2% wealth tax on super rich likely to fetch nearly Rs 1.1 trillion

A wealth tax on the super rich or billionaires is gaining traction globally with several uber-wealthy individuals in the US and western Europe themselves advocating a higher tax on them.

At present, taxes are largely levied on income, proceeds from asset sales, and economic transactions, such as production and sales of goods & services. But there is no tax if the super rich choose to accumulate their wealth, rather than sell it. This, some critics argue, has resulted in a big source of wealth and income, escaping the tax net.

A small annual wealth tax on the country’s ultra-rich promoters and businessmen may plug this hole and provide a new source of direct taxes for the government. A back-of-the-envelope calculation shows that levying a 2 per cent wealth tax on promoters of listed companies with a net worth of $1 billion or more would garner the Government of India nearly Rs 1.1 trillion ($14.6 billion) in taxes annually.

The number of promoters and businessmen with a net worth of $1 billion (around Rs 7,500 crore) reached an all-time high of 126 at the end of December 2021, up from 85 a year ago. These uber-wealthy promoters’ combined wealth went 51 per cent up in CY21, or from $483 billion at the end of December 2020 to $728 billion at the end of December 2021.

In the run-up to the 2020 US presidential election, two leading candidates from the Democratic Party — Senator Bernie Sanders and Senator Elizabeth Warren — campaigned for a billionaires’ tax to fund infrastructure spending and expand social care in the country. Though US President Joe Biden’s $2-trillion infra spending bill doesn’t include a wealth tax on the country’s super-rich, it includes a surtax on annual income of $10 million or more.

A wealth tax on billionaires is also gaining traction from the fact that stock prices of the companies they are invested in or they own have sharply risen, thus boosting their wealth at a much faster pace than economic variables such as gross domestic product, production and sales of goods and services, and personal and corporate incomes. This resulted in sluggish growth in tax revenues even as the number and the wealth of billionaires are growing at a fast clip.

For example, in the last five years, while India’s GDP at the current prices is up 28.5 per cent cumulatively in dollar terms, the combined wealth of billionaire promoters is up 240 per cent cumulatively.

As a result, the combined wealth of the 126 billionaire promoters in the Business Standard list was equivalent to nearly a quarter of India's estimated GDP of around $2,947 billion in FY22 at current prices. The billionaires’ wealth-to-GDP ratio was 18.6 per cent last year and 9.3 per cent five years ago in FY16.

Many economists doubt the feasibility and desirability of wealth tax in the current economic environment.

“Promoters’ net worth simply reflects the net present value of their share of the firm’s future earnings, which are already taxed as corporate income tax. A wealth tax then results in double taxation,” says Devendra Pant, chief economist, India Ratings.