Dangle less tax and watch 'em go
Sam Pitroda, a yesteryear technocrat, recently rattled the beehive after he suggested India should consider inheritance tax as a means of income redistribution. Even in the US, the super-rich avoid giving back by setting up tax-free trust funds for inheritance. In India, where tax evasion is both endemic and high, tax harvesting for distribution of wealth can only come from a highly incentivised low-tax regime with high volumes of taxpayers, for whom gains from paying up outweigh pains of evasion.
In a 2001 IMF paper, 'Tax Policy for Developing Countries', Vito Tanzi and Howell Zee wrote, '...the most prevalent forms of incentives found in developing countries tend to be the least meritorious… personal income taxes have been contributing very little to total tax revenue in many developing countries'.
More than two decades later, this is still true. Worse, personal income-taxpayers in India live in an abnormal environment of taxation where they get next to nothing for compliance and good citizenry. Sure, it can be argued that they get roads, utilities and other infra. But these are delivered to all citizens, including those who systematically evade taxes, giving honest taxpayers only the advantage of a good conscience.
Taxpayers plough a lot of extra money, providing for themselves what the state should. Other countries with high income-taxes and hefty inheritance tax can justify their tax regimes in a way that India can't. They deliver more to taxpayers.
For example, in Britain, which left behind a repressive
