The Federal Board of Revenue (FBR) has started consultative process with top economic experts, including tax consultants, retired income tax officials, chartered accountants and economists, to check the economic implications of wealth tax imposition.
Sources told Business Recorder here on Saturday that the FBR will convene a series of meetings with experts in the coming days to obtain their viewpoint and legal implications of the imposition of wealth tax. The FBR is planning to convene a meeting with the Institute of Chartered Accountants of Pakistan (ICAP) on April 14, 2011 to discuss the issue.
Later, the FBR will convene a meeting at Regional Tax Office (RTO) Lahore with participation of income tax lawyers, tax experts and chartered accountants to get their input on wealth tax restoration. The meeting, to be headed by Khawar Khurshid Butt FBR Member Inland Revenue, would discuss different aspects of wealth tax imposition.
At the same time, the FBR will also obtain viewpoints of some senior retired income tax officials to have their expert opinion on wealth tax. The officials, like Vakeel Ahmed Khan and others, would be contacted to have their input and suggestion on the wealth tax. When contacted, a senior government official opined that imposition of wealth tax would result in flight of capital, and people would start transferring money abroad. It would be a kind of double taxation where a person paying income tax on an asset has again been forced to pay a kind of wealth tax. The issue of double tax needs to be studied before considering such a proposal. This is also a fact that best tax administrations strongly oppose the imposition of wealth tax as it is not applicable in most of the countries.
People have now started declarations of their assets by coming into the documented regime. The idea of re-introducing wealth tax would discourage formation of wealth in the country. Any kind of proposal to re-introduce wealth tax would also discourage documentation of the assets, he said.
Disagreeing with the idea of wealth tax restoration, sources said that income needs to he taxed, whereas creation of wealth is a good activity. The wealth generation and capital formation is needed for economic growth. Once income tax is charged then charging tax on savings from the same income does not make sense, they added.
Strongly contesting the idea of wealth tax restoration, a leading tax expert and lawyer of Supreme Court, Naveed Andrabi, argued that wealth tax would immediately stop growth of the economy. People would start hiding their assets, and creation of ''Benami Assets'' would again be started. The investors and potential persons would start purchasing assets in the name of others. "Any mistake to restore wealth tax would result in creation of parallel economy for concealment of income and assets", he commented.
He added that accumulation of assets would be totally discouraged following imposition of wealth tax. If the idea is to impose wealth tax on the real estate sector, the people would stop purchasing assets to avoid payment of wealth tax. The general public would be reluctant to purchase property to avoid wealth tax payments.
Another negative factor of the revival of wealth tax would be the powers of the income tax officials to determine value of the property for imposition of wealth tax. Valuation disputes would arise and tax officials might exercise their discretionary powers to impose the levy on the basis of current market value of the property. The assessment powers of the tax officials for valuation purposes might be misused. Such kind of serious valuation disputes would take place which would ultimately increase litigation, Andrabi added.
Another tax official said that the general public is already overburdened with heavy indirect taxation and the idea of wealth tax may be considered, but excluding business assets. Similarly, assets-generating income should also be exempted from wealth tax. The previously imposed gross assets tax would also be examined during the on-going process.
It is worth mentioning that the Revenue Advisory Council (RAC) has recently constituted a committee headed by Federal Board of Revenue Member Inland Revenue Khawar Khurshid Butt to consider the pros and cons of wealth tax restoration.
The committee will submit its report within 2 weeks to the RAC for further necessary action, sources added. Some members of the RAC strongly objected to the proposal with the argument that wealth tax imposition would result in flight of capital. There are many negative implications of restoration of wealth tax including transferring of investment/cash abroad by industrialists, etc. The revival of wealth tax would also be examined in the backdrop of the 18th Amendment under which taxation of property has been transferred to provinces.
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