Westward trickle of Indian wealth could become flood

Within the top 1,000 wealthiest individuals in the UK, as per the annual Sunday Times Rich List, 62 of them are of Asian descent and of these, three appear in the top 10.

In total, 62 individuals of Asian birth appear in the 2013 version with a total net worth of £59bn (€70bn) between them. Despite only making up 6.2 per cent of the list, Asians hold 13 per cent of the total £450bn amassed across all 1,000 entrants.

During the last year, Asians on the Rich List increased their wealth on average by 21 per cent. This compares favourably with the 8.6 per cent average rise in wealth across the list as a whole. With the notable exceptions of those in the top 10, Asian wealth in the UK appears to be derived from B2C and B2B industries, including the cash and carry, food, hotels and pharmaceuticals businesses. 

While it is difficult to infer much from the data, what does seem clear is that Asia’s boom is having notable ripples in the UK economy too. In particular, the UK is the beneficiary of its long-standing ties to India. Eighty-seven per cent of Asians in the Rich List are of Indian background.

TAXING ISSUES

Political rumblings in India may also see their numbers swell. Domestically, despite years of solid economic growth, India’s taxman has struggled to boost tax returns from the growing affluent population. Just 3 per cent of the country files a tax return of any description and there are only 42,000 top rate taxpayers across the nation.

This jars against some estimates. Credit Suisse’s Global Wealth Report 2012 suggests there are as many as 158,000 Indians who would be considered dollar millionaires.

The factors behind the low compliance rate are all too commonplace in developing economies, including political and administrative laxity, a poorly written tax code, cultural tax avoidance and straightforward corruption.

In a desperate bid to shore up its tax revenues, the Indian government appears to have set its course for a head-on collision with the current populace of higher rate tax payers. A tax hike could see the top rate of tax (on those who pay it) increase by 10 per cent to 40 per cent. Finance minister, Palaniappan Chidambaram, is describing the move as a “temporary” 10 per cent surcharge.

AVOIDANCE

Admittedly, there are also moves to target 1.2m people who have not filed tax returns. Those targeted will include individuals who have made large payments to credit card issuers, purchased or sold a property worth more than $54,829 (€42,649), acquired mutual funds of more than $3,650, received bonds from the Reserve Bank of India of $9,138 or more, or who had made cash deposits of more than $18,276 in a savings account.

However, as this tax avoidance clampdown will inevitably take time, it means the law-abiding few could well bear the brunt of the special measures in the short term.

When these measures are taken in combination with a proposed increase in customs duties on luxury cars and yachts, the incentives for India’s most responsible wealth creators are in decline.

If the UK’s Rich List is anything to go by, the West could well be the beneficiary of India’s most recent round of political shenanigans.  

James Horrax is senior associate at wealth management think-tank Scorpio Partnership