Would the proposed wealth tax be reasonable?
Wednesday, 13 April 2011
Ahmed Zaman
THE government, as the media reports said, is thinking about introducing wealth tax. People with more than one house or plot of land would be subjected to such a tax. But already people are required to pay tax on any income generated out of such property or wealth or immovable assets . So, it is questionable whether taxing them further in the name of wealth tax would be supportive of the policy of wealth formation or allowing savings in the first place. Already, the tax-payers are being exploited in cases such as like paying double or triple income tax. Even after paying his income tax on earnings from job or business, a person is, thus, obligated to pay another so-called income tax for maintaining a car. Besides, if he or she has savings certificates, then too, he or she has to pay an income tax on their interest accruals. Furthermore, dividend earnings from share-holdings of companies are also subjected to income tax at personal level, even though such dividends are paid out of post-tax profits of the companies. If the companies would not have paid taxes on their profits, more dividends could be paid out to their share-holders and the same, received as dividends income, could be subjected to payment of income tax at the personal level. The issue of 'double taxation' would not have arisen in that event. And now the additional burden in the form of wealth tax, reportedly on immovable property beyond a certain limit, will have to be paid by the individuals, if the government finally approves the proposal for imposing such a kind of tax. In case of transfers of such immovable property, the capital gains tax has to be paid by the sellers of such immovable property. And here the valuation of property will present a formidable challenge, if the proposed property tax is enforced. The government would have certainly earned more tax, in the form of capital gains, in the event of transfer of such immovable properly if it could enforce transparency about values in related transfer deeds. All concerned do know it well that the actual transaction values of immovable property, land or apartment, particularly in the capital city of Dhaka and all other cities, are several times higher than what are shown in transfer deeds at the time of registration. Certainly, the collection from capital gains tax in cases of related transfers would have been far more than what the government would now expect to get from the introduction of the so-called property tax, if it could enforce measures to ensure that the registered values of transfer deeds reflect the actual transacted amount of money. It has not been able to do that since long. The government could also have better addressed the problem of inequality in asset ownership, had it gone for raising the taxes for purchase or acquisition of assets beyond certain limit. The tax rate is high for second-house, second-apartment and second-plot purchases in urban areas in many countries. Still then, the government is now reportedly set to impose another kind of tax, in the name of property tax, parading it a move to tackle the issue of inequality about asset holding. This is populism but will hardly serve any useful purpose. Under the present circumstances of high inflation, the incidence of multiple taxation on income and then on wealth, will have reasons to be considered too unfair by existing tax payers in a country where tax compliance is otherwise low. The proposed wealth tax would simply be adding to the burdens of the existing tax payers. Though Bangladesh has a large population, there are not many direct tax-payers in the country. Widening -- and not deepening -- the tax net should be the objective of the government under the given circumstances in the country where only a relatively smaller number, in its otherwise vast population, are in any shape to pay well the present taxes and ones to be introduced. Squeezing people to get more taxes cannot be the best policy when they are not so much in a position to bear the burden of such taxes. The best results in taxation can be obtained when the economy is invigorated by appropriate policies and measures of the government, and the potential taxpayers are motivated -- and not coerced -- to pay their taxes out of their free will, to do so and from their actual improved abilities to pay additional or higher taxes. And one of the major reasons for tax evasion or avoidance in this country is the high rate of taxation - and that rate also keeps on rising further from time to time. The authorities concerned in Bangladesh do not seem to understand the realities and appreciate the fact that lower rate of taxation leads to better tax compliance. The other side to expanding the taxation base involves the setting up of institutional capacities for the purpose. The value added tax (VAT) is a major source of revenue. But out of the country's 64 districts, more than 40 per cent of them do not have proper VAT offices to monitor and collect tax from professionals and businesses. Similarly, the customs administration also requires immediate recruitment of manpower to do its job well. And for fairness and economic and social justice, the taxation departments should, first of all, concentrate their activities on relevant areas for bringing those otherwise eligible tax payers who do not care about paying taxes, within the tax net and also on the big tax dodgers who are presently not few in number.
THE government, as the media reports said, is thinking about introducing wealth tax. People with more than one house or plot of land would be subjected to such a tax. But already people are required to pay tax on any income generated out of such property or wealth or immovable assets . So, it is questionable whether taxing them further in the name of wealth tax would be supportive of the policy of wealth formation or allowing savings in the first place. Already, the tax-payers are being exploited in cases such as like paying double or triple income tax. Even after paying his income tax on earnings from job or business, a person is, thus, obligated to pay another so-called income tax for maintaining a car. Besides, if he or she has savings certificates, then too, he or she has to pay an income tax on their interest accruals. Furthermore, dividend earnings from share-holdings of companies are also subjected to income tax at personal level, even though such dividends are paid out of post-tax profits of the companies. If the companies would not have paid taxes on their profits, more dividends could be paid out to their share-holders and the same, received as dividends income, could be subjected to payment of income tax at the personal level. The issue of 'double taxation' would not have arisen in that event. And now the additional burden in the form of wealth tax, reportedly on immovable property beyond a certain limit, will have to be paid by the individuals, if the government finally approves the proposal for imposing such a kind of tax. In case of transfers of such immovable property, the capital gains tax has to be paid by the sellers of such immovable property. And here the valuation of property will present a formidable challenge, if the proposed property tax is enforced. The government would have certainly earned more tax, in the form of capital gains, in the event of transfer of such immovable properly if it could enforce transparency about values in related transfer deeds. All concerned do know it well that the actual transaction values of immovable property, land or apartment, particularly in the capital city of Dhaka and all other cities, are several times higher than what are shown in transfer deeds at the time of registration. Certainly, the collection from capital gains tax in cases of related transfers would have been far more than what the government would now expect to get from the introduction of the so-called property tax, if it could enforce measures to ensure that the registered values of transfer deeds reflect the actual transacted amount of money. It has not been able to do that since long. The government could also have better addressed the problem of inequality in asset ownership, had it gone for raising the taxes for purchase or acquisition of assets beyond certain limit. The tax rate is high for second-house, second-apartment and second-plot purchases in urban areas in many countries. Still then, the government is now reportedly set to impose another kind of tax, in the name of property tax, parading it a move to tackle the issue of inequality about asset holding. This is populism but will hardly serve any useful purpose. Under the present circumstances of high inflation, the incidence of multiple taxation on income and then on wealth, will have reasons to be considered too unfair by existing tax payers in a country where tax compliance is otherwise low. The proposed wealth tax would simply be adding to the burdens of the existing tax payers. Though Bangladesh has a large population, there are not many direct tax-payers in the country. Widening -- and not deepening -- the tax net should be the objective of the government under the given circumstances in the country where only a relatively smaller number, in its otherwise vast population, are in any shape to pay well the present taxes and ones to be introduced. Squeezing people to get more taxes cannot be the best policy when they are not so much in a position to bear the burden of such taxes. The best results in taxation can be obtained when the economy is invigorated by appropriate policies and measures of the government, and the potential taxpayers are motivated -- and not coerced -- to pay their taxes out of their free will, to do so and from their actual improved abilities to pay additional or higher taxes. And one of the major reasons for tax evasion or avoidance in this country is the high rate of taxation - and that rate also keeps on rising further from time to time. The authorities concerned in Bangladesh do not seem to understand the realities and appreciate the fact that lower rate of taxation leads to better tax compliance. The other side to expanding the taxation base involves the setting up of institutional capacities for the purpose. The value added tax (VAT) is a major source of revenue. But out of the country's 64 districts, more than 40 per cent of them do not have proper VAT offices to monitor and collect tax from professionals and businesses. Similarly, the customs administration also requires immediate recruitment of manpower to do its job well. And for fairness and economic and social justice, the taxation departments should, first of all, concentrate their activities on relevant areas for bringing those otherwise eligible tax payers who do not care about paying taxes, within the tax net and also on the big tax dodgers who are presently not few in number.