It is an anomaly that Individuals & HUFs are being subjected to Income Tax at the highest rates. Majority of the Corporate Sector is paying Income Tax of 25.17% including cess & surcharges. The LLPs & Partnership entities pay 31.2% Income Tax including cess. But, with the introduction of Super Rich Tax in Budget 2019, the personal Income Tax including cess & surcharges for Individuals & HUF have soared to India’s super-rich peak tax rate at 42.75%, which is higher than the Income Tax rates in most of the counties including US.
It is pertinent that a surcharge of 10 per cent and 15 per cent were applicable earlier for individuals earning above Rs. 50 lakh and Rs. 1 crore respectively before the Budget 2019. But the Budget 2019 introduced two new & enhanced surcharge rates of 25 per cent and 37 per cent for individuals earning in excess of Rs. 2 crore and Rs. 5 crore respectively. Thus, the nett effective Income Tax rates for individual income of Rs. 5 Crores is whooping 42.75% higher than the US rates @40 percent.
The surcharge on those earning between Rs 2 and Rs 5 crore has been increased to 25 percent, bringing their nett effective tax rate to 39%.
The significant increase in taxation for those earning above Rs 2 crore has an adverse effect on the honest taxpayers reporting their true Incomes honestly. It is also relevant that the surcharges are applicable on special incomes including capital gains. Thus, long-term capital gains are taxable at a higher rate of 28.50 % for individuals having total taxable income in excess of Rs 5 crore.The super-rich taxes have adversely affected the cash flows & investments made by the so called super rich individuals.
It is undisputable that High Taxes act as a deterrent to reporting true high incomes. It is a proven fact worldwide through Researches that as Income Tax rates rise above the median level of 34 percent, the extent of evasion rises dramatically. Higher tax rates undoubtedly provoke tax evasion as the assessees tend to under report their actual incomes to avoid imposition of super rich tax/ higher taxes.
It would be trite to refer to Albert Bushnell Hart who had asserted: “Taxation is the price which civilized communities pay for the opportunity of remaining civilized.” But are the so called ‘Super Rich’ alone needed to pay for the whole country to remain civilized?
I am remembered what Austin O’Malley said: “In levying taxes and in shearing sheep it is well to stop when you get down to the skin.” There is a similar assertion by Jean Baptist Colbert who maintained that “The art of taxation consists in so plucking the goose as to get the most feathers with the least hissing.” Kautilya in his famous Arthshaastra maintained that the basic premise of Taxation should be that public should not be exploited by imposing tax more than their competence to pay.
It is therefore pleaded that the Super Rich Tax introduced in the Budget 2019, in view of the above, may be kindly withdrawn.