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Home / Budget 2015 / Columns /  Wealth tax abolition: relief in compliance

Reducing inequalities in the society was the primary objective with which the wealth tax was introduced in the late 1950s, and given the objective it set out to achieve, all assets owned by taxpayers were taken into account for computation of wealth on which tax was levied. As a concept, wealth tax, as a form of direct tax, was charged on the net wealth of certain taxpayers (individuals, Hindu Undivided Families and companies).

An Indian national or a company, resident as per Indian tax laws, was liable to pay wealth tax in India, even on global assets. It was a tax on the benefits derived from ownership of property and was to be paid year after year on the same property on its market value, whether or not such property yielded any income. Wealth tax law had its share of complexity and the ensuing litigation added to the compliance costs.

For better efficiency

The levy in that form was continued until it was revised in the early 1990s, when significant rigours of the levy and compliance were eased. The Tax Reform Committee headed by Raja Chelliah recommended abolition of wealth tax in respect of all items of wealth other than those that can be regarded as unproductive forms of wealth or other items whose possession could legitimately be discouraged in the social interest. In its new form, after the 1990s, wealth tax was largely levied on undeveloped urban land, luxury cars, yachts, jewellery and other such specified assets leading to a very few tax payers, including companies, falling into the wealth tax net.

After the above amendments, the law, as its stands today, brought only specified assets to tax and subject to a threshold of 30 lakh per annum. The actual collections from levy of wealth tax has been a meagre 1,008 crore for the financial year 2013-14, and has hardly shown significant growth over the past few years.

Meeting a bigger target

Although only a nominal amount of revenue is collected from the levy of wealth tax, this levy creates a significant amount of compliance burden on the taxpayers. Wealth tax has also created a disproportionate administrative burden on the government.

In light of the above, it was proposed to abolish the levy of wealth tax. However, the government believes that the super-rich have to contribute more and the objective with which wealth tax was introduced is still relevant.

Hence, it is also proposed that the objective of taxing high net worth persons shall be achieved by levying an additional surcharge on taxpayers earning higher income.

A step forward

Being an additional surcharge on income tax, the new levy will not result in compliance burden for the taxpayers. Importantly, the new levy would help the government in reduction of administrative burden and collect more taxes than earlier since taxpayers (including companies) who were not within the wealth tax net could end up paying the additional surcharge.

Overall, it is a welcome move since it does not cast significant additional burden, but at the same time, is easy to collect and monitor as well.

Dinesh H. Kanabar is chief executive officer, Dhruva Advisors LLP

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