Issues about proposed wealth tax

A move is underway to introduce wealth tax from the next financial year. A draft of a new direct tax law, prepared by the National Board of Revenue (NBR), that contains a section on wealth tax, is now available on NBR website. The NBR has proposed introduction of the tax, initially, in major cities on a limited scale. According to the draft law, anyone owning a single house, part of a house or a vacant plot not exceeding 500 square metres, would not be subjected to payment of wealth tax. It also proposes to bring, among others, motor cars for private use and jewellery made of gold, silver and platinum, watch worth Tk.50,000 and above and cash in hand, in excess of the value worth Tk 0.2 million, under wealth tax net. However, the NBR chairman said in the final draft of the law, valuables other than houses, flats and lands would be exempted. The draft also exempts agricultural land, despite the fact that income from agriculture is otherwise taxable. In fact, it is too early to predict the fate or the final shape of the proposed law. The hint of dropping of a number of provisions from the draft indicates that the proposed law might face resistance from the powerful quarters for both justified and unjustified reasons. One obvious question that one might feel tempted to raise here is: Is the proposed wealth tax purported to generating additional revenue for the government or reducing income inequality? If revenue generation is the objective, then why should the proposed law discriminate against the people owning property in Dhaka and other major cities? And as far as its stated objective of reducing income inequality is concerned, it involves a far broader and complex issue that goes beyond the operational ambit of the NBR. There is no denying that the government does need more resources to meet its ever-increasing current and capital expenditures. And mobilizing a part of the same by taxing those who have more wealth sounds justified. But before putting a law in place for that purpose, the government is required to examine its pros and cons. It should also appreciate the fact that tax evasion or tax avoidance is fairly extensive in the country. Against this backdrop, it would make a better sense on the part of the NBR to concentrate more on curbing the widespread practice of tax evasion than on seeking ways to raise revenues through new laws like that in the area of wealth tax. Furthermore, the NBR needs to consider whether the underground economy, which is thought to be quite large, would get a further boost by the proposed provisions because of the people's inherent tendency to avoid taxes in this part of the world and also in view of lax enforcement of tax-related laws in this country. Besides, yet another issue has to be addressed: Will the extra revenues that are intended to be generated through the proposed wealth, really be spent on people-oriented welfare activities or ensure the basic services to the people that they are now deprived of? It is a very important matter for encouraging voluntary tax compliance and not keeping the potential tax-payers busy about skirting laws, existing or proposed ones. The current state of governance provides ample reason for raising doubts here about the intended goals of the proposed law - however pious it may otherwise sound - to lay the ground for equitable social justice and thus, address the complex issue of income divide, through compliance with its provisions.