Recently, a European citizens’ initiative (ECI) gathered the seven signatures required to request that the European Commission consider a legislative proposal for a wealth tax on the individuals in EU’s highest-income bracket.
Once the ECI is registered, the initiators have one year to collect 1 million signatures. Then, the European Commission would evaluate the proposal and publish a formal response, although it is not obliged to propose any new rules.
Wealth roundup
According to OXFAM, a think tank focused on highlighting the growing wealth inequality, a total of USD 42 trillion in new wealth has been created since 2020, with USD 26 trillion, or 63 per cent, of that being amassed by the top 1 per cent of the ultra-rich, and the remaining 99 per cent of the global population collected just USD 16 trillion of new wealth.
The Hurun India’ wealth report, 2023, released earlier this month, indicates a 76 per cent growth in the last five years of the number of Indians with more than Rs 1000 crore as net wealth, which is placed at a total of 1319 persons.
The recent growth in the ranks of the wealthy in India is perhaps the quickest in the world and undoubtedly far quicker than the growth in many other economic measures like the GDP or the PCI. This is quite likely the result of the astronomical growth in the market value of listed shares and to some extent the real estate, both the predominant preserve of the richer class.
Widening wealth disparity
There is a growing unease with the current economic models that has been causing the ever-expanding wealth disparity coupled with the constant quest to find solutions to transfer resources to the poorest of the poor. Wealth tax has not been popular as a means of gathering more taxes from the rich, but the data on how rapidly the rich is growing richer is keeping that discussion alive among the global policy think tanks and activist groups.
In India, wealth tax was done away with in 2016 as the amount collected was much less than Rs 1000 crore. It was levied on the so termed ‘unproductive assets’ like gold, urban land and motor car. This was little related to the actual wealth and the paying capacity but was on a misconceived base.
To assess the potential for a meaningful wealth tax in the Indian context, the profile of the high-income tax payers would be a good starting point. Income is a good proxy for the underlying wealth which produces it. As per the latest data available which is for AY 2021-22, the number of non-corporate tax payers with returned income in excess of Rs 50 lakh per annum was 432,790. The aggregate taxable income returned was Rs 5.62 trillion.
Compared to the data of AY 2013-14 the annual growth (CAGR) in the taxable income returned by persons having a taxable income in excess of Rs 50 lakh is 16.41 per cent. This is higher than the overall growth in the tax base of about 15 per cent, annually. Interestingly, the growth in the taxable income of persons reporting income exceeding Rs 50 crore was a staggering 26.7 per cent. This is a telling statistic and offers a strong basis to infer that the income growth is much higher for the super-rich class. The cutoff of Rs 50 lakh annual taxable income is in itself many multiples of the PCI of Rs 1.7 lakh at current prices and a very high threshold to adopt, yet even this throws up 4.32 lakh persons as of AY2021-22.
How much could the wealth tax collect?
When the wealth tax was in force, in whatever diluted form, the threshold was Rs 30 lakh to apply the tax! This was in 2016. Applying the GDP growth index for this period of seven years, the threshold at current prices shall be approx. Rs 60 lakh only! The floor of Rs 10 crore to apply wealth tax while catching only a fraction of the tax paying population may potentially offer a very robust tax base to make the exercise meaningful.
Just to get a hang of the tax potential, the data in the Hurun list is a good start point. The top ten names in the list have a combined wealth of Rs 26.83 trillion! An average of Rs 2.68 trillion per person. The tenth person is Rs 1.21 trillion. The list has 1319 names with wealth above Rs 1000 crore. Even if we assume that the balance 1309 have an average wealth of only Rs 5000 crore, the sum of the wealth for the entire lot of 1319 persons, is roughly, Rs 81trillion! The number of persons with more than a crore income was 135,000 in AY2021-22. This number, for the current date, should be much higher, but keeping this as it is, and assuming that the average wealth of this population is about Rs 50 crore, the aggregate wealth would be Rs 68 trillion. (If the 1319 which may be reckoned as a double count is eliminated, the change is just negligible and can be ignored).
At the minimum the overall taxable wealth is about Rs 150 trillion for a small select section of the society of about 1.4 lakh in the population of 14,000 lakh! A 2 per cent levy would yield the government about Rs 3 trillion in taxes. The total personal tax collection budgeted for FY2023-24 is Rs 9 trillion. The potential wealth tax is not an insubstantial addition to the overall personal tax collection.
Opportunity to collect about USD 30 billion as wealth tax
The wealth tax in its substantive form was in force between 1957 and 1993. However, it was very poorly conceived with complicated valuation rules and lacked science in its administration. A crippled law was made further anaemic by the courts and the tribunals!
Three decades since, India is a different country, as even the highest in the office often proclaim; the fastest growing major economy with even a faster growing tribe of the super-rich. More than the discretionary commitment that the super-rich make for social causes through charities which is often controlled by the donor’ family, a formal taxation system that helps augment resources for the state which can better decide the ways of benefiting the needy deserves to be debated.
With the EU triggering the idea of raising USD 250 billion by taxing only the billionaires, the opportunity for India to look at the levy for wealth above a very significant threshold of say Rs 10 crore can be upwards of USD 25-30 billion, which would be more than 10 per cent of what EU believes is the global opportunity!
