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Context:

Brazil to introduce a proposal to impose a 2% annual wealth tax on ultra-high-net-worth individuals at the upcoming G20 summit.

Brazil’s Plans for Taxing the World’s Richest People

Brazil intends to impose an annual 2% wealth tax on ultra-high-net-worth individuals.

This tax will apply to assets such as real estate, corporate shares, and other investments.

The goal is to raise funds to combat global inequality, climate change, and poverty.

Brazil plans to establish the Global Alliance Against Hunger and Poverty to accelerate efforts to combat food insecurity and poverty by 2030.

Origin of the Plan

Gabriel Zucman, a French economist, developed the plan.

As per the estimate, it could raise up to $250 billion per year by taxing nearly 2,800 billionaires worldwide, with a combined net worth of $13.5 trillion.

Key challenges in achieving consensus at the G20 summit

Achieving consensus is difficult due to opposition from powerful countries such as the United States.

Geopolitical challenges like the Russia-Ukraine war, the West Asia conflict, and US-China trade tensions are expected to dominate the discussion agenda, overshadowing the wealth tax proposal.

India’s view on the wealth tax proposal

India's stand on the wealth tax is still unclear. While it hasn't openly opposed the plan, its ambiguous stance adds to the uncertainty of getting widespread support.

The Wealth Tax Act of 1957 established the framework for wealth tax in India. However, it was repealed with effect from April 1, 2016.

What are the benefits of a wealth tax?

A wealth tax is regarded as more equitable than an income tax, mainly in societies with significant wealth disparities. It promotes fairness and equality by taking into account an individual's overall economic status and ability to pay taxes.

The Global Wealth tax could direct resources to heavily indebted low-income countries, particularly in Africa. It could fund initiatives such as hunger relief, renewable energy projects, and climate resilience, helping vulnerable countries that are most affected by global challenges.

What are the concerns over wealth tax?

A wealth tax can discourage the accumulation of wealth, which is critical for economic growth.

The administration and enforcement of a wealth tax are difficult due to disagreements about the fair market value of assets, resulting in valuation issues.

The uncertainty surrounding asset valuation could lead wealthy individuals to attempt tax evasion.

How is the proposal to impose Wealth Tax relevant to India?

According to the World Inequality Lab Report;

India is now among the world's most unequal countries, with the top 1% owning 40.1% of the wealth and the bottom 50% owning only 6.4%.
The bottom 50% of the population earns only 15% of total national income.

A super-tax on the wealthy in India could help to address rising inequality and provide the government with additional fiscal resources. A 2% tax on the combined net worth of India's 162 wealthiest families could generate revenue equal to 0.5% of the country's GDP.

Must Read Articles:

PROPOSAL FOR A GLOBAL WEALTH TAX ON BILLIONAIRES

WORLD INEQUALITY LAB REPORT

INDIA’S G20 PRESIDENCY

Source:

Indian Express

PRACTICE QUESTION

Q.Consider the following statements:

1. A progressive tax has a greater financial impact on the wealthy than on the poor.

2. Regressive taxes disproportionately affect low-income people.

Which of the above statements is/are correct?

A) 1 only

B) 2 only

C) Both 1 and 2

D) Neither 1 nor 2

Answer: C

Explanation:

Statement 1 is correct:

A progressive tax has a greater financial impact on high-income individuals than low-income earners. Tax rates and liability rise in line with a taxpayer's income.

Statement 2 is correct:

Regressive taxes disproportionately affect low-income people. It affects low-, middle-, and high-income earners fairly equally. They all pay the same tax rate, regardless of income, but this places an additional burden on low-income people.