One of the key policy prescriptions to come out of the French economist Thomas Piketty’s influential 2014 study of inequality, Capital in the Twenty-First Century, was the call for a global wealth tax. Piketty argues that such a tax, while perhaps unworkable, would counteract tendencies toward inequality, and provide additional transparency and data on wealth distribution.
Perhaps so. But in its most recent budget, India’s Modi government scrapped the country’s wealth tax, first put in place in 1957, saying it was an inefficient revenue generator.
“The practical experience has been its a high cost and a low yield tax,” Indian finance minister Arun Jaitely told attendees at an event hosted by Columbia University’s School of International and Public Affairs in New York. (After his presentation, young Indian attendees thronged the finance minister in hopes of taking a picture with him.) Jaitely argued that wealthy people consistently undervalue property that would have been eligible for the wealth tax, which includes real estate and jewelry, among other assets. Partially due to such widespread undervaluation, the tax only produced roughly 10.1 billion rupees (roughly $163 million) worth of revenue.
Instead, the budget put forward by the Modi government replaces the wealth tax with a 2% surcharge on incomes above 10,000,000 rupees (~$162,000). Because of the simplicity of the tax, the budget estimates that it is expected to generate roughly 90 billion rupees worth of revenue. “It’s a clean tax, it’s a neater tax, it’s simplified [and] it’s a high-yielding tax,” Jaitely said.
Streamlining India’s tax system is a key push of the the business-friendly BJP government led by prime minister Nahrendra Modi. The abolishment of the wealth tax likely played well with affluent Indians. But most investors say the government’s push to replace the plethora of intra-state taxes with a centrally administered goods and services tax—effectively turning India into a unified market—is far more crucial to economic growth. Such a tax overhaul faces an uphill battle, however, as it requires India’s fractious parliament to approve a constitutional amendment.