India’s wealth at odds with its poor tax-to-GDP levels
With the latest India Wealth Report putting the wealth of 236,000 high net worth individuals in 2015 at $1.5 trillion—and the number of these individuals has risen 55% in the last eight years—the country figures among the 10 wealthiest in the world. Compare this data on wealth with India’s remarkably poor tax-to-GDP ratio, and you realise just how much the country’s taxman is missing by way of the low-hanging fruit since just 3.3% of the population pays taxes in the country as compared to 39% in Singapore and 46% in the US. Part of this, needless to say, is related to the country’s low level of income, but there is enough data to show that even the better off pay much less taxes than they should—the latest income tax data released for FY12 showed just 2,669 people declared annual incomes as over R5 crore, a mere 32,947 with incomes between R1-5 crore and under 13 lakh persons declared their incomes as between R10 lakh and R1 crore. As a result of this under-declaration, between individuals and corporates, the declared income in that year equaled a mere 23% of the country’s GDP. Since all the wealth eventually gets reflected in consumption, a lot of the data which is sent to the taxman in the form of annual information return (AIR) from automobile firms, jewellers, travel agents and credit card companies among others, a proper cross-tabulation of this with tax returns will allow the taxman to capture a lot more income.
At a different level, as Ruchir Sharma of Morgan Stanley’s latest book points out, this also reflects on the dynamism in the economy. A sharp rise in the number of billionaires suggests a dynamic economy, but only if this is not coming from cronyism—‘bad’ billionaires are defined as coming from industries like mining and real estate where government permissions make all the difference. While billionaire wealth is a high 14% of GDP for India in 2015—it is 5% in China and South Korea and 9% for emerging markets—the good thing, as Sharma points out, is that between 2010 and 2015, ‘good’ billionaires saw their fortunes rising 22 percentage points to 53% of total billionaire wealth.Apart from the concentration of wealth, the other important attribute is how often the list changes—while that stagnated between 2006 and 2010, according to Sharma, the 2015 list has a lot of new faces and in ‘good’ industries. Since ‘good’ billionaires are defined as those from industries like tech, pharma and telecom, the good news is, their spread automatically means more taxes as these industries tend to have less dealings in cash.