ActionAid International Briefing

Wealth taxes
Progressive Taxation Briefing

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special exemptions, meaning they end up raising remarkably

little revenue.3 For example, in 2015 the finance minister of

What are wealth taxes? India, a country with 131 dollar-billionaires, reported that
repealing its wealth tax resulted in a revenue loss of some 10
billion rupees (the rough equivalent of US$150 million).4 More
Wealth taxes can be imposed on the holding of wealth, the
countries are repealing wealth taxes (including inheritance
transfer of wealth, or the appreciation of wealth. Taxes
and estate taxes) than adopting them.5
on the holding of wealth, known as comprehensive wealth
taxes, are fairly rare around the world. They tax a person’s Taxing the rich can be very difficult. Research in Uganda
‘net worth’ (assets minus liabilities). These assets can in 2013/14 found that only 35% of the top 60 lawyers in the
include (but are not limited to) cash, bank deposits, shares, country paid any personal income tax in 2013-14; only 5%
personal cars, assessed value of real property, pension plans of company directors did so; and only one of 71 high-level
and so forth. Taxes on the transfer of wealth usually refer to government officials, who owned considerable assets, had
inheritance taxes, estate taxes, and taxes on donations or ever paid personal income tax.6 Tax authorities have limited
gifts. Taxes on the appreciation of wealth usually take the capacity or influence on legislation, and the very rich often
form of capital gains taxes (CGT).1 hide their assets in tax havens. Credible estimates suggest
that at least 30% of African financial wealth is held offshore,7
Wealth taxes can reduce inequality while raising revenue, with the corresponding figure for Latin America being 22%.8
but countries have often struggled to design and administer While international tax information exchange systems have
viable and politically palatable wealth taxes.2 Tracking down been gradually developing, their scope and functionality is
assets, assigning a value for tax purposes, and attributing still far from satisfactory and access for developing countries
them to individual taxpayers entails substantial costs. is often limited, making it difficult for the tax authorities of
Comprehensive wealth taxes can become riddled with costly these countries to track and tax their citizens’ assets abroad.

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Progressive taxation policy brief: Wealth taxes October 2018

According to influential French economist Thomas Piketty, potentially creating employment and streams of tax
wealth taxes are underutilized. He argues that, in an revenue in the process. The same goes for cash and cash
economy where the rate of return on capital investment equivalents which can be invested and support jobs and
exceeds the rate of growth, inherited wealth will always grow
income generating activities if the incentive to leave the
faster than earned wealth, thus making increasing inequality
capital unused is removed. This will in turn generate a wider
inevitable unless there is bold action by governments.9 In
tax base and increased tax revenues. Encouraging wealth to
practice, taxes on holding and transferring wealth tend to
make up less than 1% of tax revenue in OECD countries, be used productively through tax policy can therefore have

with taxes on income (such as personal and corporate progressive impacts.

income taxes) and consumption (such as VAT and excise
taxes) making up the bulk.10

Tax on the appreciation of wealth is the form of wealth

Piketty’s Global
Wealth Tax
tax that tends to generate the most revenue. In both the
UK and Australia, for example, CGT usually accounts
for around 2% of tax revenue.11 In emerging economies,
While ensuring that many different forms of wealth
comprehensive wealth taxes are rarely used. CGT is for
are taxed, governments should also consider
example not used in Brazil, Indonesia, China and with its
co-operating to introduce a form of global
recent removal, no longer in India either.12 There has also
comprehensive wealth tax as proposed by French
been a decline in wealth transfer taxes (such as inheritance
economist Thomas Piketty. In his landmark 2013
taxes) in developing countries, with Sri Lanka, Bangladesh,
book Capital in the Twenty-First Century, Piketty
Pakistan and Indonesia among those removing them in the
proposes a global wealth tax. It would be a globally-
last decade.13 applied comprehensive wealth tax on holding wealth.
The rates would be 1% on wealth between €1 million
and €5 million, and 2% on wealth above €5 million.15

Piketty estimates that if such a tax were introduced

in the EU, it would affect 2.5% of the population and
How can wealth taxes be generate around 2% of GDP as tax.16 The revenue

made more progressive? raised would be transferred to the country where

the taxpayer is resident for tax purposes, not where
the wealth is held. Such a system would be heavily
reliant on effective information-sharing between
Wealth taxes are inherently progressive as wealth countries on the financial assets and liabilities on
inequality is on average twice as large as income individuals. There would have to be heavy sanctions
inequality.14 Ensuring that people pay tax on their wealth will on non-complying jurisdictions and tax havens.
therefore be a more progressive measure than increasing Piketty concedes that there is little political appetite
taxes on income. Any tax system that has weak or no wealth for such a system and that it is unlikely to be realized
taxation is therefore likely to become much more progressive in the near future, but with effective information-
by introducing wealth taxes. sharing, there are few technical obstacles to
introducing such a tax.
Introducing taxes on holding wealth can also stimulate
economic activity and spur growth. If holding wealth is In 2016, ActionAid calculated the hypothetical

exempted from tax but earning an income is taxed, the revenue gains from a 5% global wealth tax on wealth
over US$1 million as US$5.795 trillion; at 1% it
wealthy have little incentive to use their capital productively.
would be US$1.159 trillion.17
If land ownership is taxed, landowners are more likely
to make use of the land or sell it to someone who will,

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Progressive taxation policy brief: Wealth taxes October 2018

duty, estate duty and donations tax which are all taxes on
transferring wealth. The South African Revenue Service (SARS)
Examples of good and has concluded that a tax on holding wealth is not feasible now,

bad uses of wealth taxes but has proposed that all personal income taxpayers above
the filing threshold be required to submit a statement of all
It is hard to assess wealth taxes in many developing assets and liabilities from 2020.19 This would help track wealth
countries as they either do not exist or are not very effective. and inform future policy on a potential tax on holding wealth.
However, the examples below from Colombia and South
Africa can provide some guidance for how to develop There are many different forms of taxing the holding of wealth
effective wealth taxes. in European countries, and some of these models may be
interesting for developing countries. For example, in the
A study of wealth taxes, including comprehensive wealth tax, Netherlands, there is a flat tax of 1.2% on the total value of
and the reactions of the rich to them in Colombia, showed savings and investments above €21,139.20 Investments of up to
that the country needed increased capacity to collect and €56,420 in pre-approved ‘green’ investments are exempted.
verify information from third parties (such as financial
institutions) about the financial position of a taxpayer. More
Until 2017, France had a ‘Solidarity Tax’ on wealth. It was a
capacity was also needed to verify the assets of companies
progressive tax starting at 0.5% of held wealth above an
owned by wealthy individuals, such as ensuring that stocks,
€800.000 threshold. There were various thresholds and rates
inventories and liabilities were not assigned to third parties to
above that, with 1.5% being the top rate for wealth above
hide wealth. It also confirmed that the wealthier a taxpayer
was, the more likely they were to evade taxes. Finally, it €10 million. It was estimated that in 2007 the tax generated
found that tax amnesties could be used to persuade wealthy €4.42 billion, or 1.5% of total tax take in France.21 Both
individuals to declare assets, foregoing previously uncollected Spain and Switzerland have progressive wealth taxes that
taxes but registering the wealth for future taxation.18 differ slightly among municipalities and regions, varying
South Africa is struggling to introduce an effective tax between 0.2% and 3.75% in Spain,22 and between 0.13%
on holding wealth. The country currently has a transfer and 0.94% in Switzerland.23

Recommendations
Governments should:
• Prepare for comprehensive wealth taxes with mandatory declarations of assets and liabilities, as in South Africa.

• Improve transparency of wealth by introducing robust automatic exchange of information systems with other tax
authorities, through a reformed OECD Global Forum on Transparency & Exchange of Information for Tax Purposes24 or
otherwise, as well as updated registers of beneficial ownership which are publicly available, free of charge, and verified.

• To reduce the risk of capital flight, consider a regional approach to wealth taxes, introducing standardized taxes on
holding wealth at a continental or trade bloc level with a view to negotiating a global tax on held wealth in the long term.

• Establish a specific unit in the tax authority to deal with taxing the wealthy.25

• In the absence of a comprehensive tax on holding wealth, countries should tax the holding, transfer and appreciation
of wealth through different taxes (such as property, inheritance and capital gains taxes), to make them harder to avoid.

• Ensure whistleblowing protection for those who expose tax avoidance schemes by the ultra-wealthy.

This is one of a series of briefings on Progressive Taxation published by ActionAid International in October 2018.
You can find them at www.actionaid.org/taxpower

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Progressive taxation policy brief: Wealth taxes October 2018

Endnotes
1. Oh, J. and Zolt, E. 2018. Wealth Tax Add-Ons: An Alternative to Comprehensive Wealth Taxes. Also see the companion briefing on Capital Gains Tax.
2. Glennerster, H. 2012. Why Was a Wealth Tax for the UK Abandoned? Lessons for the Policy Process and Tackling Wealth Inequality, on how the UK did not
proceed with a wealth tax in the 1980s as it was considered that the cost to introduce and administer it would be higher than the potential revenue gains.
3. Oh, J. and Zolt, E. 2018. Op. cit.
4. The Times of India. 28 February 2015.
5. Oh, J. and Zolt, E. 2018. Op. cit.
6. Moore, M. and Prichard, W. 2017. How Can Governments of Low-Income Countries Collect More Tax Revenue?
7. http://gabriel-zucman.eu/files/Zucman2014JEP.pdf
8. Zucman, G. 2015. The Hidden Wealth of Nations. The Scourge of Tax Havens. University of Chicago Press.
9. https://www.theguardian.com/books/2014/apr/28/thomas-piketty-capital-surprise-bestseller
10. https://www.birmingham.ac.uk/Documents/college-social-sciences/social-policy/CHASM/briefing-papers/2013/wealth-taxes-problems-and-practices-
around-the-world.pdf
11. Ibid.
12. Ibid.
13. Ernst and Young. 2012. International Estate and Inheritance Tax Guide.
14. https://www.cgdev.org/blog/equity-friendly-property-tax-time-developing-countries-invest
15. Piketty, T. 2014. Capital in the 21st Century. Trans. Arthur Goldhammer. Belknap. Chap. 15.
16. Ibid.
17. ActionAid. 2016. The Price of Privilege: Extreme Wealth, Unaccountable Power, & the Fight for Equality. P. 37, http://www.actionaid.org/publications/price-
privilege
18. Londono-Velez and Avila. 2018. Can Wealth Taxation Work in Developing Countries? Quasi-Experimental Evidence from Colombia. https://pacdev.ucdavis.
edu/files/conference-schedule/session/papers/4A/Londono-Velez%20and%20Avila.pdf
19. https://businesstech.co.za/news/finance/237633/new-recommendations-for-a-stronger-wealth-tax-in-south-africa/
20. Wet inkomstenbelasting 2001. (Income Tax Law, 2001)
21. http://www.humaniteinenglish.com/spip.php?article843
22. https://www.rankia.com/blog/impuestos/2290610-tramos-impuesto-patrimonio-tipo-impositivo
23. https://www.expatica.com/ch/finance/Taxes-in-Switzerland_101589.html#wealth
24. http://www.oecd.org/tax/transparency/
25. https://webcache.googleusercontent.com/search?q=cache:o3oYpRtKY5oJ:https://www.imf.org/~/media/Files/Publications/TNM/2017/tnm1707.
ashx+&cd=1&hl=en&ct=clnk&gl=us

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October 2018