Wealth tax on ultra-rich could reduce India's wealth gap: Study
A new study by the World Inequality Lab, co-authored by economist Thomas Piketty, proposes a wealth tax on India's ultra-rich to address wealth inequality. The recommendation includes a 2% annual tax on net wealth exceeding ₹10 crore and a 33% inheritance tax on estates of equal value. According to the authors, this could generate revenue equivalent to 2.73% of India's gross domestic product (GDP).
Tax impact on wealth distribution and public spending
The study reveals that only 0.04% of India's adult population controls over a quarter of the country's total wealth, indicating a significant wealth concentration. Consequently, the proposed tax would affect just this small fraction, leaving 99.96% of adults unaffected. "Progressive wealth taxation, effective redistribution, and broad-based social sector investments are urgently needed to build an equitable and prosperous India," stated Somanchi, one of the report's authors.
Proposed tax revenue could boost social sector investments
The additional revenue generated from the proposed taxes could nearly double current public spending on education and other social sectors. This follows an earlier report by the World Inequality Lab, which highlighted that inequality in India has increased since the early 2000s. The income and wealth share of the top 1% of the population rose to 22.6% and 40.1%, respectively, in 2022-23.
Inheritance tax and wealth accumulation
The study also emphasizes the role of an inheritance tax in addressing unfair advantages conferred by unearned dynastic wealth, which is further exacerbated by India's caste system. However, it notes that since inheritance tax comes into force upon bequeathal (i.e., upon death), it would deliver relatively small tax revenues annually. In contrast, a small annual wealth tax could yield significant revenues while also curbing accumulation at the very top.
Wealth tax proposal amidst ongoing debates
The authors argue that these measures need to be extensively debated within broader democratic discussions on tax justice and wealth redistribution in India. This proposal comes amidst ongoing debates about inheritance tax following comments from Sam Pitroda, a senior Congress leader who called for a debate on wealth redistribution in India. However, Pitroda's party distanced itself from his comments shortly after they were made.
