A Case for Wealth Tax: Top 1% Owns 32% Wealth, Bottom 50% only 3.7%
Posted on September 21st, 2022
Dilrook Kannangara
Sri Lanka’s current taxation system is only focused on taxing income and consumption. How about wealth? Sri Lanka has a horrible disparity between the top 1% and the bottom 50%. The top 1% (about 200,000 people) owns 32% of the wealth while the bottom 50% (over 11 million people) owns just 3.7% of the wealth. This is an unsustainable situation for a country in a deep debt trap and multiple economic crises.
If all income taxes and consumption taxes are removed, everyone will have more money to buy essentials, build up savings and invest in industry in time to come. The loss can be recovered by taxing the super rich via a wealth tax. Most of their wealth idles without earning a return.
Land and houses are a good starting place. Land and houses should be subject to wealth tax based on the total floor area, the extent of the land and the location. Each postcode, town or village has their average value. When the value of a property exceeds a certain threshold, it can be taxed at 5% of its assessed value. This can more than offset for the loss in income taxes and VAT.
If the economy was doing well, wealth taxes are counterproductive to some extent due to capital flight – that is people will sell local assets and invest elsewhere. However, given the dollar crunch, this is not possible today. Therefore, wealth tax can successfully increase government revenue without impacting income and consumption.
It is easier to administer as well and there are no dodgy deductions. Paying 5% of their wealth is no big deal for those with assets over the threshold. They too benefit by not having to pay taxes on their income and consumption.
Wealth tax will also lead to good economic and social behaviours. Overcrowding in cities will ease, there will be more dwellings for needy people, import of gold and other luxury goods will reduce, illegally earned money will be taxed (at the moment illegally earned money is totally tax free as income is not declared), tax collection will be fairer and the wealthy will put their assets to producing income.