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A Tax on Aspiration
Context
The concept of inheritance tax has re-entered public discourse in India recently. This has sparked significant debate and discussion regarding its potential implications for the country's economic and social landscape
Why a US model does not work for India:
- Global Variations in Inheritance Tax: Inheritance tax, prevalent in countries like South Africa, Brazil, and the US, is absent in emerging economies like India and China. The disparities in wealth distribution and the structure of economies across these nations make the application of a uniform inheritance tax model challenging.
- Challenges in Implementation: Wealthy individuals can easily circumvent inheritance tax through asset utilisation and wealth transfer strategies, making effective implementation problematic.
- Impact on Middle-Class Aspirations: Implementing inheritance tax could hinder wealth accumulation and investment, discouraging entrepreneurship and capital formation.
Threat to Middle-Class Aspirations:
- Disincentives for Wealth Accumulation: Such tax creates disincentives for wealth accumulation and investment, potentially hindering economic growth and entrepreneurship.
- Challenges of Inheritance Tax: Implementation of inheritance tax may lead to forced asset liquidation, resistance from taxpayers, and potential capital flight, undermining efforts to promote economic growth and social stability.
- Impact on Wealth Redistribution: Despite its aim to redistribute wealth, inheritance tax may not effectively reduce wealth inequality due to tax avoidance strategies employed by the wealthy, leaving the middle class more vulnerable to taxation.
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