Let’s delve a little deep into the concept of wealth tax.
As the financial budget is slated to be presented on July 5, the financial experts are glued to television and newspapers and are keeping a track of every update. Now there are speculations that the government is mulling over the introduction of wealth tax again in the current budget. Let’s delve a little deep into the concept of wealth tax.
In contrast to income tax, which is a tax levied on what you earn wealth tax is a tax that is levied on your wealth and assets. It is also called as capital tax and equity tax. The government announced the abolition of wealth tax in the budget of 2015. The government intention behind abolition of wealth tax was the simplification of tax structure.
The Wealth Tax Act 1957 lays down all the rules regarding the wealth tax in India. Under the Wealth Tax Act of 1957 it is postulated that it is applicable to three kind of assesses one is Individuals, Hindu undivided families and the companies. The wealth tax is a form of direct tax.
The introduction of wealth tax is again on the cards of the government. The objective behind the introduction is to reduce the inequality in India. As we know that reports after reports have pushed this matter into the fore that the inequality in the world and India is exponentially rising. Oxfam’s reports have shown in past that world’s 26 richest people now own the same wealth as the poorest 3.8 billion people.
Talking specifically about India report mentioned that in India the top 10% of population holds 77.4% of the total national wealth.
The critics are if the opinion that this tax discourages people from being hardworking and creative. And also that you are discouraging people from creating wealth in future. And if the wealth is not created then you lose the entire purpose of this tax. Also, the critics add that this destroys the jobs as well because it discourages the accumulation of the wealth.
There are many shortcomings of this tax. One is the double taxation and second is the capital flight. As the government is already taxing the income so this wealth tax is double tax imposed on the wealthy people. Second is the capital flight, In order to avoid this tax the rich and the wealthy people are taking their money out of the country.
A 2018 report by Organisation for Economic Co-operation and Development (OECD) showed that among its members, the number of countries that levied wealth tax came down from 12 in 1990 to 4 in 2017. Only France, Norway, Spain, and Switzerland had a wealth tax in 2017.