DECEMBER 04, 2024

By TIOL Edit Team

THE G20 leader's summit, held last month, should have, by now, triggered a wealth tax-linked Viksit Bharat debate in Parliament. Sadly enough, it has not as yet as the Opposition is more inclined to latch to the daily masala from wherever it originates.

In this case, hottest masala relates to alleged bribery plot by Adani & others. We need not join the cacophony in this case as US laws take their own course.

We should first focus on how G20 under Brazil's Presidency has offered India new tax revenue streams including one that was hotly debated during the 2024 Lok Sabha elections.

Prime Minister Narendra Modi had outrightly opposed, both the wealth tax (WT) and inheritance tax (IHT) at political rallies and in interviews. In an interview to Times of India during April 2024, Mr Modi strongly replied to question that pitched WT & IHT as solutions to "inequality" in India. He stated: "I do not think they are solutions by any stretch of imagination. These are actually dangerous problems disguised as solutions."

Mr. Modi added: "wealth redistribution, wealth tax etc have never been successful: they never removed poverty, they just distributed it so that everyone is equally poor."

It is here pertinent to note that Modi attended G20 summit and is party to the 'G20 Rio de Janeiro Leaders' Declaration' issued on 19th November 2024. This marks a notable shift in his stand against taxing the super-rich's wealth, either as WT or as IHT, on assets inherited by rich person's family after his/her demise. Has Congress, a votary of taxing the super-rich, demanded Parliament debate on change in PM's stand & G20 leaders' declaration's significance for India? Answer is No.

As put by the Declaration, "we will seek to engage cooperatively to ensure that ultra-high-net-worth individuals (UHNWIs) are effectively taxed. Cooperation could involve exchanging best practices, encouraging debates around tax principles, and devising anti-avoidance mechanisms, including addressing potentially harmful tax practices."

It added: "we endorse the Rio de Janeiro G20 Ministerial Declaration on International Tax Cooperation. Progressive taxation is one of the key tools to reduce domestic inequalities, strengthen fiscal sustainability, foster budget consolidation, promote strong, sustainable, balanced, and inclusive growth and facilitate the achievement of the SDGs (Sustainable Development Goals)."

According to the G20 Finance Ministers' declaration issued on 25th July 2024, "It is important for all taxpayers, including ultra-high-net-worth individuals, to contribute their fair share in taxes. Aggressive tax avoidance or tax evasion of ultra high-net-worth individuals can undermine the fairness of tax systems, which comes along with a reduced effectiveness of progressive taxation."

It added: "the international mobility of ultra-high-net-worth individuals creates challenges in ensuring adequate levels of taxation for this specific group, impacting tax progressivity."

The Communiqué issued by joint meeting of G20 FMs & Central Bank Governors on 26th July 2024 noted certain reports/studies commissioned by the Brazilian G20 Presidency.

These are: "IMF's G20 Note on Alternative Options for Revenue Mobilization; the Blueprint for a Coordinated Minimum Effective Taxation Standard for Ultra-High-Net-Worth Individuals; and the OECD Report to G20 Finance Ministers and Central Bank Governors on Taxation and Inequality."

The Blueprint report dated 25th June 2024 forms the core of the proposal to target UHNWIs. Says the Blueprint, "individuals with more than billion in wealth would be required to pay a minimum amount of tax annually, equal to 2% of their wealth. This standard could be flexibly implemented by participating countries through a variety of domestic instruments, including a presumptive income tax, an income tax on a broad notion of income, or a wealth tax. The report presents evidence that contemporary tax systems fail to tax ultra-high-net-worth individuals effectively."

It adds: "A common taxation standard for billionaires has become technically possible. Implementing it is a question of political will...Countries can also start to examine what would be the most appropriate way to translate the standard described here in their own domestic legislation."

It is high time Mr. Modi clarifies whether he has softened his stringent opposition against the wealth tax. If he believes in G20 leaders' declaration in letter and spirit, then would he facilitate amendment of Income Tax Act (ITA) to define, both high net-worth individuals (HNWIs) and UHNWIs, as a first step towards effectively taxing the rich and super-rich. If there is no change in his opposition to wealth tax & IHT, then did India voice its dissent at G20?

The Finance Ministry has flaunted its indifference towards parliament questions on HNWIs by stating that it has no data on number of HNWIs in India. Neither it has any data on how many HNWIs have migrated to different countries and the resulting outflow of wealth. Its stock reply is that such data is unavailable due to absence of definition of HNWI in ITA as well as Citizenship Act.

Ironically enough, Knight Frank's The Wealth Report, 2024 has data on India's super rich. According to this Report, India's UHNWIs population is projected to rise from 13,263 in 2023 to 19,908 in 2028. It defines UHNWI as "someone with a net worth of US million or more." The report also defines HNWI as "someone with a net worth of US million or more."

Members of Parliament can also refer to chapter on wealth tax in an enlightening report titled 'IMF's G20 Note on Alternative Options for Revenue Mobilization' published during June 2024.

It says: "Recent proposals focus on wealth taxes that are limited to the 'superrich,' raising somewhat different issues. Such proposals have very high thresholds and apply in addition to, not instead of, capital income taxes. They address the main drawback of existing systems of capital gains taxation, which is tax deferral until realization."

The Note adds: "The revenue from a wealth tax on the superrich will depend on its design (rate and threshold) and behavioural responses."

Even Organisation for Economic Development (OECD) reports to G20 can enrich wished-for Parliament debate on wealth tax and other avenues to finance the march towards Viksit Bharat @2047.

Captioned 'Taxation and Inequality' the OECD Report to G20 FMs and Central Bank Governors was submitted in July 2024. The Report has reckoned "Growing calls for action on tax and inequality, including the taxation of high net-worth individuals." It has a valuable chapter on 'The taxation of high-net-worth individuals: evidence and challenges.'

As put by the Report, "Effective tax rates have been found to decline at the very top of the income and wealth distributions. This largely stems from certain design features of tax systems including lower statutory tax rates as well as exemptions and deductions that predominantly benefit income and assets earned and owned by HNWIs."

This narration of these facts might not appeal to the Opposition as Masala for decibel war with NDA. It is, however, adequate enough to make the Government accountable on implementation of G20 annual declarations over the last 10 years. Ideally, the Government should itself issue a status paper on action taken report on the declarations in which Modi Government has been a party.