Wednesday, July 24, 2024

ECONOMY | 21-11-2020 10:14

Wealth taxes and extraordinary contributions – how other nations handle it

Worldwide Germany and France are the two most practical examples of that class of taxes labelled “solidarity."

The ruling Frente de Todos coalition mustered the votes to gain lower house approval for its bill to levy an “Extraordinary Solidarity Contribution,” also dubbed the "wealth tax," on Tuesday.

The initiative applies a special rate to tax-payers exceeding 200 million pesos. The government is hoping to net 300 billion pesos from the levy – earmarked for expenses related to post-pandemic economic recovery. 

While not exactly a customary tax worldwide, there are similar cases in international law. Two emblematic examples are Germany and France – the former decided to apply a levy after the fall of the Berlin Wall with the aim of raising money to aid the reconstruction of East Germany.

Nevertheless, the Angela Merkel government last year approved a bill to scrap the tax as from 2021 for the vast majority of tax-payers, with this new reform exempting all earnings below 73,874 euros annually. Those earning up to 109,451 euros annually will pay less and only those above that income level will continue to pay the tax in its totality. That means around 90 percent of taxpayers will cease to pay while a further 6.5 percent will see their rate reduced and only the 3.5 percent wealthiest will continue to pay the complete tax. 

In France, their solidarity tax clocks in at 1.3 million euros, with progressive rates running from 0.5 to 1.5 percent. It was implemented for the first time in 1981, eliminated in 1986 and reintroduced in 1988. On January 1, 2018 it was replaced by a tax on real estate fortunes (IFI), thus lowering its tax base from 350,000 to around 150,000.    

Wealth taxes and the effects of the pandemic   

Given the impact of the coronavirus pandemic on state finances worldwide, it is unsurprising to hear that debate on such taxes are making headway in political debate. 

One clear example of this is Spain where the Pedro Sánchez government has announced that starting next year it will be raising taxation on big business and the nation’s wealthiest citizens to finance social spending. 

Social Rights Minister Pablo Iglesias, the left-wing leader of Podemos and one of Spain’s deputy premiers, has reported that earnings on capital as from 200,000 euros will be taxed a further three percentage points and two more points as from 300,000 euros, while assets taxation will be adding another point for fortunes of over 10 million euros.

Another country taxing large fortunes is Italy. The country ranks among the most affected in Europe by Covid-19 data. 

The Italian government is pushing a progressive tax for this year and next on declared annual income proceeding from a rate of four percent on earnings of US$91,200, with rates escalating until they reach eight percent for annual incomes above US$570.000. The government believes the measure will reach over 800,000 tax-payers. 

Switzerland and Russia are also floating similar proposals. In the case of the latter case, Vladimir Putin’s government is seeking to approve, in line with other tax reform, a 13 percent tax on bank deposits topping US$15,000. Meanwhile in Switzerland, an opposition party has proposed a one-off tax on assets exceeding US$3.18 million at a single rate of two percent, which seeks to net over US$18 billion to palliate the economic crisis produced by the pandemic. 

Regional examples 

There are also examples in the region. In Brazil a proposal has been presented to tax assets as from US$10 million at an initial rate of 2.5 percent, potentially reduced to 1.5 percent in the event of the contributor showing up voluntarily to pay up. In Ecuador a sector of the opposition has raised the proposal of taxing assets as from US$1 million at a single rate of 0.9 percent. The final case is Chile – across the Andes the opposition has introduced in public debate the need to collect a special tax on the “super-rich” consisting of an exceptional contribution of 2.5 percent from assets at or above US$22 million. For now, the initiative has not gained support across the board from the opposition to conservative President Sebastián Piñera.



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