By Anjan Roy
Taxation of the super-rich is becoming current coin in International deliberations on the global financial structure and funding of development.
In a recent multi-nation deliberations organised by the Heinrich Boll Stiftung of Berlin, Indian participant Rakesh Mohan, former deputy governor of RBI, drew attention to the fact that while the World bank has a paid up capital of $22 billion, Elon Musk’s compensation last year was $46 billion.
Elon Musk and his ilk across the world have huge wealth in stocks in the world’s most valuable companies. But as the share prices zoom and they gain, none of that could be taxed until sold and the gain is booked. This is attracting attention of taxmen and public finance specialists as well as governments.
If the World Bank capital is raised by infusing some $10 billion its borrowing capacity would rise by $50 billion and that much more funds would be available to the multilateral development bank to push for the development of the least developed countries.
Dr Mohan said that taxing the super rich by even at 5% would raise humongous amount of resources for fruitful utilisation in the cause of development of the least developed and push ahead with the MDGs. True. But Dr Mohan also underlined the real hitch in the proposal.
The Musk salary is mostly in the form of stock options. Until Elon Musk converts those options into real transfers and realises his gains by selling his stocks, there is no provision for taxing such enormous wealth.
All over the developed countries, as well as the more prosperous emerging market economies, such build up of massive wealth is taking place. As the stock markets are rising, the super rich are becoming richer without flexing a single muscle.
Consider what is happening in India. The stock markets are behaving as if there is no end to a climb. It is going up and up, the bulls are charging with full force. This means that the India super rich are becoming so much richer.
Take an instance, Infosys founder and principal mentor, N. R. Narayanamurthy, gifted his newly born stocks worth $293 million. This little child is already immensely rich before he leans to toddle. But this amount cannot be taxed as the child is exactly not in a hurry to sell.
Ambanis and Adanis are getting richer by the day and they are splurging on luxuries which are eye-popping even for their compatriots around the world. In the run-up to his marriage, the Ambani family had organised fascinatingly “interesting” parties where the Bill Gates and Bezos. Anant Ambani had sported a wristwatch which cost Rs66 crore, and it caught the eye of one of the richest men of America.
However, none of these families are paying taxes on these mind boggling caches of wealth. They are prospering without paying taxes than ordinary folks are paying through their nose.
Consider, once again. The government is tom-tomming about the sky rocketing GST collections month by month. The union government could have a comfortable fiscal deficit. The states are collecting their share of GST bonanza. But who are paying the GST. The poorest of the poor are paying GST on their each and every purchase.
The humble biscuits are attracting taxes, the “tent-walla” charges service tax on a flimsy shamianas put for marriages of even poor people. And if you are going for a little food at a restaurant for celebration of the good results of your son or daughter, the central and state government also join in as uninvited guests when you pay the bill.
The issue of taxation of the super rich is turning into a thought provoking subject. The Economist had picked up this fiscal enigma, following up US President Joe Biden’s talk of taxing the billionaires for garnering money for social schemes.
The Economist has cited some reports which indicate that unrealised capital gains (rise in wealth from say rise in stock market valuation) amount to $6 trillion of the $11 trillion in wealth held by the super rich. Owner of Nvidia, world’s most valuable company now, saw rise by $100 billion since the artificial intelligence frenzy took hold. Nvidia chips are essential part of AI operations.
The tax law is that as long as the gains are not realised and become accrued income, these cannot be taxed.
The new government is in the midst of its exercises for formulating its budget for the full financial year, 2024-25. In the current season, there is reason to believe that some exercises should be started to look into ways of tapping these massive gains.
But there is an issue.. After all, stock valuations are as transistors water drops on a duck’s back. The valuations are rising but these might just as well plummet. So you tax the rise, what happens when the gains vanish and turn into losses.
But these can be taken care by providing for adjustment of losses when these happen. Because the inflated values of one time might lose ground later cannot be a reason for not charging taxes on astronomical gains. (IPA Service)