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View: Government should reinstate wealth tax in Budget 2017

Source | The Economic Times : By Narendra Nathan

Wealth Tax, which was in force since 1957, was abolished in the 2015 Budget. I think this was a big mistake and, therefore, the government should reinstate the wealth tax at the earliest, preferably, in the 2017 Budget itself.

“Ease of tax administration” was the main reason cited by the FM Arun Jaitley for the abolition. And to compensate the tax loss due to this, he has imposed an additional surcharge on high income earning assesses. This is totally against the concept of natural justice and amounts to taxing the same person again and again.

Some argue “why tax assets bought with post-tax income”? This is not a correct argument because we are now paying tax on all gains generated from assets invested out of our post-tax income.

For example, assume that we are investing in a bank’s recurring deposit (RD) or fixed deposit (FD) from the post-tax salary income. The interest on RD or FD is taxable even though we already paid tax on the salary income.

More importantly, wealth tax was based on sound economic logic of “taxing unproductive assets”. Why only unproductive assets? Because the income generated from productive assets are already taxed. In the above example, there will not be any wealth tax on the money deposited in the bank, because it is used for productive purposes.

Wealth tax would have been applicable, on the other hand, if someone decided to hoard currency notes at home (i.e. instead of depositing it in bank). And any cash held above Rs 50,000 would have been counted for computation of wealth tax.

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