Time to tax the super-rich

A proposal is being considered by G20 countries to impose a flat 'billionaire tax' on the wealth of the super-rich

Representative image (graphic: Faizan Khurshid/NH)
Representative image (graphic: Faizan Khurshid/NH)

AJ Prabal

Former Union minister Rajeev Chandrasekhar, who lost the recent Lok Sabha election from Thiruvananthapuram, declared a taxable income of just Rs 680 (you read that right: six hundred and eighty rupees) for the assessment year 2022-23.

The Election Commission ordered an investigation by the Central Board of Direct Taxes following complaints that the then minister had made a false declaration. He had declared the value of his movable assets at over Rs 28 crore and the value of his self-purchased immovable assets at over Rs 14 crore. How then did he have a taxable income of less than a thousand rupees?

Chandrasekhar claimed innocence. His taxable income in the financial year 2019-20 was Rs 17.5 lakh and Rs 5.5 lakh for the year 2023-24. In other words, he was paying either zero income tax or paying much less than thousands of salaried middle-class professionals.

How was that even possible? As per a report in Malayalam Manorama, his investment in bonds, shares, mutual funds etc. went up from Rs 15.45 crore to Rs 45.73 crore between 2018 and 2024. Chandrasekhar told the newspaper that all his declarations were made ‘as per the law’ and all charges against him were false.

The controversy raged even as the Congress manifesto gave PM Modi a handle to accuse the Congress of conspiring to take away the wealth of Indians. While the manifesto spoke of a progressive taxation policy to reduce concentration of wealth and income, mainstream media targeted Sam Pitroda, chairman of the Indian Overseas Congress, of threatening to impose wealth and inheritance tax. (Mr Pitroda had mentioned inheritance tax prevalent in the US as an interesting provision that no longer existed in India.)

It remains to be seen how the government of India will react to the proposal being considered by G20 countries to impose a flat billionaire tax on the wealth of the super-rich.

Meanwhile, the mystery of the mismatch between the wealth and taxable income of Rajeev Chandrasekhar can be explained in a submission by French economist Gabriel Zucman, who was invited in February 2024 to make a presentation at the G20 finance ministers’ meeting in Brazil, and explained that the ultra-rich derived much of their ‘income’ from their ‘wealth’ (ownership of companies, shares, holding companies and myriad exemptions granted by governments) and not from salaries or wages.

This calls for taxing their wealth, not income. With the global corporate tax system largely fixed, the new focus is on plugging loopholes in the taxation of the wealthiest individuals.

Mukesh Ambani was already India’s wealthiest individual a decade-and-a-half ago. However, he did not figure among the top 100 income tax payers in the country. While the board of directors at Reliance Industries had fixed his annual compensation at Rs 37 crore, he had famously written to lower it to Rs 15 crore.

He is no exception. Most of the wealthy across the world pay very little income tax because it is not their income which sustains and adds to their wealth but their wealth which keeps adding to their income.

The richest, says a report prepared by Oxfam, get away with paying hardly any tax. Elon Musk, the report says, has been shown to pay a ‘true tax rate’ of 3.2 per cent while Jeff Bezos pays less than 1 per cent. "In contrast, one of the market traders that Oxfam works with in Uganda, Aber Christine, pays 40 per cent of her profits in tax," the report adds.

Oxfam believes halving the wealth of the billionaires to the 2012 level would reduce unacceptable levels of inequality. "For every $1 raised in tax, only four cents comes from taxes on wealth… the failure to tax wealth is most pronounced in low- and middle-income countries, where inequality is highest… two-thirds of countries do not have any form of inheritance tax on wealth and assets passed to direct descendants… half of the world’s billionaires now live in countries with no such tax, meaning $5 trillion will be passed on tax-free to the next generation, a sum greater than the GDP of Africa… a new, powerful, and unaccountable aristocracy is being created in front of our eyes," it said.

In the US, President Biden’s proposed ‘Billionaire Minimum Income Tax’ — requiring households worth over $100 million to pay a 25 per cent annual minimum tax on their ‘full income’ including capital gains — is aimed at making the super-rich pay their fair share. US billionaires pay only around eight per cent of their income in personal income taxes and, for the first time in history, US billionaires have a lower effective tax rate than working-class Americans.

A paper titled ‘Income and Wealth Inequality in India, 1922–2023: The Rise of the Billionaire Raj’ authored by Thomas Piketty (Paris School of Economics and World Inequality Lab), Lucas Chancel (Harvard Kennedy School and World Inequality Lab), and Nitin Kumar Bharti (New York University and World Inequality Lab) said, "By 2022-23, top one per cent income and wealth shares (22.6 per cent and 40.1 per cent) are at their highest historical levels and India’s top one per cent income share is among the very highest in the world, higher than even South Africa, Brazil, and the United States."

The World Inequality Lab said factors, including a lack of education, have trapped some people in low-paid jobs and depressed the growth of the bottom 50 per cent and middle 40 per cent of Indians. Zucman, therefore, has suggested in his report that G20 countries, the largest economies in the world, agree to a 2 per cent tax on wealth per annum on billionaires.

In April 2024, Forbes published a list of 2,781 billionaires with a combined worth estimated at over $14 trillion. As many as 200 Indians made it to the list. These include Ravi Jaipuria (ranked at 104), Radhakishan Damani (ranked 92) and Cyrus Poonawalla (ranked 90) besides the usual suspects.

Data from Forbes billionaire rankings show the number of Indians with net wealth exceeding $1 billion (approximately Rs 8,300 crore at current exchange rates) rose from one in 1991 to 162 in 2022, and 200 in 2024.

Zucman in his report argues that the proposed tax is not a wealth tax, but a ‘presumptive income tax’ — a tool to fix the fact that normal income taxes are easy to avoid for the rich and certainly the richest. The suggestion is that since the taxable income of the ultra-rich is so hard to pin down, governments should stipulate a certain rate of return — for example, a 2 per cent tax on wealth could be seen as a 33 per cent income tax on a presumed 6 per cent return.

Half the wealth of the richest can be found in the form of listed company ownership, which has easily ‘observable’ market values. Much of the rest, he says, can be found in their ownership of unlisted companies. Identifying such owners is a matter of simple legislation, and valuation can be decided formulaically, based on company revenues and assets. This will, however, require improved collection of information regarding wealth and sharing of information between countries.

In the past, countries have objected to taxing the rich on the ground that they would leave the country and settle elsewhere. An international minimum tax, Zucman says, would give the rich fewer opportunities for moving out to avoid the tax net. However, tax havens, countries which benefit by luring the world’s richest with low-tax regimes, are unlikely to fall in line. That is the reason why a group like G20 needs to agree on an international standard.

Follow us on: Facebook, Twitter, Google News, Instagram 

Join our official telegram channel (@nationalherald) and stay updated with the latest headlines