India to Raise Taxes on the Rich
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India announced on Thursday it would seek to impose an additional tax on the country’s wealthiest individuals as well as large business. Asia’s third largest economy has been hurt by both global and domestic factors and is expected to grow 5 percent this year, far below its previous projection of 7.6 percent.
Presenting the federal budget for the financial year starting April 1, Finance Minister P Chidambaram on Thursday vowed to cut India’s deficit as he unveiled new taxes targeting the rich as well as big businesses.
India announced on Thursday it would seek to impose an additional tax on the country’s wealthiest individuals as well as large business. Asia’s third largest economy has been hurt by both global and domestic factors and is expected to grow 5 percent this year, far below its previous projection of 7.6 percent.
Presenting the federal budget for the financial year starting April 1, Finance Minister P Chidambaram on Thursday vowed to cut India’s deficit as he unveiled new taxes targeting the rich as well as big businesses.
The tax plan, if approved by Parliament, will for one year raise the effective income tax for those who earn more than 10 million rupees ($186,000) annually to 34 percent, up 10 percent from the current 30.9 percent.
At the same time, the government will raise additional taxes on companies with an annual taxable income of more than 100 million rupees ($1.83 million), doubling the rate to 10 percent for local companies and to 5 percent for foreign firms, up from the current 2 percent.
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The changes are expected to raise an additional 180 billion rupees ($3.3 billion) and the government is banking on the extra revenues, money from the sale of stakes in state-run companies as well as the auction of telecom bandwidth to help fund its expenditures.
Total budget expenditure is expected to rise by 16 percent to 16.6 trillion rupees ($309 billion) in the next fiscal year, with a focus on defense, education, health and other social sectors.
Chidambaram said:
[quote] I am confident that when I ask the relatively prosperous to bear a small burden for one year, just one year, they will do so cheerfully. [/quote]
However, budget critics say the income tax surcharge would apply only to a relatively small section of India’s vast 1.2 billion population: Only 42,800 people reported earnings of more than 10 million rupees last year.
“My question is: What have you done to increase the tax base?” asked Sudhir Kapadia, national tax leader at consulting firm Ernst & Young in India.
Tax experts also point out that the government has yet to address India’s bigger tax problem – widespread tax evasion.
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The budget did achieve Chidambaram’s immediate goal of staving off a credit rating downgrade, at least for the time being. Credit rating agencies have threatened to downgrade India’s debt to junk unless it gets it finances under control. India’s deficit is expected to hit 5.2 percent this year through March.
