The story of tax on super rich was first aired by CNBC-TV18, on December 26. As the Budget draws closer the idea seems to be gaining traction. The finance minister himself hinting towards such tax in an exclusive interview, reports CNBC-TV18's Aakansha Sethi.
With a fiscal deficit target of 4.8 per cent in the forthcoming budget and this being the last full Budget before election 2014, the finance ministry is keen to mobilize additional revenue. One of the ways being considered is an inheritance tax or a tax on the super rich.
P Chidambaram, Finance Minister said, "There is an argument that when the eco, the government requires more resources the very rich should willingly pay a little more". Among the options being considered are, one a surcharge on income tax above a significantly high threshold, two rejigging income tax slabs in line with the original DTC, whereby the 10 per cent and 20 per cent slabs may be extended, with a new slab for high incomes above Rs 5 crore. Also the tax on dividend income above a high threshold could also be hiked.
Sandeep Ladda, Executive Director of PwC said, "It becomes sometimes fair to consider the point that a person who is earning probably Rs 50 crore versus a person who is earning Rs 5 lakh, there is a huge economical difference. One could consider doing something, taking a slight additional pie. It may not be a recurring thing, may be a one off kind of a tax that is levied to those kinds of individuals". However, even as a tax on the super rich is being debated globally, and has gathered support from PMEAC chairman Rangarajan as well as economists, industry leaders have minced no words in expressing their opposition to the FM.
Adi Godrej, President, CII, Chairman, Godrej Group said, "Inheritance taxes do not generally exist in the developing world. They are a developed world phenomenon". Apart from a tax on super rich, under consideration is a hike in tax saving limit under section 80 C and an extension of instruments used for tax saving. Currently nine instruments, including ELSS, PPF and PF are allowed for tax saving.
This could include gold linked saving schemes in order to reduce demand for physical gold. Ways to extend the MAT and AMT are being mulled. This could mean AMT computation on book profits, a marginal MAT of 1 per cent on gross assets or hiking the current MAT rate to 20 per cent.
MAT on gross assets had met with stringent opposition from industry in the first draft of DTC which could impact the finance ministry's final decision. Top officials in the finance ministry are studying the DTC clause by clause and an announcement on the timeline for DTC is expected. A marginal food cess of 0.5 per cent has also been discussed, but will depend on the requirement for food subsidy.
While abolition of STT is unlikely, a cut in short term capital gains is being pushed by the department of economic affairs. Most of all, stability and maintaining investor confidence will be prime considerations this year before any decision is taken.