India’s new millionaires routinely dodge taxes
NEW DELHI — In a country long defined by its poverty, it’s easy now to find India’s rich.
They’re at New Delhi’s Emporio mall, where herds of chauffeur-driven Jaguars and Audis disgorge shoppers heading to the Louis Vuitton and Christian Louboutin stores.
They’re shopping for Lamborghinis in Mumbai. They’re putting elevators in their homes and showing off collections of jewel- encrusted watches in Indian luxury magazines. They’re buying real estate in unpretentious neighborhoods — neighborhoods thought of as simply upper-middle- class just a couple years ago — where apartments now regularly sell for millions of dollars.
They’re just about everywhere. Unless it’s income tax time. Then, suddenly, they barely exist.
The reality is simple: “There are very few people who are paying taxes,” said Sonu Iyer, a tax expert at Ernst & Young in New Delhi. And tax dodging is everywhere. “It’s rampant — rampant.”
Finance Minister Palaniappan Chidambaram stunned the country in late February when he proposed a new tax on India’s top earners. The surprise wasn’t the temporary 10-percent surcharge on those earning more than 10 million rupees, or about $185,000 per year, but the number of Indians who fall into that category.
That number? Just 42,800 people, he told Parliament.
In a country of 1.2 billion people, a country where years of staggering economic growth annually create tens of thousands of new millionaires and a recent slowdown has done little damage to a thriving luxury goods market, far less than one ten-thousandth of the population admits they are in the top tax bracket.
With so few Indians willing to come clean, the perennially cashedstarved government has to scrabble every year for revenue.
Among the rich, dodging taxes has become second nature, said Jamal Mecklai, CEO of Mecklai Financial, a Mumbaibased financial consulting firm. About 158,000 Indians are thought to be dollar millionaires, according to a 2012 Credit Suisse estimate, though some analysts believe the number is far higher.
“It’s just taken as the reality” that most wealthy Indians are cheating, trying to avoid India’s 30-percent top tax rate, he said.
But it’s not just the rich evading their taxes. Less than 3 percent of Indians file income tax returns at all, and officials say only about 1.5 million taxpayers say they earn more than 1 million rupees per year, or about $18,000.
The size of India’s underground economy and the amount of lost taxes is widely debated, but even the lowball figures are immense in a country with a nearly $2 trillion GDP. In recent studies, experts estimated that anywhere from 17 percent to 42 percent of the economy operates beneath the official radar.
Billions of dollars are widely thought to be hidden in Switzerland, Singapore and other tax havens.
Then there is the strange case of Mauritius. More than 40 percent of foreign direct investment in India comes through this tiny island in the Indian Ocean. Indians launder untaxed wealth by sending their illegal cash to Mauritius, then “roundtripping” it back to India in legal investments.