Sajjad Zohir, Motiar Rahman, Mohammad Arefin Kamal, Anik Ashraf and Nabil Ahmed
Prepared for The National Board of Revenue with financial supports from International Growth Centre
In an agrarian society, ‘property’ included land and a few other agricultural assets. With progresses and economies grew, a vast multitude of new assets emerged. Whereas ‘real property’ refers to real assets (such as land, natural objects on the land and improvements or constructions), ‘wealth’ is a multifaceted concept which includes value of real assets as well as bank deposits, businesses, shares and other financial instruments, personal assets (motor vehicles, furniture, electronics, precious metals), etc. While concepts of real property and property tax remain relevant in the context of local government tax (service charge) administration, at the national level, the concept of wealth is more appropriate since it subsumes real property as well as all new forms of assets in a modern society. Upon reviewing literature and practices in other countries, this paper adheres to the term wealth for all subsequent discussion.
The Wealth Tax of 1963 remained largely unchanged until the amendments made via the Finance Act of 1993. A schedule of tax rates on wealth value recorded in wealth statements of taxpayers was in place for wealth exceeding Rs./Tk. 2.5 million. As property values grew over time, the wealth tax payable was becoming increasingly exorbitant, making enforcement a considerable undertaking. To prevent wealth taxes from rising beyond a certain threshold, the Finance Act of 1993 introduced a ceiling of 30% of current income for aggregate income and wealth tax. This ceiling which coincided with the introduction of VAT, are believed to have changed incentive structure and subsequent reduction in government revenue from wealth tax, with eventual abandonment in 1999.