Need for progressive property tax and strong tax administration
In the second lecture in the series, ‘Inequality Conversations’, organized by the Center for Public Policy at IIM Bangalore, former RBI Deputy Governor NS Vishwanathan said that tax policies can alter the distribution of income and wealth for the benefit of people belonging to the lower economic strata. .
In his lecture this evening, on “Tax Policy Review”, delivered as part of the Center for Public Policy’s “Inequality Conversations”, Professor NS Vishwanathan, former Deputy Governor of RBI and Senior Fellow at IIM Bangalore, stressed that it is important to understand the different dimensions of inequality in order to appreciate the effectiveness of fiscal policies followed in different parts of the world.
He explained that among the measures used to assess inequality are the ratio of the income share of the richest 10% of the population to that of the poorest 50% of the population, as well as the ratio of the wealth held by the top 10% of the population versus those held by the bottom 50% of the population. Analysis of how these measures play out globally, between different regions of the world and different nations, shows that while at the global level inequality is undoubtedly very significant, it varies from one country to country and region to region, with several countries and regions showing greater inequality than the world. medium. It should also be understood, Prof Vishwanathan explained, that where inequality is severe in the poorest countries, this translates into sub-subsistence living standards for large parts of the population.
Globally, however, corporate tax rates are moving south. The lower corporate tax rate compared to personal income tax leads individuals to transform their business into a company to benefit from it. In addition, today’s competitive global corporate taxation allows large corporations to shift their profits to low-tax jurisdictions. “There is therefore a move towards a global minimum tax implying that the country of origin of a multinational can tax the profits of another jurisdiction up to the difference between the corporate tax applied by the jurisdiction of home and the agreed minimum tax rate. The effectiveness of such an arrangement is, to some extent, a function of the agreed minimum aggregate tax,” he explained, adding that, for example, at a minimum tax rate of 15 %, India might get extra tax. revenues of 0.5 billion euros, which would increase to 1.4 billion euros if the minimum tax rate were 25%.
Turning to the summary of the 2022 budget, Prof Vishwanathan said that work needs to be done on increasing the tax-to-GDP ratio and increasing the share of direct taxes. The regressive impact of a higher share of indirect taxes is mitigated by directing public spending towards activities that result in better socio-economic well-being for people in lower economic strata.
Among long-term policy actions, he suggested:
- Convergence towards a global minimum corporate tax to avoid a race to the bottom
- Progressive property taxes
- Target a specified change in after-tax income distribution through fiscal policy
- A strong tax administration.