Wealth Tax

Summary

This Forum of Free Enterprise pamphlet, published from 235 Dr. Dadabhai Naoroji Road in Bombay, is a sustained classical-liberal polemic against the Wealth Tax newly introduced in India in addition to existing income tax. After acknowledging that taxation legitimately raises revenue, promotes savings for industrial development and reduces wide disparities in wealth, the pamphlet walks through the Wealth Tax Bill’s coverage and rates — Rs. 2 lakhs for individuals, Rs. 3 lakhs for Hindu joint families, Rs. 5 lakhs for companies, with a graduated structure rising to 1½% — before concluding that the tax is ‘a mask which hides something dangerous to our democratic way of life and economic progress.’

The argument is double-pronged. Economically, the pamphlet contends that levying Wealth Tax at India’s early industrial stage will retard capital formation, drive wealth underground into gold and jewellery, and amount to double or treble taxation when companies and shareholders are both hit. The comparison with Sweden, Norway, the Netherlands and West Germany is dismissed on the ground that those welfare states are already economically advanced; Japan’s industrialisation is invoked to show that a comparatively small concentration of investing wealth is the engine of broad-based prosperity. The pamphlet also rebuts the technical case for Wealth Tax — that income is a poor measure of taxpaying capacity and that wealth cannot be hidden — by arguing that ingenious people will conceal wealth more effectively than income, and that assessment is administratively almost insurmountable.

Socially and politically, the pamphlet warns that the tax will splinter the Hindu undivided family, oblige wealthy households to turn away dependents the state cannot maintain, and — most pointedly — invite a ‘Police Raj’ as tax officers are given wide powers to investigate ‘every nook and corner of the home.’ Corruption among officers, harassment of citizens, and a chilling of incentives are foretold. The closing summation lists five harms — killing production incentives, retarding capital formation, opening the way for corruption, damaging the social structure, and jeopardising individual liberty — and frames ‘the incentive to produce, the delicate balance of forces in a social structure, individual liberty and public life of a high moral order’ as ‘the invisible wealth of a nation’ that should not be thrown overboard ‘in a moment of haste and impatience.‘

Key points

• Pamphlet from the Forum of Free Enterprise opposing India’s newly-introduced Wealth Tax, distinct from and additional to income tax.

• Walks through the Bill: exemption thresholds (Rs. 2 lakhs individuals, Rs. 3 lakhs HUFs, Rs. 5 lakhs companies), graduated rates of ½%–1½% on individuals/HUFs and a flat ½% on companies, with an estimated 26,000 individuals, 4,000 HUFs and 6,000 companies liable.

• Rejects the West-European analogy: Sweden, Norway, the Netherlands and West Germany are already industrialised welfare states, whereas India is at an early industrial stage and needs capital concentration to grow.

• Argues Wealth Tax will retard capital formation, drive wealth underground into gold and jewellery, and on companies amount to double or treble taxation that scares away foreign investment.

• Counters the claim that wealth cannot be hidden: ‘Ingenious people will devise ways and means to hide wealth more effectively than income.’

• Predicts intrusive enforcement amounting to a ‘Police Raj’ in citizens’ homes and a sharp increase in corruption among tax officers.

• Warns the tax will split Hindu undivided families and force wealthy households to abandon dependents the state cannot itself support.

• Concludes with a five-point indictment — kills incentives, retards capital formation, breeds corruption, damages social structure, jeopardises individual liberty — and reframes liberty, morale and incentive as ‘the invisible wealth of a nation.’

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