Significance of Wealth Tax
Besides being a source of revenue for the government, a wealth tax is of immense significance:
1. Promotes Wealth Equality: The main purpose of a wealth tax is to reduce the gap between the poor and the rich and promote equality in wealth distribution by imposing more taxes on the assessee who significantly owns assets of higher value. It further leads to the re-distribution of wealth that ensures social well-being and promotes economic welfare.
2. Source of Revenue: A wealth tax is a source of revenue for the government that is used to finance public expenditure and fund the major projects of the government like infrastructural development, building schools, hospitals, dams, roads, etc. Further, wealth tax reduces the dependence of the government on income tax for revenue generation.
3. Progressive Taxation: A wealth tax is based on the concept of progressive taxation which ensures fairness in tax structure. Under progressive taxation, more taxes are imposed on those who own more wealth. This promotes fairness and trust among the public in taxation policy.
4. Economic Development: A wealth tax promotes economic growth by re-distributing the wealth equally and allocating the resources efficiently. The social gap between the rich and the poor is reduced eliminating poverty and promoting progress.
5. Controlling Externalities: A wealth tax helps the government in controlling negative externalities like wealth concentration, political influences, social instability, unequal opportunities, and so on.