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Should government tax the rich more?

Prime Minister Manmohan Singh's economic advisor C Rangarajan suggested last month that government could consider either raising the tax rates or imposing a surcharge on income tax paid by the "super rich".

Finance Minister P Chidambaram, who is currently meeting foreign investors for investment in India, said that the argument for taxing the "very rich" slightly higher should be considered.

"I must concede that there is an argument, underline the word argument, that when the economy requires, when the government requires more resources the very rich should willingly pay a little more," Chidambaram was quoted in a PTI report.

There is no clarity as of now on what government means when it says "super rich".

The top tax rate of 30 per cent currently applies on individuals with a taxable income of over Rs 10 lakh (Rs 1 million).

The government is contemplating taxing the "super rich" to bring down fiscal deficit and fund its welfare programmes. In recent months, the tax collection fell as economic growth slowed.

According to data from the government, the number of effective taxpayers in India, as on 31 March 2011, was 33.57 million (3.35 crore). This amounts to just 2.77 per cent of the over 1.2 billion population (120 crore).

According to media reports, more people oppose the move than support it.

CII President Adi Godrej feels that it will create a negative perception about the country, especially in a time when India needs investment. Many believe that increasing tax will lead to evasion and increase in harassment by tax authorities.

However, industry stalwart Azim Premji of Wipro feels that it is a right thing to do politically. He told NDTV, "I think there is legitimacy in a country as poor as ours."

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