“On much insistence, do clients show luxury watches as part of wealth tax liability,” says a senior tax expert. No wonder, the government has collected just Rs 787 crore as wealth tax — just 0.16 per cent of the Rs 493,912 crore of direct tax collection in 2011-12. Interestingly, the number of high networth individuals, citizens with more than $1 million (Rs 5.3 crore), have been rising consistently in the past few years, according to various reports. Though, this number fell in 2011 due to bad economic conditions, by and large, the number has been rising by a good 15-20 per cent annually. But wealth tax collections, in comparison, haven’t been so robust.
Amarpal Chadha, partner – tax and regulatory services at Ernst & Young, says, “The compliance levels and the awareness about wealth tax is quite low as compared to income tax. It can still be used as an effective tool to increase tax collections and bring more assessees into the wealth tax net.” The government has not paid attention to wealth tax as larger collection come from income taxes, say industry experts. It is also not considered important by the administrative machinery because it does not include a wide range of assets. Wealth tax is applicable if you have more than one unoccupied house, gold and ornaments, luxury cars, watches, yachts, ships and aircraft or over Rs 50,000 in cash. One residential property, commercial property, financial assets and any outstanding loan taken to buy the asset are exempt. Say tax experts that apart from being very liberal (as it levies only one per cent tax), these norms can easily be flouted.
Therefore, tax experts suggest tweaking the present norms. First, bring in more financial assets under this provision. Earlier, wealth tax included all kinds of financial assets like debentures, shares and bonds. “The revenue authorities in the past have made changes to the income tax return form to include disclosure of foreign assets. Similar measures could bring in more awareness and compliance,” suggests Chadha. Make a disclosure provision in the ITR form for wealth tax also, which asks for a reference number as proof for having filed wealth tax returns. Similarly, the Annual Information Return (AIR) of high-value financial transactions can also be a great tool, says Homi Mistry, partner at Deloitte, Haskins and Sells. AIR is supposed to be filed by 'specified persons' like banks, trustees of mutual funds, bond- and share-issuing companies and a Reserve Bank of India officer. These authorities mention the Permanent Account Number and transaction details of each of their customers. Earlier, there used to be a list of transactions, which if you had done, you would have to provide the detail at the time of filing your income tax returns. In a way, the tax authorities have hurt themselves by getting institutions to do it because they felt that individuals could hide details. This is a good option to keep track of only cash transactions. What will, of course, help more is when there is common know-your-customer guidelines for all investments, banking accounts and insurance policies. This will help the tax department to assess the net worth of individuals much better.
