Yesterday a controversy erupted in the Indian political scene on the statement of the Chairman, of Indian Overseas Congress Sam Pitroda who while speaking on the topic of ‘wealth distribution’ that India should have an ‘Inheritance Tax’. Immediately there was a reaction from the BJP leadership criticising the Congress party of Sam Pitroda’s comment on inheritance tax, the leader further added that this exposed Congress Party’s true intentions and called for clarity on their stance regarding the wealth distribution. The Congress spoke person said, “What Sam Pitroda says are his personal views, and they are not the views of the Congress party”.
What is Inheritance Tax
This is a tax which is levied on property inherited when a person dies. According to experts, estate and inheritance tax are broadly similar because both are generally triggered by death. Estate taxes are levied on the net value of property owned by a deceased person on the date of death. In contrast, inheritance taxes are levied on the recipients of the property.
Some economic experts justifies the Inheritance tax, saying that it ensures ‘equality of opportunity’. As per the views of ‘Organisation for Economic Cooperation and Development (OECD)- by breaking down the concentration of wealth and correcting for factors that are beyond the recipients’ control, inheritance and gift taxation can contribute to leveling the playing field across individuals, and thereby increase equality of opportunity and improve social mobility. This you can say as typical socialistic and leftist views.
Several advanced countries, including USA, UK, Japan, France, and Finland have inheritance tax ranging from 7% to 55%. Since 2000 many other countries have scrapped estate or inheritance tax.
Till 1985, India used to charge estate duty tax at 85% of the value of deceased person’s estate, the estate was defined in broadest possible terms and included all movable and immovable assets, interest in expectancy, interest in co-parcenary property (joint heirship), debt or enforceable right, etc. The liability on estate duty was cast on the recipient of the estate, who was to file a return of estate received based on which the competent authority would complete an assessment.
India’s inheritance tax or estate duty was repealed in 1985 because it neither helped bring down economic inequality in society nor did it contribute significantly to the exchequer. In 1984-85, the total tax collected under the Estate Duty Act was just Rs 20 Cr, but the cost of collection was very high because the calculation structure attracted a lot of litigation.
In theory inheritance tax makes sense since it is levied only on the super rich and promises large collections, in reality it fails to come up to its promise. The developed countries which impose inheritance tax have a structured social security and retirement plans in place unlike in India. “India is a developing country and still has long way to go become a developed economy”. We are still struggling with basic infrastructure issues. At the current juncture, we need to keep incentivizing entrepreneurial spirit so that more private investment happens leading to employment and allied opportunities”.
Suppose tomorrow, India starts inheritance tax, the situation may arise that such tax will lead to the exodus of the high net worth individuals to countries without this tax. These rich individuals will not only take their money out of the country but also their skills which India needs so much when it aims to consistently grow at higher pace. Even middle class citizens will have tough time, as in the middle class group if the heir is not doing well and he inherits some amount/property instead of getting large benefit from the inheritance, the heir might lose substantial amount for paying this tax.
In my opinion, the statement of Sam Pitroda on inheritance will not benefit the Congress party, as this will go against the party, and with Congress party’s stand on equal wealth distribution, the BJP is going to exploit this issues while campaigning for the general elections.
Waiting for your feedback on this blog.
Anil Malik
Mumbai, India
25th April 2024