Making The Case for Wealth Tax

Prelims level : Economy Mains level : GS-III Economics
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Why in News? 

  • The discourse on efficient, effective and equitable public spending often takes us into the realm of limited resources facing competing demands. India definitely needs to widen its revenue collection as well as base. In this context, it is important to discuss the need for levying a wealth tax, and levying it now.

Why wealth needs to be taxed?

  • Accumulation of wealth: The most compelling reason stems from evidence that there has been massive accumulation of wealth in a few hands. A small section of people has access to a large share of economic assets and resources that remain almost completely untaxed and thus unavailable for public allocation.
  • Wealth without hard work: Wealth, much less than even income, has little to do with one’s education, merit or efforts; it is largely dependent on inheritance and opportunities that come with the advantages associated with belonging to one of India’s privileged classes and castes.
  • Income inequality: India’s top 10% population owns 65% of the country’s wealth, while the bottom 10% owns only 6%, according to the World Inequality Database, 2022.
  • Wealth of rich doubled in pandemic: An Oxfam report has highlighted how India’s richest doubled their wealth during the pandemic. This happened for a variety of reasons, including profits made on vaccines and commodity and asset price movements.
  • Wealth doesn’t translate into productive resources: But the fact remains that India, despite facing grave financial and economic challenges, has no means to convert any of this growing wealth into productive resources that can generate employment opportunities and push up the incomes of multitudes, which in turn can drive demand for goods something that is needed to counter an economic drag-down.

What is the government’s attitude towards wealthy?

  • Rich knows how to invest: One may argue and it is common to hear this that wealth is better left to the wealthy, as they know best how to invest. This has not been in sufficient evidence, at least in India.
  • Corporate tax lowered: The government lowered the corporate tax rate significantly from 30% to 22% in 2019-20, which has continued despite the economic crises caused by the pandemic. However, this did not elicit much private investment.

History of Wealth taxation in India:

  • Wealth tax: Wealth tax, which is a direct tax unlike the goods and services tax or value-added tax, can take several forms, such as property tax, inheritance or gift tax and capital gains tax.
  • Capital gains tax: Capital Gains tax exists in India, but applies only to transactions and hence is limited in its base.
  • Estate duty: India scrapped its estate duty in 1985 and has no inheritance tax. Although the receipt of gifts is subject to income tax in the beneficiary’s hands, it has various exemptions; it is almost entirely exempt if received from within the family, including the extended family of self and spouse.
  • Exemption leads to accumulation: These exemptions shrink the base significantly, as most accumulated wealth is acquired through family, and that remains outside the gift tax’s ambit. Given the cultural context of wealth inheritance, some exemptions make sense, but upper thresholds can be easily added to make it more effective.

Present status of wealth taxation

  • No wealth tax: India presently does not have any wealth tax i.e., a tax levied on one’s entire property in all forms.
  • One time solidarity tax: It did not impose a one-time ‘solidarity tax’ on wealth in post-covid budgets that could have generated resources for essential public investment.
  • Example of developing countries: A number of Latin American countries, including Argentina, Peru and Bolivia, have either introduced or are introducing a progressive annual wealth tax levied on the wealth gains of each year or a one-time covid ‘solidarity’ tax.


  • Idea of wealth tax appear good on paper however; it may negatively impact the domestic and foreign investment in the country. Direct tax slab for superrich in India is already among the highest in the world. The idea of wealth taxation needs careful deliberation before implementation.
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