Flawed fiscal policy favours the affluent

Flawed fiscal policy favours the affluent

Context

  • The top 1% income earners received 6% of the total income in the early 1980s; it went up to 15% in 2000 and today stands at 22%.
  • Data from India’s Income Tax department showed that 59,830 individuals reported gross total income more than ₹1 crore.
  • Over 30,500 individuals reported earning salary income of over ₹1 crore.
  • Five individuals reported earning salary income between ₹100 crores and ₹500 crore.
  • Thirty two persons showed gross total income over ₹100 crore.
  • Only one individual showed the income over ₹500 crore.

Global comparison:

  • IMF research papers give country-wise figures of the share of the billionaires in the GDP of each country.
  • The worth of dollar billionaires is most skewed in Russia, the U.S. and India which are home to a substantial number of billionaires.
  • The World Inequality Report points out that inequality declined in China in the past decade and growth was faster compared to India.
  • China’s per capita income was five times that of India in 2016.

Reasons for growing inequality in India:

  • Low tax to GDP ratio.
  • Fiscal policies fail to reduce inequality levels because of low tax to GDP ratio.
  • Agricultural income is not taxed with 2,746 cases showing agricultural income of ₹1 crore and more in the last seven years.
  • The 10% tax on dividends above ₹10 lakh is a mirage; it should have been at least 25% with exemption for dividends up to ₹10,000.
  • Additional resource mobilisation is concentrated on indirect taxes with a slew of relief measures in direct taxes, benefiting only the rich.
  • The stock market boom calls for revisiting the present policy of exempting long term capital gains on shares held for 12 months and more.
  • India’s market to GDP ratio stands at 104%.
  • Inheritance tax, abolished in 1987, should be reintroduced.
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