Perspectives from ISB

Inheritance tax has come under sustained scrutiny in recent years as it is regarded as a reasonably effective way of reducing excessive personal inequality. However Governments across the world are in favour of providing exemptions to this tax due to the negative consequences it can have on family businesses.

 Many countries like, Germany exempts most heirs of family businesses from inheritance tax, provided they do not lay people off for seven years. On the other hand, heirs of non-business wealth face a steep tax schedule that rises to 50% at the top. As a result, even though Germans pass on more than €200 billion ($221 billion) of wealth each year, their government collects only €5 billion to €6 billion a year as inheritance tax: less than 1% of overall tax revenues. However, there is a growing consensus on bringing about changes to these tax laws that favour the Mittelstand heirs.

 Similarly India, a country with one of the lowest tax-to-GDP ratios in the world, does not have inheritance tax. This is ironic considering that the tax rates on personal and corporate income are high even by global standards.


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