New property taxing proposed to narrow disparity

A study reveals stark wealth and income disparities in Bangladesh and suggests introducing a new property-tax system, including inheritance taxing, as a new source of direct-tax revenue to increase the country's tax-GDP ratio and reduce inequality.

The Centre for Policy Dialogue (CPD) study findings, presented Wednesday, show that Bangladesh is losing Tk 60 billion in wealth tax annually.

As such, it suggests, the country should be enhancing tax fairness by increasing tax collection amid growing wealth and income inequalities.

"Revenue collection in Bangladesh is largely dependent on indirect taxes (particularly VAT) which imposes a burden on marginalized people through double taxation, deviates from tax justice, and leads to rising income inequality," the CPD says in its study report.

Inheritance tax, a form of wealth tax, is currently levied on property and money acquired by gift or inheritance.

The CPD study shows though wealth tax is anticipated to rise by 0.4 per cent for every 1.0-percent increase in GDP, the same has not increased at the similar rate over the past ten years.

The study shows wealth accumulation per adult increased 3.66 times between 1995 and 2021 compared to 1.41-time increase in income during the time--wealth accumulation is more than two times faster compared to income

"This justifies the need to focus on wealth taxation more than income taxation," the study report says.

"If we consider GDP and inflation, the property tax is supposed to increase by Tk 60 billion, but it hasn't," said Dr Debapriya Bhattachariya while presenting the study findings at a high-level dialogue.

"With proper implementation, the tax has the potential to generate an additional revenue of Tk 60 billion,"

According to World Inequality Database, in 2021, the bottom 50-percent population owned only 4.80 per cent of total wealth in Bangladesh compared to the top 10 per cent owning as much as 58.45 per cent of the national wealth.

Debapriya Bhattacharya, a distinguished fellow of CPD, presented the results of the study at 'Dialogue on State and Scope of Property Taxation in Bangladesh' at a city hotel Wednesday.

He said higher wealth accumulation, rising income and wealth inequality all exhibit the need to tax wealth to correct income and wealth inequalities by redistributing resources among the most vulnerable and marginalised population through enhanced public-service delivery and by reducing wealth concentration among a certain portion of the population.

He linked Bangladesh's wealth-tax situation to Africa's.

"African countries have a wealth tax of 0.3 per cent of GDP. In Bangladesh, this rate is 0.27 per cent. As a result, there is a significant rise in social inequality."

The think-tank says the global experience indicates land tax and holding tax should be a major source of property-tax revenue, which is not the case for Bangladesh due to low collection.

The experience of developed countries also indicates that inheritance tax and gift tax can be a potential source of tax revenue.

Mr Bhattacharya told the meet that proper collection of property tax, holding tax and inheritance tax would create opportunities to reduce wealth inequality in the country.

"There is a pressing need to establish fairness in revenue collection and taxation given the concentration of wealth, the rising income disparity, and the increasing wealth inequality within the country," he said.

The CPD study suggests that the implementation of a wealth tax should be based on strategic planning within the existing framework of the National Board of Revenue (NBR) and land management.

Also stressed is the importance of establishing inter-connectivity and intra-connectivity among various government institutions, ensuring accurate asset valuation, and enhancing tax-collection mechanisms.

As found in a close scrutiny, there is no specific tax referred to as a wealth tax in the country at this moment. However, there are six types of taxes and duties that can be roughly categorised as wealth-related. Those include land- development tax, holding tax, capital gains tax, stamp duty, wealth surcharge, and, to a lesser extent, gift tax, although its effectiveness is limited.

Addressing the event, Executive Director of Policy Research Institute Dr Ahsan H Mansur said wealth tax by and large is not present in the country though it is actually the most potential source of tax. He alleged as wealthy class is related with taxation policy, so they don't strictly impose the wealth tax.

"Automatically inheriting wealth [inheritance] without paying any kind of tax increases wealth inequality," he said, adding that this should come with taxes.

He advocated for levying taxes on inheritances to address this disparity issue.

Land Minister Saifuzzaman Chowdhury said the government would be able receive Tk 20 billion as land-development tax from next year.

"This is 200 times higher than the previous digital land-development tax," he said. The minister told his audience that land-development-tax collection in 2019-20 under 100-percent manual tax system was about Tk 6.21 billion.

After the inauguration of the online land-development taxing in 2021, he said, online LD tax system across the country in 2021-22 rose to about Tk 8.67 billion, which is 30 per cent or Tk2.50 billion higher.

Since last April 14, 2023, through the establishment of 100-percent cashless system, almost 100-percent land-development tax is being collected online across the country, and Tk 3.25 billion has been collected in this one month only.

He apprised the meet that the government is building a database to ascertain the ownership of any land located anywhere in the country to curb tax evasion.

"We are working to create a landbank. We are going to introduce a system of Land Ownership Certificate (CLO)," he said.

Also, the government will issue smartcard where total information of land ownership will come to the database.

The land minister regretted that many want to walk grey area to avoid tax on land. Many people show non-agricultural land as farmland to evade paying higher tax on non-agricultural land.

He hopes the CLO will be helpful to curbing the practice of evading land tax. "All the land you own in Bangladesh will come in the CLO," he said.

The land ministry is also preparing land-zoning map to demarcate nature of land and their use. "Once it is done, the scope of avoiding tax will not be there," he said.

Chaired by CPD Executive Director Fahmida Khatun, the function was also addressed by Head of Cooperation and Delegation of the European Union to Bangladesh Maurizio Cian, lawmaker Barrister Shameem Haider Patwary, former Chairmen of the National Board of Revenue (NBR) Nasiruddin Ahmed and Muhammad Abdul Mazid and Partner of Snehasish Mahmud & Co Snehasish Barua.

The speakers in the discussion emphasised land use for productive purposes rather than leaving it fallow.

If not, they suggested raising the tax rate that would be applied to such land.

They said not only land undisclosed, income of inheritance should be penalized before taxing as legal inheritance assets.

The speakers said the tax exemptions by the government should be brought under some kind rules and be reduced as much as possible to increase the tax-GDP ratio.

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