Budget 2020: Game of Tax - Is it Right to tax the Wight?
Budget 2020 is likely to announce innovative ways to improve the tax to GDP ratio by simplifying tax compliances and plugging loopholes. In her quest to widen the tax base and continue with the progressive taxation of rich, FM might bring a tax on estate of the deceased who bequeath a relatively large wealth on their successors.
A tax imposed on the dead Wight (reanimated corpse raised from death by the White Walkers in the popular Game of Thrones series) is likely to bring fictional White Walkers into reality. This is also likely to be met by dragon-fire resistance by taxpayers and asset owners.
By reducing the corporate tax rates, the government had already announced a mid-year bonanza for the corporate world. Since then there has been growing clamour by the individual tax-payers for a need to re-look at their taxation. This year, expectations are high from the FM to rejig the individual tax slab rates and at the same time offer tax sops and reliefs to the corporates. The economic pundits are arguing that such steps would leave more disposable income and consequently boost the much-needed consumption spur required to push our sluggish economy.
One also needs to understand that the tax proposals are only a part of the larger plan of the government for the economy- what we call as the "Union Budget". To offset any revenue hole created by the populist tax reliefs, FM will need to plan new sources for garnering tax revenues to fund the flagship schemes required to boost the economy and its growth.
One such dragon glass weapon to increase the exchequer could be inheritance tax. Estate duty or inheritance tax in some form is prevalent in developed economies like US, UK, Japan and several others. In fact, India had also introduced estate duty in 1953 which was abolished 1985.
With inheritance tax, the person who inherits the assets of deceased's pays the tax for such inheritance. A significant wealth has been accumulated by few which has led to glaring income inequality in the country. Advocates to inheritance tax support the levy of this tax to help bridge the socio-economic divide. Authorities have been toying with the idea for reintroduction of Inheritance/Estate tax in India and whispers in the corridors suggest that potentially this may be the right time, when the ruling party enjoys an overwhelming majority in the parliament and the theme of taxing the rich resonates well with the masses.
In India, the rich are already subjected to the high tax rates, with the highest slab rate of 42.7%. Inheritance tax is also alleged to be an unfair mean for imposing a new tax on wealth created out of tax paid earnings. Moreover, this tax would involve several administrative and valuation related challenges along with liquidity issues to discharge this obligation. It is important that Government think tank thoroughly defines the rules for imposition & collection and ensure that rate of inheritance is moderate so that it does not entice tax avoidance. There has to be rational threshold limits & clear rules on exemptions in line with our cultural and societal value systems.
Certain new legislations like CAA/NRC have politically backfired and in this backdrop will the FM be adventurous to bring in a new levy that can severely antagonize the business and assets owners, entrepreneurs, industry tycoons and value creators. All eyes are now on the Budget expected as a blockbuster episode on February 01, 2020.
(Suraj Malik, Partner BDO India LLP & Ankur Pahuja, Manager BDO India LLP)