Philanthropy, inequality and taxes

Blow up the structure of political democracy which this Assembly has so laboriously built up.

of John D. Rockefeller, then possibly the richest man on earth. Their chance encounter and conversation, perhaps influenced Rockefeller deeply, who went on to set up great charitable activity through the Rockefeller Foundation. That same monk also had a momentous meeting aboard a ship, with Jamsetji Tata, with the latter then sufficiently impressed and motivated toward philanthropy in later life. That monk was Swami Vivekananda. These incidents underscore the moral force behind philanthropy.

In an interview, Rohini Nilekani says that society has become very unequal and modern democracies were not supposed to become so. Even though the ethos is to do philanthropy quietly and secretly, the giving by the super-rich has a signalling value. Philanthropy, she says, is not merely about giving, but starting conversations about deep seated societal issues such as inequality. As she put it, “The super-rich also have to be super-generous!” Many philanthropists are beginning to say that the rich should be taxed more.

That’s where we need to bring in public policy. Inequality cannot be remedied merely by depending on the goodwill and moral compulsions of the very rich. We have to acknowledge that India has one of the lowest direct tax-to-GDP ratio. We do not have inheritance tax. We have exemptions, which enable large capital gains to go tax free. And in the meantime, the widening of the tax net through Goods and Services Tax increases the incidence of indirect tax. High indirect tax hurts to poor more than the rich and worsens inequality. Having a compulsory Corporate Social Responsibility (CSR) obligation from post-tax profits is an imperfect attack on inequality. We need a more progressive direct tax system, with very few exemptions and lower tax slabs. The formation of a new tax force is a welcome step, and hopefully it will address the issue of progressivity, simplicity and compliance. We also need to substantially raise the quality and quantity of provision of public goods, in primary health and education, in public transportation and access to quick justice. Thus, encouraging philanthropy is useful, but ultimately, addressing Dr Ambedkar’s prophetic warning will need huge public policy action.

The writer is an economist and Senior Fellow, Takshashila Institution (Syndicate: The Billion Press)