Editorial 1 : Retrograde
Introduction: It is an idea that harkens to perhaps the worst aspects of India’s socialist past. The chairman of Indian Overseas Congress, Sam Pitroda’s comments on the inheritance tax, have raised the spectre of wealth redistribution, almost four decades after the very same Congress party under Prime Minister Rajiv Gandhi had abolished it.
The history of wealth tax in India
- The use of inheritance tax as a tool for redistribution of wealth to address income inequality has been discussed widely.
- India did have an inheritance (or death) tax once.
- The tax, which was known as estate duty, was introduced in 1953, and was abolished in 1985 by the government of Rajiv Gandhi.
- India also had a wealth tax and a gift tax, which were abolished in 2015 and 1998 respectively.
Reason for abolition of wealth tax
- The then finance minister V P Singh had noted that the estate duty, or the inheritance tax as it was then called, had “not achieved the twin objectives with which it was introduced, namely, to reduce unequal distribution of wealth and assist the states in financing their development schemes.”
- The then finance minister had acknowledged in his budget speech that collections from the tax were “only about Rs 20 crore” and its cost of administration was “relatively high”.
The existence of wealth tax around the world
- A March 2024 note by the International Monetary Fund (IMF), said tax rates on wealth have generally declined around the world over the past decades, with a decline in average corporate income tax rates being an important component across country groups of all income levels.
- Citing data for the Organisation of Economic Co-operation and Development (OECD) countries, the IMF said 12 OECD members had wealth taxes in 1990, but only three (Switzerland, Spain, Norway) now levy a broad-based wealth tax.
Is the Congress party serious about the reintroduction of wealth tax?
- The chairman of Indian Overseas Congress, Sam Pitroda’s comments on the inheritance tax were refuted as his personal opinion by the Congress party.
- Lately, Congress leader Rahul Gandi himself has been promising promised a financial and institutional survey to find out who holds the country’s wealth.
- He added that, “after this historic step, we will take revolutionary measures.” Read with Pitroda, there is an allusion to wealth redistribution.
- The Congress party election manifesto, on the issue of tax, makes some encouraging noises – for instance, it speaks about ushering in an era of “transparency, equity, clarity and impartial tax administration”, ensuring “stable personal income tax rates”, “lessen(ing) the burden of tax”, and eliminating “exploitative tax schemes”.
Will taxing the rich help in wealth redistribution?
- Researchers have flagged low tax rates often paid by wealthy individuals.
- According to the EU Tax Observatory, an independent research laboratory at the Paris School of Economics, global billionaires have effective tax rates equivalent to 0-0.5% of their wealth due to the frequent use of shell companies to avoid income taxation.
- A global minimum tax on billionaires, equal to 2% of their wealth, could potentially raise close to $250 billion from fewer than 3,000 individuals annually, it said in its Global Tax Evasion Report 2024.
- Wealthy taxpayers often reduce the incidence of average tax rates by exploiting loopholes and preferential treatments of certain capital income, the IMF said in its note.
- Citing data from various studies, the IMF said the wealthiest 25 individuals in the US faced an effective average tax rate of only 3.25% while a rate of 9.4% was reported for the top 400 families.
The Congress party is not giving a clear message to its voters
- That concentration of capital is a problem, that marginalised sections must get a leg-up, that efforts must be made to address inequalities of opportunity, expand the pie, is beyond debate.
- The Congress has promised a socio-economic caste census as a tool of affirmative action that will address inequalities rooted in historical injustices.
- Yet, the cavalier manner in which Gandhi has conflated these two issues, in the middle of an election campaign when there is little room for nuance, raises fears of a direct assault on wealth.
- And that, too, when the story of India’s wealth creation has just begun.
- There are indications that more and more Indians from all walks of life are beginning to participate in wealth creation — – there are now more than 150 million demat accounts in the country as per recent data.
Conclusion: By portraying the caste census as a magic wand that will deliver justice to one and all, by loosely talking of “surveys” and “revolutionary” steps, by floating the inheritance tax trial balloon, the Congress does a disservice to its own economic journey three decades after the landmark 1992 reforms that brought the curtains on the Licence Permit Raj.
Editorial 2 : A solution that isn’t
Introduction: The government of the United Kingdom has passed its “Rwanda Bill” — it will now become law. Under the Bill, asylum seekers deemed to have illegally entered its territories after January 1, 2022, can be sent to the African country for “processing”.
Concern regarding the ‘Rwanda Bill’
- Irrespective of whether an asylum seeker is found to be “genuine” or not, they cannot return to the UK and must opt for settlement in either Rwanda or another country.
- Prime Minister Rishi Sunak’s government devised the legislation after furious opposition to what was earlier a “scheme” to send “illegals” to Rwanda.
- In 2023, the supreme court declared the scheme unlawful, pointing out that Rwanda was not a “safe” country and the plan went against the European Convention on Human Rights (ECHR).
Benefits of the Bill to Britain and Rwanda
- In return for acting as an offshore processing centre, the impoverished African nation will receive substantial amounts of money. These run into hundreds of thousands of pounds.
- The Bill, it has been suggested, will act as a deterrent to those who make landfall on the UK coastline in small boats (sometimes no more than inflatable rafts with an engine strapped on) crossing the English Channel from European ports.
A similar arrangement for refugees has been made by other Western nations
- The Rwanda Bill — which Home Secretary James Cleverly described, as a “landmark moment” — is not unique.
- Australia’s offshore refugee programme involved the tiny South Pacific nation of Nauru (population around 13,000 with a GDP of approximately $US135 million).
- It is estimated that in 2021-2022, around two-thirds of Nauru’s revenues came from payments connected to the Australian refugee scheme.
- The processing centres are not currently operational, though they are kept in a “readied” state, should Australia need them again.
- Nauru’s refugee servicing industry lingers on.
- The European Union (EU) finances refugee-blocking and processing arrangements across several countries in the third world (“Global South” seems a sanitisation of the relationship between the rich and poor hemispheres) and both the Trump and Biden administrations have been active in formulating such arrangements in their South American backyard.
The recent change in Western nations’ attitude towards refugees
In recent times, Western governments’ attitudes towards refugees have important symbolic dimensions. These are intended for both domestic consumption as well as consolidating the idea of the West at a global level.
1. Controlling illegal immigration and refugees is seen as the biggest vote-getter in Western nations
- The idea of “control” over national borders has been a powerful tool of electoral politics across many Western countries and refugees and asylum seekers are grist to the “sovereignty” mill.
- A significant precursor to Australia’s Nauru “solution”, for example, was erstwhile prime minister John Howard’s 2001 statement that the Australian government would control who came into Australia, which helped him in the following elections.
- It is unsurprising, then, that a constant refrain to the UK’s Rwanda Bill has been Rishi Sunak’s statement that “international courts” will not be allowed to determine the country’s domestic policy.
- The idea is that British “sovereignty” is under threat from extra-national forces, including refugees and international courts.
- This, of course, echoes significant parts of the Brexit narrative.
2. Paying for refugees in a third country shows the compassion of the West for them
- On a global level, the Rwanda Bill is part of the symbolic register of “compassion” that forms an indispensable part of Western notions of the self.
- If sovereignty demands a policy of extra-territorial governance, then the Rwanda solution is also an answer to charges of callousness towards the world’s most vulnerable populations.
- For, it retains the idea of compassion — financed through payments to Rwanda — by suggesting that asylum seekers still have access to refugee status.
- Only that it has to be determined elsewhere.
3. The emergence of ‘asylum economy’
- The emerging “asylum economy” — in Nauru and other parts of the world — has something troubling about it as a form of neo-colonial relationship between rich and poor nations.
- It is as if the solution to the historical and geopolitical conditions that produce refugees and asylum seekers is to create massive holding camps in the third world.
No hope for a solution to the underlying causes of migration
- There are very few indications that the conditions that create refugees and asylum seekers will abate any time soon.
- Women, men and children do not get into creaky boats — with prior knowledge of the fate of others who have made similar journeys — to either challenge national sovereignty or test the limits of Western compassion.
- There will be more legal challenges to the Bill, though the sight of refugees being bundled onto planes to camps in Rwanda will, some will hope, be a tonic to Sunak’s party’s electoral chances.
- What is entirely unclear is if any of this has anything to do with addressing the underlying causes that lead such large numbers to put themselves in harm’s way with the faintest idea of making landfall along a coastline of hope.
Conclusion: The idea that British ‘sovereignty’ is under threat from extra-national forces, including refugees and international courts, echoes parts of the Brexit narrative. It is disheartening to see how human lives are put at stake for the protection of ‘sovereignty’ and ‘national interest’.