The recent remarks by Sam Pitroda, a former advisor to Rajiv Gandhi and an associate of Rahul Gandhi, regarding inheritance tax have sparked a debate on its implications. Pitroda described the inheritance tax in the United States as an “interesting law,” leading Prime Minister Narendra Modi to accuse the Congress party of advocating for a policy that would seize property left behind for children, accusing them of a mantra to “loot,” both in life and in death.
The discussion surrounding inheritance tax as a means to redistribute wealth and address income inequality has garnered attention globally. India, however, abolished estate duty, wealth tax, and gift tax over the years. Estate duty, introduced in 1953, was abolished in 1985 by the government of Rajiv Gandhi. Similarly, wealth tax and gift tax were abolished in 2015 and 1998, respectively.
Although there have been discussions about reintroducing inheritance tax, particularly during the 2019 Lok Sabha election cycle, no concrete plans have been made. Meanwhile, there have been global calls to tax billionaires to foster more equitable societies. Discussions on a global minimum corporate tax rate and proposals for higher taxes on the super-rich have gained momentum, with countries like France and Brazil advocating for action.
In India, the estate duty, which was akin to inheritance tax, had progressive rates ranging from 5% to 40% on estates exceeding Rs 20 lakh, with a threshold of Rs 1 lakh. Even after its abolition, the idea of inheritance tax has persisted in official and unofficial discussions. However, the Narendra Modi government replaced wealth tax with a surcharge on the super-rich in the 2015-16 Budget, citing low revenue collection and administrative complexities as reasons for the change.
Wealthy taxpayers are often sensitive to high tax rates, which can lead to capital flight and investment in jurisdictions with more favorable tax regimes. The high cost of collection and lower-than-expected revenue collection were cited as reasons for abolishing estate duty in India.
Globally, there has been a decline in tax rates on wealth over the past decades, with only a few countries still levying broad-based wealth taxes. Researchers have highlighted the low effective tax rates paid by wealthy individuals, often due to tax avoidance strategies and preferential treatment of certain capital income.
In conclusion, while inheritance tax remains a topic of debate, its implementation requires careful consideration of its impact on wealth distribution, economic growth, and tax compliance. The experience of other countries and the evolving global tax landscape provide valuable insights for policymakers in shaping India’s tax policies.
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