Rising inequality in the digital economy poses risks not only to equitable growth but also to democratic institutions. In light of this, critically examine the case for progressive taxation in India and the challenges in its implementation.

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INTRODUCTION

The digital economy has amplified wealth concentration, market power, and data asymmetries, posing risks to inclusive growth and democratic balance.
This revives the case for progressive taxation as a redistributive and stabilising tool.

CASE FOR PROGRESSIVE TAXATION IN INDIA

Equity and Redistribution: Addresses widening income and wealth gaps, aligning with Article 38 (reducing inequalities).
Fiscal Capacity: Generates resources for public goods like health, education, and digital infrastructure.
Correcting Digital Concentration: Taxes super-normal profits of digital monopolies and platform economies.
Democratic Stability: Limits excessive economic power that can distort political processes and public discourse.

POLICY INSTRUMENTS AVAILABLE

Higher Marginal Income Taxes on top earners.
Wealth and Inheritance Taxes to address intergenerational inequality.
Digital Services Tax / Equalisation Levy on global tech firms.
Capital Gains Rationalisation to ensure fairness across asset classes.

CHALLENGES IN IMPLEMENTATION

Tax Evasion and Avoidance: High-net-worth individuals can shift assets offshore.
Global Tax Competition: Higher taxes may deter investment in a mobile digital economy.
Administrative Constraints: Difficulty in valuing digital assets and tracking intangible wealth.
Political Economy Resistance: Opposition from influential economic actors.
Regressivity Concerns: Over-reliance on indirect taxes (GST) dilutes overall progressivity.

CRITICAL ANALYSIS

While progressive taxation is normatively justified, excessive taxation without broadening the base may be counterproductive.
India needs a balanced mix of efficiency and equity, avoiding disincentives to innovation and investment.
International cooperation (e.g., OECD global minimum tax) is crucial in taxing digital capital.

WAY FORWARD

Strengthen tax administration and data analytics to curb evasion.
Align with global tax frameworks for digital economy taxation.
Gradually enhance progressivity while ensuring policy stability and investor confidence.
Increase reliance on direct taxes over regressive indirect taxes.

CONCLUSION

Progressive taxation, if carefully designed, can mitigate inequality and safeguard democratic institutions, but must be complemented by global coordination and robust domestic capacity.

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