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Upcoming Budget to introduce wealth tax?

18 Sep 2022

  • IMF urges SL to introduce wealth tax
  • Taxes usually announced via budgets: Treasury
By Tanya Shan    A wealth tax, as suggested by the International Monetary Fund (IMF), is likely to be included in the upcoming Budget, The Sunday Morning Business learns. An official from the Treasury told The Sunday Morning Business that the implementation of the wealth tax was one of the many reforms suggested by the IMF, noting that taxes were generally announced via budgets.  “Usually, taxes are announced only through budgets and not during the interim periods. If Sri Lanka decides to go ahead with a wealth tax, this will likely be included in the next budget. It is highly unlikely to happen before that,” the official stated.  IMF Mission Chief for Sri Lanka Masahiro Nozaki recently said that implementing the wealth tax to protect the vulnerable and the poor from the impact of the fiscal adjustment to reduce the fiscal deficit was a part of the IMF’s Staff-Level Agreement (SLA) with Sri Lanka. He also said that since Sri Lanka’s tax collection had been very low, progressive tax reforms should be designed to raise tax revenue to support fiscal adjustment in reducing the fiscal deficit. He added that these tax reforms should be designed to ensure greater contribution from high-income earners and to minimise the impact of fiscal adjustment on the vulnerable and the poor. “In this context, one of the ways to ensure progressivity of tax measures is to use a personal income tax, including a higher tax rate for high-income earners,” he said, adding that a wealth tax should be implemented to address this and that such a tax was part of the SLA with Sri Lanka. However, Nozaki noted that the preparation of the wealth tax would take time and how it was designed was going to be discussed with the Sri Lankan authorities over an appropriate time frame. A wealth tax, also called a capital tax or equity tax, is imposed on the wealth possessed by individuals. The tax usually applies to a person’s net worth, which is assets minus liabilities. These assets include (but are not limited to) cash, bank deposits, shares, fixed assets, personal cars, real property, pension plans, money funds, owner-occupied housing, and trusts. An ad valorem tax on real estate and an intangible tax on financial assets are both examples of wealth tax. Generally, countries that impose wealth taxes also impose income and other taxes. Only four countries of the Organisation for Economic Co-operation and Development (OECD) currently levy a wealth tax: France, Norway, Spain, and Switzerland. Previously, in the early 1990s, 12 countries reportedly imposed a wealth tax, indicating that the popularity of this form of taxation is diminishing.  


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