Are the HNIs and the super-rich getting away by paying little or no tax?
An issue that perplexes the common man is the very small number of millionaires in the income-tax net despite the commitment mentioned in the Finance Minister's Budget speech to tax on the basis of the `capacity to pay'.
There is a feeling that the Finance Minister has been concentrating on medium and small taxpayers and cited for this are the withdrawing of such benefits as the Standard Deduction for salaried employees; pruning the tax benefit available to senior citizens/pensioners while switching from Section 88B to 80C; threatening to introduce the EET (exempt exempt tax) principle, which will affect mostly medium and small taxpayers.
He is thought to besoft on high income taxpayers and for this the critics point to the subjecting of individuals and HUFs with taxable income of Rs 10 lakh to a surcharge of 10 per cent while exempting from such a levy firms and companies with incomes over Rs 1 crore and not making strenuous enough effort to get in the net lakhpatis and crorepatis who do not pay a single rupee by way of tax, and by going slow in search operations to catch the big evaders.
According to per the CAG report for 2005, presented in Parliament on March 19, 2006, the number of millionaire taxpayers in the country is abysmally small as could be seen from the following figures extracted from the report. Thus, in a population of more than 100 crores on March 31, 2005, only 1.22 lakh non-company taxpayers could be considered affluent (in a total of 267.95 lakh such taxpayers) and 54,000 corporate taxpayers (3.80 lakh) . Obviously, lakhs of taxpayers, who should fall in such a category, are avoiding paying tax when persons in lower categories are being subjected to all sorts of levies.
The millionaire count
According to a report published in a national daily, Mumbai has fastest growing affluent population in the world. According to a recent study by Mercer Consulting, the number of people in Mumbai growing richer is not showing any sign of slowing down. Another study by American Express shows that Mumbai has at least 25,000 dollar millionaires (called High Net Worth Individuals or HNIs) have Rs 4-5 crore in investible funds. The number of affluent individuals in Maharashtra has been estimated at two lakh more than that in the over-Rs 10 lakh income group assesses in the Income Tax Department net as on March 31, 2005. The report also lists a category of super rich anybody having over Rs 50 lakh to invest and the report estimates is that this set has a whopping $60 billion in investible funds.
According to the report, there are 83,000 HNIs and 7,11,000 super-rich people in India. By 2009, Mumbai and Delhi alone will have at least 10 lakh super-rich people. Also, according to the report, assets under management in Western India are estimated to have grown by 51 per cent as on January 1, 2007 over the last year, and HNIs in Mumbai are estimated to have invested Rs 46,000 crore in mutual funds alone.
If there are few taxpayers from this segment, it is because Of the income-tax and wealth tax exemption given to high income/net worth farmers;
Of exempting dividend income to any extent;
Of not taxing the value of shares and securities under the Wealth Tax Act;
Of the rising number of exemptions under income and wealth tax laws increasing; and
Of the low deterrence of tax laws.
Perhaps, it is time the Finance Minister revised the tax policies so that those earning in crores of rupees are also brought into the tax net.
India's booming economy, the growing rich and upper middle class, the availability of disposable income creating a consumerist class, the spiralling real-estate and gold prices, the phenomenal rise in sale of passenger cars, the increase in air travels all need to be monitored to widen the tax net. With the right approach the taxman can end his reliance on small taxpayers comprising 92 per cent of the taxpaying population, and earn substantial revenues by taxing the really rich.
T. N. Pandey (The author is a former Chairman of the CBDT.)