Increasing income and wealth inequalities are a defining feature of our time, with many negative economic, social, and political consequences. Over the past few years there has been a growing interest in understanding how tax systems can help reverse these trends. Many scholars focused on the potential of wealth taxes, including through work funded by the G20, which led to the proposal of an individual tax of 2% on the combined income and wealth of billionaires and centimillionaires. The introduction of such a measure would be a welcome development, but it will also take a substantial amount of time and require investment of significant political capital. Additionally, it would do little to address existing inequalities in the lower-income countries that do not host these types of individuals. However, recent research by ICTD and ATAF shows that many of these countries, especially across Africa, could significantly increase collection from wealthy individuals by better enforcing existing personal income, property, capital gains, and withholding taxes. All of these tax handles are severely underperforming across lower-income countries and bear heavily on the income of wealthy citizens. Changing this picture requires a combination of interventions aiming to better capacitating revenue administrations, improving access to data required to identify wealthy individuals, simplifying compliance, and ensuring stricter enforcement of existing laws. In turn, this entails a clear understanding of the existing administrative, legal, institutional, and political constraints behind underperformance, as well as the presence of strong leadership willing to address these constraints.
While the concrete policy mix required varies across nations, several interventions have shown promise in different contexts. This includes country-specific criteria for defining wealthy individuals, which can be operationalised with existing data; establishment of high-net-worth individuals’ units within tax administration; strengthening of data sharing provisions as countries develop their digital public infrastructure; and the potential implementation of well-crafted voluntary disclosure programs alongside tax amnesties. The G20 could play an important role in spearheading an approach focused on getting the basics right while laying the groundwork for the future introduction of wealth taxes.
