Viewpoint: Taxes and Welfare in India

30 OCT,2019 | MEDC


 

Nobel Laureate Abhijit Banerjee recently advocated raising the marginal tax rates for the rich in India. With all due respect to him, that idea does not seem to have much merit in a country like India. No one objects to making the poor better off, provided that it can be done transparently and without causing any further socioeconomic imbalance. However, due mainly to tax reasons, India has lost thousands of millionaires in 2018 alone, and that trend will continue – indeed, accelerate – if marginal rates increase. Despite the government’s intentions, few would deny that the private sector spends/invests money more efficiently. If taxation becomes unreasonably high, increasingly less money will be left in the hands of people who can spend it relatively effectively. A simple fact is that countries having a single race, religion and language find it easier to tax their citizens at a higher rate, as acquiescence is aided by the public knowledge that the taxes collected will serve to benefit someone we can identify with at a personal level. That is, obviously, not the case in India. The tax system should be fair to the poor but not by being unfair to those who have worked hard to better their financial prospects. In India at least, higher taxes are not the way to ensure better welfare of society as a whole.

*Photo Credit: Google

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