Taxing the Wealthy: IMF’s suggestion to boost revenues for the poor
The New Administration is taking a significant step toward reforming its tax system by focusing on taxing wealth and property, aiming to benefit lower-income groups.
This comprehensive strategy, guided by recommendations from the International Monetary Fund (IMF), intends to reshape fiscal policies to generate revenue from the elite, ultimately aiding economic stability and poverty alleviation.
The IMF has outlined a plan for the Fiscal Affairs Department to increase its primary balance by 6 percentage points, reaching 2.3 per cent by 2025, through reforms like introducing a wealth transfer tax and revamping property tax laws.
Central to this strategy is the implementation of an imputed rental income tax (IRIT) by 2025, which will target properties above a specific value threshold.
A crucial part of the government’s tax overhaul includes a reform of the capital gains tax, aligning it more closely with international standards, IMF‘s recent technical report revealed. .
The IMF recommends replacing the existing exemption for the sale of a first home with a value threshold, thus broadening the tax base.
It also suggests eliminating the capital gains tax exemption for listed companies and aligning the VAT treatment of owner-occupied housing, including taxing the first sale of residential property.
The plan also includes proposals to adjust property taxes at the local level, ensuring more consistent and updated assessments.
The outdated annual value (AV) assessments will be replaced with a more dynamic approach to prevent excessive tax liabilities.
The New Administrtaionis compelled to reduce the burden on property owners by gradually adjusting tax rates and implementing hardship relief mechanisms.
Additionally, the Fiscal Affairs Department plans to increase stamp duties on land leases and introduce an electricity usage tax as part of the 2025 budget proposals. This approach aims to generate additional revenue while ensuring that local authorities can adjust property tax liabilities more frequently.
The move to a market-based property tax system will involve taxing residential properties in municipal councils according to their market values, while commercial properties will continue to be taxed on rental values.
For urban councils and PradeshiyaSabhas, a simple formulaic assessment approach will be used, streamlining the valuation process and enabling timely updates.
To support these changes, the introduction of a Digital Sales Price and Rents Register (SPRR) has been recommended. This digital tool will play a key role in assessing property values and forming the basis for multiple taxes, including IRIT, capital gains taxation, and local property taxes.
Ultimately, these reforms aim to ensure that the wealthiest individuals contribute more significantly to the nation’s revenue, easing the tax burden on lower-income citizens and enabling better-targeted social programmes.
By focusing on taxing the elite, the government hopes to create a more equitable fiscal environment that supports both economic growth and social welfare.
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