Union Budget 2013-14: Taxing the super rich will make little difference

It was perhaps one of the easiest taxes to levy to increase government revenues - the 10 per cent surcharge on individual incomes of over Rs 1 crore that Finance Minister P. Chidambaram proposed in his Budget speech.  

It is well known that the two main challenges before the Indian taxation system are those of ensuring greater tax compliance and widening the tax base. Chidambaram announced the setting up of a tax reforms administration to tackle the former, but the attempt to widen the tax base was as lame as can be imagined.

The tax has currently been levied for only one year. Adi Godrej, President of the Confederation of Indian Industry said that since it was just for a year, it was okay.

Two more services have been added to the negative service tax list. Agriculture income remains exempt from service tax, while nothing has been done to ensure the self-employed declare their actual incomes and pay tax accordingly.

There is hope, however, that the tax reforms commission will deliver and that technology, on which there is a good deal of focus in this budget , will be utilised to shore up tax collections.

Taxing the super rich certainly gives political mileage, since only 40,000 odd people in this country of over a billion have declared incomes of above one crore annually. Fiscally, it will make little difference. However, such a surcharge could well encourage those currently declaring an income of more than one crore to think of ways to avert the surcharge, adding to the prevailing non compliance.

The idea should have been to get horizontal and vertical taxation parity, but  the finance minister has toed the global line, and gone the predictable route.