Global talk of taxing the rich has little appeal in India

Ahead of Amazon’s AGM of May 25, 2022, the UK-based tax transparency campaign group Fair Tax Foundation (FTF) revealed shocking details of tax evasion and misleading tax disclosures by the world’s largest retailer during the past decade of 2012-2021.

The FTF’s investigations show that Amazon actually paid 9.8% tax during 2012-2021 when the US headline tax was 35% during 2012-2017 and 21% in later years (post 2017 corporate tax cut by the Trump administration). The ‘tax gap’ between the tax Amazon’s financial statements declared and the actual cash tax paid is also huge. The gap “has grown to $6.1 billion” in the decade under scrutiny (2012-2021). Amazon reported cumulative tax of $15.7 billion while actually paying $9.6 billion during this period.

A year earlier, the Fair Tax Foundation’s investigations had shown that the top six US multinationals, Google, Amazon, Facebook, Apple, Microsoft and Netflix, described as the Silicon Six, avoided paying $100 billion tax between 2010 and 2019 through aggressive tax planning and profit and revenue shifting to tax havens (low tax or zero tax jurisdictions).

In spite of the known history of tax avoidance and evasions by US multinationals, Amazon’s AGM is billed to be the first event in which shareholders would be giving their opinion on tax transparency resolution that has been tabled by some of the investors.

Billionaires’ call for more tax at Davos

As wealth and income inequalities rise, more so after the US tax cut tax of 2017 and the pandemic struck, many billionaires and millionaires have come forward to call for more tax on themselves.

Even at Davos, where the global super-rich have gathered for annual conclave organised under the aegis of World Economic Forum (WEF), many asked world leaders to tackle the cost-of-living crisis by pushing up taxes on people like them. They even took to the streets demanding fairer tax systems worldwide.

This has come with the realisation that they expect more scrutiny (from media, political and activist groups) on corporate taxation, particularly after the pandemic heightened the inequalities. Deloitte’s 2021 annual global tax survey found 79% of multinationals expect more scrutiny and 33% are willing to increase voluntary tax disclosure.

In July 2021, 130 countries, including India, had agreed to US President Joe Biden’s proposal to impose 15% global minimum tax for companies. But there is little progress on that front. In such a situation, and in the face of growing tax evasion and avoidance by multinationals like Amazon, the voluntary call by the super-rich to tax them seems aimed at blunting public ire at them, rather than a genuine desire.

New billionaire every 30 hours, million new poor every 33 hours

The pandemic has demonstrated how billionaires’ wealth has surged amidst all-round economic ruin. At Davos, the Oxfam International presented its report “Profiting from Pain” on May 23, 2022, painting a distressing picture.

Among others, it said:

• The combined crises of COVID-19, rising inequality, and rising food prices could push as many as 263 million people into extreme poverty in 2022, reversing decades of progress. This is the equivalent of one million people every 33 hours.

• At the same time a new (dollar) billionaire has been minted on average every 30 hours during the pandemic – 573 more billionaires now than in 2020 when the pandemic began (total of 2,668).

• This means that in the same time it took to create a new billionaire during the pandemic, one million people could be pushed into extreme poverty this year.

• Billionaires have seen their fortunes increase as much in 24 months as they did in 23 years.

• Billionaires in the food and energy sectors have seen their fortunes increase by a billion dollars every two days – the highest levels in decades.

In other words, the Oxfam report says, the total billionaire wealth is now equivalent of 13.9% of global GDP, up from 4.4% in 2000, with the richest 10 men having more wealth than the poorest 40% of global population. As for income, 99% of global population has been hit by the pandemic with 125 million full-time jobs lost in 2021; while incomes of the richest have already recovered from the pandemic hit, that of the poorest haven’t.

The case of India is no different. In fact, wealth and income inequalities have risen more sharply in India than other countries, as the World Inequality Reports of 2019 and 2022 have shown. Multiple wealth and income tracking agencies (Forbes, Hurun, Bloomberg) have shown the Indian billionaires’ wealth rose spectacularly during the pandemic while the economy is still struggling and millions have lost their lives and livelihoods.

An analysis shows the dollar billionaires’ number in India jumped to 126 at the end of December 2021, from 85 a year ago and their wealth share went up from 9.3% of the GDP in FY16 to about 25% in FY22. A 2% wealth tax on them is likely to generate more than Rs 1 lakh crore to fund welfare schemes to help the poor, this analysis said.

Not only there is little resonance to the global debate on wealth tax on the super-rich In India, the tax burden here has shifted to the poor. After the corporate tax cut of 2019, total corporate tax collections fell below income tax collection in FY21 for the first time in the 2011-12 GDP series – as Fortune India detailed in “Why high GST collection is bad taxation and bad economics”.

There is no sign of either a rise in corporate tax or wealth tax on the super-rich in India. In fact, India abolished wealth tax in 2017 even as the world was hotly debating the growing wealth and income inequalities. And unlike in the rest of the world, Indian billionaires have not called for higher tax on them despite India taking a far bigger hit than other major economies.

UBI for the poor in India?

It is in these contexts that the Economic Advisory Council to the Prime Minister (EAC-PM)’s “Report on State of Inequality in India”, commissioned to the Institute for Competitiveness and released earlier this month, must be seen.

Taking into consideration the growing income and wealth inequalities and job crisis, the report recommended the following six measures:

• Mapping multidimensional poverty and defining middle class (income level);

• Raising minimum income by introducing Universal Basic Income (UBI);

• Introducing MGNREGS-like scheme to tackle urban unemployment;

• Higher social sector spending;

• Ensuring equitable education, skilling and more job creation and

• Mapping vulnerable households to promote their wellbeing.

While the report flags the right issues and prescribes the solutions long suggested by economists, it falls short on formulations and specifics. For example, it talks about UBI and urban MGNERGS but doesn’t spell out their designs, how much fund they would require and how such fund can be mobilised. It doesn’t talk of taxing the super-rich at all.

The report may have attracted some attention because it was from the EAC-PM to the government but a complete silence from the latter and lack of material to work with suggest that it may not be of much use.

A formal suggestion for UBI had first came from former chief economic advisor (CEA) Arvind Subramanian in his Economic Survey of 2016-17. It proposed income transfer of Rs 7,620 a year to 75% of population (excluding the top 25% in income). It gathered dust until the Congress picked up the idea in the run-up to the general elections of 2019, called it Nyuntam Aay Yojana (NYAY) in which income transfer of Rs 72,000 a year to the poorest 20% of households was proposed. It was vigorously contested by the ruling establishment (for feasibility), although weeks later the PM-Kisan was launched with retrospective effect in the budget for 2019-20, under which farmers got Rs 6,000 a year in direct cash transfers.

The Rajasthan government’s announcement of an urban MGNREGS in this year’s budget has also not generated much enthusiasm with unanswered questions about its feasibility and even desirability. It is yet to be tested on the ground. Besides, like the MGNREGS, an urban version of it would be an emergency relief, rather than creation of high-productive, regular jobs with social security for all workers.

The most disappointing part of policy making in the past few years is marked absence of public debates, due deliberations and scrutiny in the Parliament and lack of relevant and reliable data on critical areas like growing poverty (no household consumption expenditure survey after 2011-12, for example) and chronic job crisis (the last one being the pre-pandemic PLFS of 2019-20).

Nevertheless, rub-off of Amazon’s AGM would be keenly awaited even in India.