New Delhi, March 17: The government’s decision to slap a super-rich surcharge on people earning Rs 1 crore, or a little less than $200,000, was seen by many as an answer to Warren Buffett’s repeated calls for the world’s rich to pay more in these times of crisis.
However, when the figures were called for, stumped taxmen realised that India’s $1.9 trillion economy had just 42,800 people who admit they earn more than Rs 1 crore!
Obviously something was wrong somewhere. A top revenue official in North Block admitted that even Lutyen’s New Delhi should have more than this number of people earning the magic Rs 1-crore-a-year figure.
A Credit Suisse report on Global Wealth for 2012 estimates that there are at least 1.58 lakh dollar millionaires in the country.
A KPMG report places that figure at 1.25 lakh Indians with an investible financial wealth of more than a $1 million (Rs 5.4 crore). Anecdotal evidence shows that even these wealth researchers could be under-estimating the numbers.
Car makers Mercedes, BMW and Audi reported a combined sales of nearly 26,500 cars in India in 2012. Their cheapest cars sell for Rs 27 lakh. Not hard to surmise, a person who buys a car that costs that much would be earning at least three to four times that figure.
Some 5,000 luxury flats in Indian metros were sold at prices ranging between Rs 3 crore and Rs 10 crore, according to realty researchers.
The National Institute of Public Finance, the government’s think-tank, has recently submitted a report to the North Block on the amount of “missing millions” or black money which rotates in the Indian economy. It estimates black money at about 20 per cent of the Indian GDP, which would place it at $380 billion.
Where did the millionaires disappear?
Earlier this week a news portal did a sting operation on several leading banks and accused them of laundering un-taxed income. The banks, which included some of India’s top lenders, rebutted the claims, but did suspend a number of managers for violating norms.
The biggest generator and recipient of black money is the realty sector, say taxmen. Most housing projects are sold at at least double the reported price. Construction costs are rated down by 25-30 per cent.
A second sector is gold. Though not much black money is generated in the bullion business, the amount of unaccounted income invested in gold is estimated to be high, aggravating India’s natural appetite for the yellow metal. The World Gold Council estimates that Indian households have some 20,000 tonnes of gold worth $1.16 trillion — more than double the gold reserves maintained by the US Federal Reserve.
Another segment that taxmen track are exporters, including India’s much touted software exporters. Over-invoicing and under-invoicing of sales abroad generate money, which is routed through paper transactions in tax havens such as Mauritius back into Indian markets.
Similarly, studies into investment in stock markets show that Mauritius-based FIIs and sub-accounts’ outstanding investment in Indian stocks stood at a whopping $56 billion as on April 30, 2012 — the highest inflow from any single country into India.
Taxmen reckon that some of it is genuine investment from third countries routed through Mauritius to take advantage of zero taxes on the island nation and its double taxation avoidance treaty, but also believe a large portion of it is Indian money coming back into India.
“India is the country that these people understand best and it also offers high returns on investment. The BSE Sensex itself gave a return of 25.7 per cent in 2012, one of the highest anywhere, so it’s but natural they would like to bring back unaccounted income back home for investment,” revenue officials said.
Revenue officials have been asked to look into some 1.2 million transactions made by people who do not file tax returns but have spent huge amounts on credit cards, purchased property worth more than Rs 30 lakh, parked more than Rs 1 lakh in savings accounts or bought high value mutual funds or bonds.
Some 1 lakh tax queries have been sent out since the year began. More would be on their way. Not all of it will yield results, but then someone has to find India’s missing millionaires.