Taxation of High Net Worth Individuals (HNWIs)

Transcription

1 Taxation of High Net Worth Individuals (HNWIs) 2 nd ATRN Congress, Seychelles Dr. Barbara Dutzler 07/09/2016 GFG in Africa Seite 1

2 Agenda 1) Why to tax HNWI 2) How to tax HNWI 3) How to boost compliance Seite 2

3 Net worth inequality is a global issue that applies particulary in Africa Piketty (2014): The Capital in the 21th Century: r > g 0.004% of the world population hold 13% of the world wealth Data for South Africa in 2010 (National Income Dynamics Study (NIDS)): Individual Wealth Individual Income Top 1% 61% 17% Top 10% 93% 59% 50% - 90% 6% 34% Bottom 50% 1% 7% Gini Coefficient Seite 3

4 Historical Pattern of Income Inequality - Europe Seite 4

5 Historical Pattern of income inequality U.S. Seite 5

6 Why to tax high net worth individuals? 1. Redistribute Wealth (Wealth) inequality is signal for lack of income mobility and equal opportunity discourage (disincentive) to work Redisribution of wealth inequalities may increase welfare of a society 2. Generate Revenues Government needs taxes to fund public goods and services. According to the beneficiary pay principle of tax fairness, a tax on wealth (property rights) can be seen as a use fee. Holders of property rights enjoy the existence of government (public goods) more than those who hold no property rights. Seite 6

7 How to tax high net worth individuals? Wealth Tax (Argentina, France, Spain, Norway, Switzerland, India and Italy) Property Tax Dividends Tax Capital Gains Tax Income Tax Inheritance Tax Seite 7

8 Main focus: Boost compliance of HNWI I Taxpayer education activities for HNWI (e.g. in Rwanda the President himself gives out annual taxpayer awards) Taxpayer s morale: It is argued that elites are more likely to pay taxes when they share the conviction that taxation is necessary for their benefit and that of the country s long term future. Taxpayer s morale is quite important for the implementation of a wealth tax because of the self-reporting of assets and the high monitoring costs. Seite 8

9 Main focus: Boost compliance of HNWI II Already, compliance risk is high for HNWI. And especially in Africa, HNWI s taxpayer morale is insufficient due to The perception that the government does not provide the basic necessities that tax money should fund Frequent reports of corruption scandals Many free-riders who share public benefits but dodge their tax obligations Distorted accountability relations / aid dependency / resource-rich Existence of Feedback Loop: non-compliance by HNWI reinforces perception amongst wider taxpayer population that those with the greatest wealth / highest income pay the least tax Seite 9

10 Factors influencing Tax Morale Risk aversion Perception of Fairness of Tax System Opportunity and consequences of evasion Opportunity Personal Values History, past experiences Trust Future Business Plans Tax Admin. Capability Society Tax Payer Edu Enforcement Integrity Efficiency Effectiveness Cooperation Laws and Norms Taxpayer Morale Political / Religious Values Seite 10

11 Main focus: Boost compliance of HNWI III Developing a strong awareness of the concerns/risks of HNWIs including privacy, wealth preservation and their ability to pass on wealth to future generations Establishing a structure within the tax administration to deal with HNWI Creating dedicated units which are adequately staffed by experienced officials (e.g. HNWI taxpayer office) Establishing a framework for dialogue between senior revenue officials, HNWIs and their advisers Balancing compliance activities with taxpayer service functions Bringing all tax affairs of HNWI under one umbrella for an holistic approach Seite 11

12 Main focus: Boost compliance of HNWI IV Tax administrations to provide maximum guidance on voluntary disclosure rules and programmes, Tax administrations to deal firmly with those who commit tax evasion and fail to come forward before intervention by the authorities. Improve co-operation Internally: between HNWI and other tax units Externally: at both a strategic and an operational level. With customs, property registration offices, central bank (capital controls), Anti-Corruption Bureaus, Central Intelligence Units, Asset Declaration Offices, Audit Function, Including third parties for data exchange and triangulation. Additionally, improve cooperation between financial sector and tax administration while keeping HNWIs privacy Seite 12

13 Main focus: Boost compliance of HNWI V Creating an appropriate legislative framework targeted at specific aggressive tax planning risks by a taking holistic approach Specific audit strategies (enforcement) as some HNWI are failing to report all income Keeping the administrative burden of the HNWI low Explore how the concept of co-operative compliance could be applied to the HNWI segment Considering the use of dedicated contact points Developing a pre-filing programme or advance ruling programme Involving the advisers of the HNWIs in the development of the legislation that specifically affects their clients Emphasising the need for transparency and disclosure that goes beyond what is statutorily required All based on an integer, efficient and effective Tax Administration that plays its part in establishing trust in citizens that their money is used purposefully Seite 13

14 Questions to consider Risks and Challenges: increasing collection efforts regarding HWNI in a developing environment where institutions are weak is potentially Politically impossible (powerful individuals) Practically impossible (lack of or difficulty of access to data, no transparency) Dangerous (impunity) Counterproductive (inducing capital flight) Are there minimal conditions that need to be in place for HNWI taxation to work? Good Governance within Tax Administration is a necessary but not sufficient condition Seite 14