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Govt's proposal to tax the super rich may not find takers

By Vrishti Beniwal
November 20, 2013 10:34 IST
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The proposal to levy a ‘super-rich’ tax, at the rate of 35 per cent, on those earning more than Rs 10 crore (Rs 100 million) a year might not receive support of the Union Cabinet, which is to consider the Direct Taxes Code (DTC) Bill this month.

This is because the government might not like to sully the business environment in the country in the run-up to the general elections.

The finance ministry is moving a supplementary note to propose changes in the DTC Bill sent to the Cabinet in August. Though it is unlikely to propose any change to the ‘super-rich’ tax provision, officials say the Cabinet might not clear it in view of the polls.

The Cabinet had not taken up the Bill at its previous meeting, reportedly due to apprehensions at the Prime Minister’s Office (PMO) over the new tax slab. PMO, it is learnt, also worried the time might not be right to bring a new legislation without extensive consultation.

In Budget 2013-14, Finance Minister P Chidambaram had imposed a surcharge of 10 per cent on those earning at least Rs 1 crore (Rs 10 million) in a year. He had said this was a one-time tax on the wealthy to help the economy tide over a difficult fiscal situation. At present, 42,800 Indians earn more than Rs 1 crore a year; those earning over Rs 10

crore annually would be much fewer.

According to a report by Kotak Wealth Management and CRISIL Research, there were 62,000 high-networth individuals (HNIs) in the country as of 2010-11. The report, ‘Top of the Pyramid — Decoding the Ultra HNI’, defined HNIs as those with a minimum average net worth of Rs 25 crore. This gets mapped to a minimum income of Rs 3-4 crore.

Levying an additional 5 per cent tax on these individuals would bring Rs 19.5 lakh to the exchequer (Rs 450,000 on the first Rs 1 crore and Rs 500,000 on every subsequent Rs 1 crore) from those earning up to Rs 4 crore.

The number of HNIs at 62,000 people would mean an additional income of Rs 21,390 crore for the government, if it is assumed they earn up to Rs 4 crore a year. But many of these might be earning more than that, so the actual additional revenue could be much more.

Since the proposed ‘super-rich’  tax is to be imposed only on those earning more than Rs 10 crore, the sum would need to be adjusted accordingly.

There will be about half a dozen changes in the supplementary note, which the finance ministry is aligning with the new Companies Act. Changes will also be made in the areas pertaining to petroleum, mineral oil, financial services, urban development and the Planning Commission.

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Vrishti Beniwal in New Delhi
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