Govt mulls wealth tax on assets
DESIGN: Ibrahim Yahya
The government is considering the imposition of a wealth tax, called the Income Support Levy, on all assets, including agriculture. This measure could become its largest revenue generator in the next fiscal year and has the potential to raise up to Rs200 billion.
Sources have informed The Express Tribune that the government may introduce the levy as a federal tax on all types of assets, with rates ranging from 0.25% to 2% of the asset’s value. However, the final rate has not yet been determined.
Unlike income tax, the collection from the levy will remain in the federal kitty and will not be shared with the provinces. The Ministry of Finance is expected to present the bill in the Parliament instead of the Revenue Division. The bill will require the approval of the National Assembly and the Senate.
Based on the rate and the asset class chosen for taxation, the government estimates an additional annual tax revenue of Rs25 billion to Rs200 billion. This could make it the largest revenue generation measure.
The government does not plan to withdraw the Super Tax, which is levied at up to 10% on individuals and companies’ income. Instead, the Income Support Levy is being considered to be charged on individuals and companies based on their assets.
To address constitutional challenges and avoid a repeat of the Supreme Court’s previous rejection of a similar levy, the government intends to introduce separate legislation for the Income Support Levy. There is also a legal question regarding whether ordinary legislation can be introduced along with the Finance Bill during a budget session in the National Assembly. If approved by the Law Division, the levy bill can be tabled alongside the Finance Bill; otherwise, its approval will be sought after the budget session.
As a result, it is possible that the Income Support Levy Bill will not be presented in the National Assembly on June 9th when the finance minister announces the budget for fiscal year 2023-24.
For the next fiscal year, the government is considering setting a tax collection target of Rs9.2 trillion for the Federal Board of Revenue (FBR), which would require at least a 28% growth rate compared to this year’s expected collection of around Rs7.2 trillion.
The Tola Commission had recommended the imposition of a Minimum Asset Tax on movable and immovable assets for resident individuals with asset values exceeding Rs100 million. However, the FBR did not endorse the proposal and instead suggested the income support levy.
According to the Tola Commission, the minimum asset tax aims to reduce inequality among taxpayers by ensuring a minimum tax on assets is levied, neutralising the benefits of tax exemptions and reduced tax rates applicable to certain taxpayers.
The actual revenue impact of the proposal will depend on the nature of the assets, exemption thresholds, and the rate chosen, said sources. The FBR has recommended rates ranging from 0.25% to 2% and exemption thresholds of Rs50 million to Rs100 million in assets.
The FBR does not possess details regarding assets in the agriculture sector, nor does it have information on assets held by non-filers of income tax returns.
The Income Support Levy was introduced by Finance Minister Ishaq Dar in 2013 but was struck down by a Supreme Court bench led by Justice Qazi Faiz Isa for multiple reasons.
In 2013, around 581 petitioners challenged the Income Support Levy Act. The levy was imposed at a rate of 0.5% on movable assets to provide financial assistance and other social protection measures to economically distressed individuals and families.
The Supreme Court ruled that the levy had been imposed through the Finance Act of 2013, even though it did not meet the requirements of a Money Bill as outlined in Article 73(2) of the Constitution. Last time, an ordinary legislation (not a Money Bill) should have been sent to the Senate for voting, but this was not done.
Although the previously imposed levy aimed to provide financial assistance and implement social protection and safety net measures for economically distressed individuals and families, neither the Act nor the Income Support Levy rules established an income support fund or mandated that the amounts collected be used specifically for poverty alleviation objectives.
Published in The Express Tribune, June 3rd, 2023.
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