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April      Last updated: April  15,  5:00 p.m.

The Highest Taxed Nation In The World

Personal taxation in this country, even prior to the Union Budget of 1970, was the highest in the world. Now the hiatus between the tax rates in India and other countries has increased further. An international comparative tax study of direct taxes for 31 countries shows that on an annual income of Rs 20,000, the tax works out to 16.56 per cent in India which is second only to Austria with 16.76 per cent. The other countries where the tax rate is above 15 per cent are Ghana 16.6 per cent, Sweden 15.56 per cent, Costa Rica 15.36 per cent and Iran 15.44 per cent. The remaining seventeen countries have tax rates which are below 15 per cent and barring eight countries, others have tax rates below 10 per cent.

As regards an income of Rs 50,000, the average tax rate for India was 34.74 per cent prior to the Budget and is 37.4 per cent after the increase in tax for the slabs above Rs 40,000 in the current Budget. This compares with the tax in Ceylon at 28.8 per cent, Austria 26 per cent and Sweden 26 per cent. The other twenty-seven countries included in the tax study have taxes below 25 per cent. It may be observed that Sweden and many other developed countries have a comprehensive social security system. The benefits in Sweden include free hospitalisation and medical facilities, education at all levels including research, unemployment pay and pensions for all citizens and their Budget also includes substantial provision for support to families which are finncially vulnerable.

Thanks to the icnrease in wealth tax, the tax on urban properties and the tax rates on the higher slabs, the aggregate of taxes would exceed 100 per cent of income in certain cases. However, ignoring the highest rate which is of significance only for the rich people even for the managerial, professional and intellectual classes, the marginal tax rate in India is very high, being 66 per cent on the slab between Rs 40,000 and Rs 60,000 and 77 per cent between Rs 60,000 and Rs 80,000. The effect of these taxes on the incentives and ability to work, save and invest on the class of people like engineers, tecnocrats, business executives and the professional people is adverse. Actually, their pioneering efforts and their initiative and ability are of vital importance to national growth, because they constitute the elite amongst their ranks. If incentives are taken away from them, it would have adverse impact upon economic and technical development.

These high tax rates also place a premium on dishonesty and lead to creation of black money. Human nature being what it is, no amount of stringent penalties—which of course are welcome—can check tax evasion, if the tax structure does not have the justification of an equitable design and unfair and expropriatory. Besides, if part of the money siphoned off to the exchequer is not properly utilised and is wasted, there is still greater dissatisfaction amongst people with regard to the high level of taxation.

Attack on earning couples

The Prime Minister stated that it would be considered in what manner the incomes of husbands and wives could be aggregated and taxed. Actually, in the United States, it is the assessee who elects to do so, because by adding incomes and splitting the total into two, the couple gains in tax. The computation of tax on aggregated incomes of husband and wife involves the following steps: first, the gross income, deductions, creidts, and allowances of both spouses are aggregated to obtain the combined taxable income; second the combined taxable income is divided in half and provisional tax is arrived at on the resulting figure; and third, such tax is then multiplied by two for computing the final total tax for the couple.

What the Government here probably intends is to somehow club the incomes of husband and wife, push them into a higher tax bracket, give some nominal deduction, and tax away most of the income at the higher rate for bigger incomes. This would be patently unjust in cases, where the wives actually earn their incomes; as for instance, in the case of couples where both are doctros or the wife is herself an executive. If the incomes are added together, they should be cut in half as in the USA and then the tax arrived at should be multiplied by two. But then, in the Indian tax structure priciples of common equity, justice and fair play, have long since been give up.

April 18, 1970