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The Disparity Between Wealth and Taxation
Recent research highlights a significant discrepancy in India: the ultra-wealthy are reporting incomes that result in tax liabilities as low as 0.7% of their total wealth. This under reporting suggests systemic tax avoidance strategies that undermine the nation’s fiscal health.
Mechanisms of Under reporting
The affluent employ various methods to minimize taxable income:
- Asset Structuring: Utilizing trusts and offshore accounts to shield income.
- Capital Gains Manipulation: Engaging in transactions involving unlisted shares to inflate acquisition costs and reduce taxable gains.
- Income Diversification: Channeling earnings through entities in low-tax jurisdictions.
These practices exploit legal loopholes, making enforcement challenging.
Implications for Economic Equity
Such tax avoidance exacerbates wealth inequality, erodes public trust, and limits government resources for essential services. It also places a disproportionate tax burden on the middle and lower-income populations.
Pathways to Reform
To address these challenges, India could consider:
- Policy Overhaul: Reintroducing wealth and inheritance taxes to ensure equitable contribution.
- Transparency Measures: Mandating comprehensive financial disclosures for high-net-worth individuals.
- International Collaboration: Engaging in global efforts to curb tax evasion through information sharing and joint enforcement actions.
- Technological Integration: Leveraging data analytics to detect and deter complex tax avoidance schemes.F
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