G20 proposal to tax super-rich could reap huge global rewards

Decisions taken at the Group of 20 (G20) meetings are consequential, as the forum comprises many of the world’s largest developing and developed economies, with G20 members accounting for about 85% of global GDP, 75% of international trade and two thirds of the world’s population.

This week the G20 leaders met after a long year of G20 meetings. Brazilian President Inacio Lula da Silva has handed the baton to President Cyril Ramaphosa as SA takes the helm of the G20 in 2025.

One of the most important outcomes of Brazil’s G20 presidency has been the ministerial declaration, endorsed by the presidents and prime ministers of all G20 states, on tax co-operation. The declaration states that “with full respect to tax sovereignty, we will seek to engage co-operatively to ensure that ultra-high-net-worth individuals are effectively taxed. Co-operation could involve G20 exchanging best practices, encouraging debates around tax principles, and devising anti-avoidance mechanisms, including addressing potentially harmful tax practices”. 

This negotiated text is due to Brazil’s effort to put international taxation on the G20 agenda, which was spurred by a report commissioned to outline options to tax the super-rich more effectively. The report, undertaken by French economist Gabriel Zucman, found that billionaires pay less effective income tax than other income groups. Moreover, the current mechanisms to tax billionaires are hindered by limited information on the wealthy, such as the location of their wealth, lack of global co-operation and the regressive nature of tax systems internationally.  

The report proposes a blueprint for a co-ordinated minimum effective taxation standard for ultra-high-net-worth individuals. The baseline proposal targets dollar billionaires (3,000 individuals globally) to pay at least 2% of their wealth in individual taxes annually. The Zucman report explains that “the individual taxes taken into account to compute this minimum would be individual income taxes, wealth taxes and economically equivalent levies”. Globally, this proposal estimates revenue of $200bn-$250bn annually.  

Taxing the super-rich 2% a year is a small price to pay in global efforts to achieve the UN sustainable development goals (SDGs) and reduce global inequality. Only 19% of the SDGs are on track to be realised and the financing gap is more than $4-trillion. As the world becomes increasingly divided there is a need for mechanisms that entrench solidarity and bind the international community. The blueprint to tax the super-rich is a historic proposal that has brought together finance ministries and central bank governors from different parts of the world to discuss ways to improve the progressivity of the global tax system. 

Some of the issues about the proposal to implement a minimum standard for the super-rich need greater scrutiny, including: 

• While the proposal was initially tabled at the G20, effective co-operation between countries requires deliberation to be moved to the UN to align with protocols in the UN Framework Convention on International Tax Co-operation.
• The focus on dollar billionaires narrows the scope of revenue that would be raised from African billionaires to serve the continent. In Africa there are only 20 billionaires and six of these are from SA. By comparison, there are more than 800 dollar billionaires in the US and 320 in Europe. In this case the baseline proposal would raise only about $1.6bn annually in Africa. This is only 0.66% of the estimated revenue. Unless there is a global agreement for the revenue raised to be pooled and redistributed globally from a given vertical fund, it will disproportionately benefit Global North countries. 
• The tax target should be broadened to enhance progressivity, especially for countries with few dollar billionaires. Zucman’s broader proposal to widen the scope and increase the income to include centi-millionaires (more than $100m) at the same proposed tax rate of 2% would generate additional revenue of between $108bn and $135bn. 
• Local tax administrations should be strengthened while international instruments are established. Many African countries, such as Kenya, Rwanda, Sierra Leone, Uganda and Zimbabwe, have established provisions for taxing high-net-worth individuals. However, implementation and enforcement remain a challenge, in part due to the corruption of political office-bearers by the super-rich. Other challenges involve a lack of comprehensive data on wealth and income, limited tax administration capacities, and widespread tax avoidance and evasion practices.   

Progress on these challenges is possible. In 2015 Uganda established a dedicated unit in its administration to tax high-net-worth individuals that increased tax compliance among wealthy individuals as the number of wealthy Ugandans filing tax returns rose from 13% to 78% within a year. The SA Revenue Service’s unit has also made progress, managing more than 4,000 high-net-worth individuals with gross assets worth R75m or more.

International and national taxation systems should walk hand-in-hand if we are to reduce inequalities between and within countries. Strengthening domestic tax systems will allow African countries to take advantage of proposals to improve international tax co-operation.  

The proposal for a minimum standard to tax the super-rich has elevated the debate on taxing the wealthy. We have an instrument we can use to raise enough revenue to address poverty, inequality and hunger, and finance climate adaptation and mitigation. 

• The authors are with the Institute for Economic Justice.