During the 2014 elections, BJP's prime ministerial candidate Narendra Modi had vouched for abolition of the income tax in lieu of sales tax. Three years into his first term, sales tax reforms came through in the form of GST but income tax remained in tact.
Now that BJP has begun its second innings, Finance Minister Nirmala Sitharaman may unveil a new mindset, though it may not radically differ from her predecessor Arun Jaitley's. She may explore introducing new taxes in view of her willingness to listen to the common man, first time in the country for any Finance Minister.
The new finance minister should bring cheer to the long-neglected middle class segment in the country that has paid taxes duly at the altar of the rich or the poor in the country and saved the economy from imminent collapse many times. Tax on the rich is welcome but not to the extent of crippling their re-investment capabilities or de-incentivising them from wealth expansion.
Tax on the poor is hardly attempted by any finance minister in the past though the introduction of GST has taken care of it under Jaitley. Even demonetisation, despite all its ills, widened the scope of banking sector to the rural poor. In fact, what the microfinance institutions were struggling for over three decades to spread financial literacy was forced upon them after demonetisation and the results should be visible a decade later.
With all kinds of taxes and cess prevalent in India, what more can the new finance minister tax? The list could be endless, if her aides had time and patience to go through the ideas sent to her on social media. But there's one arena that the BJP might love to tax, especially after its stand against dynasties in India -- that is Inheritance Tax.
India has an alarming level of wealth concentration in few individuals with just 84 billionaires owning wealth worth $248 billion, as per 2017 figures. It passes on to their children who never worked to earn but inherit by birth. More than inheritance, these 'rich kids' end up in leadership roles too ever after as icons of the top corporate world. Here too, the difference is drastic.
A top IT firm CEO in India earns 416 times higher the salary of a typical employee at the entry level and the dividend outgo is far higher than the world average, according to Oxfam, a non-profit that is among the fronts pitching for inheritance tax to end the inequality in the world.
On an average, every Indian parent leaves behind his entire wealth for his children, especially for male heirs and often, not for female children, despite laws envisaging an equitable wealth inheritance among all the children. In fact, the imposition of Inheritance Tax would pave the way for legal transparency in wealth distribution in the family, among all the children and also help bridge the gender bias in the country.
Perhaps Japan with a highly successful implementation of Inheritance Tax serves the model for India too. It is levied at progressive rates on the fair market value of the property inherited after deducting the funeral expenses and taxes, with a base rate of 10 percent to a maximum 55 percent on heirs. More than any communist or socialist regime, Japan's Inheritance Tax serves as a great example of equitable distribution of wealth and at the same time benefit the government carry out its welfare activities.
Instead of making IT officials conduct raids day in and day out, the entire machinery can be diverted to Inheritance Tax collection, whenever someone inherits parental property without any hard work. This can smoothen the rich and poor divide, male and female divide and above all a chaiwala and shahzada divide.
