Additional taxation on the rich is a real possibility for budget 2013

Don’t be surprised if the revenue starved government is imposing some sort of an additional tax on the rich in the next budget. The curious issue is that in what form such a tax may figure out. Definitely, there is much difficulty at the administrative level if the Finance Minister identifies another upper tax slab for at 30% plus tax rate. The tax structure of the country has been standardized with the highest tax rate lying at 30%.

Better, the government can think of introducing a surcharge on the highest tax slab. As per the last budget, the highest tax slab is for those having income above Rs 10 lakh. Now, the government can peacefully tax this group without facing much resistance as the circumstance necessitates such a measure.

The additional advantage of imposing surcharge is that the centre can completely utilize the revenue without sharing it with the states. But for the imposition of the surcharge, the Finance Minister should introduce a separate legislation envisaging the revenue from it for financing a particular sector like infrastructure.

                Conceptualization of the extra tax on the rich beyond a surcharge on a temporary basis is difficult. Finance minister may definitely resort to other measures also, besides a surcharge. This includes keeping the exemption limit and highest tax slab unchanged. This step itself is some sort of an additional tax because of the prevailing inflationary situation, the real value of income has decreased. Of course, the most attractive option for the government is introducing a Voluntary Disclosure of Income scheme which allows conversion of black money into white money by paying a higher tax rate like 30%.