Column : Let the rich pay a little more
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To levy a surcharge, he needs to just focus on the top 3% of the tax-paying population which is in the 30% tax bracket now.
Roughly the top 3% of the taxpayers may be contributing a little over R1,40,000 crore to the income tax kitty. These individuals will mostly be earning over R24 lakh a year. A surcharge of 10% (or 3% extra tax) in this category would be quite legitimate. They will end up paying 33% income tax, which is still among the lowest that the relatively wealthy pay anywhere in the world.
The government could also legitimately look at taxing dividends earned by high net worth individuals at a higher rate than currently charged at the company end before dividend distribution. The current tax rate for dividend is 15% at the company end. Let's say for those earning dividends of above R15 lakh a year, the normal 30% rate of income tax be applied. Since 15% is already paid at the company end, the remaining 15% tax can be charged on high net worth individuals earning dividend income above a certain level. This will also spare small dividend earning shareholders who are mostly in the middle class.
These are some simple ways of ensuring that the really rich end up paying some more tax to help tide over the current fiscal cliff. Once the economy comes back to the 7%-plus GDP growth trajectory, these additional taxes can be withdrawn.
Overall, the finance minister will focus far more on cutting expenditure to arrest the fiscal profligacy that had become the norm after the 2008 global financial crisis. The scope to reduce expenditure is immense, precisely because of the deliberate excesses in fiscal pump priming before and after the 2008 global economic crisis. The massive growth in the funding of centrally-sponsored schemes has resulted in the total budget for such programmes touching R2,37,000 crore annually now. Even if you uniformly knock off 10% from all schemes, very much doable, there would be a saving of R23,000 crore. This can be done without any pain.
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