PM Narendra Modi Government Eyes Higher Capital Gains Tax For Rich To Curb Inequality

India is getting ready to rewrite its direct tax laws in order to replace a complex web of regulations and aid Prime Minister Narendra Modi in his efforts to combat growing wealth inequality if he wins reelection next year, According to people with knowledge of the situation.

The persons, who asked not to be named because the information is secret, said that the main focus of the revisions is prospective increases in capital gains taxes for high-income taxpayers. For instance, India taxes gains on some asset classes, including equity funds and stocks, at a lower rate even though it can tax income up to 30%.

One of the participants argued that this isn't progressive and violates the equity principle. Although no final decisions have been taken, the persons noted that a panel may be created to expand on ideas presented to the Finance Ministry in 2019 with an eye towards implementation in 2024.

An email requesting comments from a representative for the finance ministry received no response right away. After the revelation, the benchmark stock index in Mumbai dropped as much as 0.6%.

Economists frequently point to India's reliance on indirect taxes, or levies on consumption, rather than direct taxes on capital as the key reason why the country's poor are left behind, despite the country producing 70 new millionaires every day between 2018 and 2022. According to Oxfam International, the wealth in India is held by the top 10% of the population, and according to government statistics, only 6% of people pay income taxes.

Global leaders are working to close economic divides, from US President Joe Biden's proposal of greater taxes for the wealthiest to China President Xi Jinping's "common prosperity" programme. Modi has been charged with having policies that benefit the wealthy despite having the strongest mandate in thirty years and running on a platform of dignity for the poor.

In 2017, Modi replaced several indirect taxes with a goods and services tax, transforming India into a single, unified market during his first term in office. His tax reform will be completed by a new direct taxation law, and he must raise living standards for all citizens in order to promote India as a consumer destination that foreign companies should pursue.

The 2009 proposal by Modi's predecessor to update the six-decade-old income tax code was never implemented by succeeding governments. Even though India has adjusted various tax rates and exemptions for people and businesses, there are still some concerns that the country is working to resolve, such as standardising the tax rates on capital gains.

By taxing debt funds at the income tax rate in the most recent budget, the government attempted to partially address this problem.

To attract businesses wishing to move their operations out of China amid rising tensions between Washington and Beijing, the government is also attempting to replace India's cumbersome tax structure with a simpler law through the implementation of a new direct taxation code. More crucially, it might improve India's reputation as a place to invest after businesses like Vodafone Group Plc and Cairn Energy Plc have contested tax rulings in court.