A friendlier tax regime can hold back an exodus

Source: The post is based on an article “A friendlier tax regime can hold back an exodus” published in the Live Mint on 20^th July 2022.

Syllabus: GS 2 International Relations; Indian Diaspora

Relevance: Indian Citizenship

News: This week, the government has placed the latest data in Parliament, which shows a rising number of people giving up Indian citizenship.

In 2021, over 163,000 Indians chose to become citizens of other countries. This is the highest in seven years.

About the laws of Indian citizenship

Last year, half of those who left Indian citizenship, took US citizenship.

Last year’s tally of Indians who opted to be citizens of Australia stood at 23,533, Canada at 21,597, the UK at 14,637, Italy at 5,986, New Zealand at 2,643, and Singapore at 2,516.

Apart from small tax havens, this list features Germany, Netherlands, Sweden, Spain, and Portugal,

What were the reasons for choosing citizenship in these countries?

Some of the above-said countries offer easy entry with a citizenship option if one brings along a modest amount of money to invest there.

On international surveys of ‘passport power’, India still ranks much too low for comfort. The Indian passport is weak to let us get into richer countries. The scroll of nations that grant us either visa-free or swift entry also remains too short. Therefore, some switchover chose those countries, whose passports enable smoother global travel.

Some of the well-off residents chose to move abroad due to the high taxation regime in India. For example, after counting surcharges on the rich, the taxation regime on the rich class has entered a zone that’s closer to ‘half my earnings’ than ‘one-third’. Thus, taxpayers are feeling over-squeezed if not extorted.

For some years now, the Centre has adopted a tendency to harden taxes. For, case of wealth tax.

Another big barrier in front of the well-off class has been our curbs on capital transfers overseas. In India, up to $250,000/year can be remitted legally.

What should be done?

The Indian government can reduce outbound motivations to contain the possibility of emigration turning into an exodus in following ways:

(1) Lighter taxation should top the list of retention measures. This trend could be weakened if our top-bracket tax burden were eased.

(2) Diplomatic efforts can be made to make it easy for Indian passport holders to go to a greater number of countries.