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Under-reporting of Income by Wealthy Indians
Context
A recent study (Delhi School of Economics), reveals that India's wealthiest individuals significantly underreport their income relative to their wealth. This underreporting leads to a regressive tax structure and underestimation of income inequality.?
Key Findings:
- Inverse Relationship between Wealth and Reported Income: The study found that as family wealth increases by 1%, the reported income-to-wealth ratio decreases by more than 0.6%. ?
- Disparity in Income Reporting:
- Bottom 10% of families report incomes exceeding 188% of their wealth.
- Top 5% report incomes just 4% of their wealth.
- Top 0.1% report incomes less than 2% of their wealth.
- Forbes-listed families report incomes less than 0.6% of their wealth. ?
- Underreporting of Capital Income: Over 90% of capital returns for the wealthiest families do not appear in reported incomes, indicating significant tax avoidance.
- Tax Liability Discrepancies:
- Wealthiest 0.1% have tax liabilities amounting to approximately 0.7% of their wealth.
- Super-wealthy individuals pay taxes that are less than 0.2% of their wealth, which is lower than the tax liability for middle-wealth groups. ?
- Underreporting of Rental and Agricultural Income: Rental incomes are frequently underreported, and some individuals misclassify taxable income as tax-free agricultural income to evade taxes. ?
- Influence of Public Scrutiny: Individuals exposed to higher levels of media and public scrutiny are more likely to report higher incomes, suggesting that visibility and accountability influence income disclosure practices.
Implications:
- This study highlights the need for policy reforms to address income underreporting and ensure a more equitable tax system.
- Enhancing transparency and accountability, especially among the ultra-wealthy, is crucial for reducing income inequality and increasing tax revenues.?
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Tax Evasion
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