a tool to make it possible for them to contribute to growth,” he said.
Elaborating on China, he said it went for relatively more equal distribution of educational spending, health spending, public infrastructure, as also more distribution of income. “And this came with bigger growth, starting from the same very low level 15 years ago,” Piketty said.
Wouldn’t such redistributive tax sacrifice growth by diverting capital that could otherwise be invested for productive purposes — expanding the manufacturing base, generating employment, and also plugging India in the global supply chain? Piketty is not convinced. “If the total tax revenue in India was 80% of GDP, yes, there would be a lot of merit to that argument. With 13% of GDP, I think what’s missing for India’s growth is public infrastructure, public capital, human capital. If it was enough to keep 80% of GDP in private hands to have a lot of growth, you would already be a very productive economy because you already have very low tax. So there’s really something that doesn’t work in this reasoning. I mean, if you compare with other countries, you have one of the lowest tax revenues in the world,” he argued.
Piketty, who co-founded the World Inequality Lab and the World Inequality Database, said, the difference between the India of 1960s, 1970s and now is “a level of billionaire wealth, which we have never seen before”. By focusing on a small number of very visible individuals, the government can get substantial tax revenues, he said.
“I would like the government of India to do something very simple — publish how much income tax in total was paid by the top 100 wealthiest Indians over the past 10 years. And tell us how much it represents as a fraction of their wealth today. And I think the answer will be, less than 1%. I’m not saying they should be taxed at 100% or 90%. Maybe they should be taxed at 10%, 20%. But we need to have a discussion about this,” he said.
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