Wealth tax - a penal tax

Wealth tax is a tremendous disincentive for savings in an investment starved country. Its a penal tax. With investment at a 50-year low, the budget should be designed in a way to make people save more to meet investment needs that can in turn spur the stagnating economy and generate employment.
But there is a fiscal dilemma as after 18th Amendment and 7th NFC Award, the provinces are not sharing their responsibility, even as their share in revenues has improved significantly. Now to curtail the fiscal deficit within manageable limits, without the provinces generating surpluses, the Economic Advisory Council is floating all sorts of ideas to enhance tax revenues.
There are compelling arguments for and against the wealth tax; and in todays world where capital can easily fly with no respect for boundaries; a tax which the rest of the world is shying away from could be a recipe for further capital flight - exposing further, the fragility of foreign reserves and inflation.
That is the main reason that the previous regime abolished wealth tax a decade ago. The four-decade history of wealth tax in Pakistan did not generate more than five percent of direct taxes. So, it may not do wonders now either.
But, it seems the minds formulating the budget are thinking; something is better than nothing. They argue that the rich should be brought to bear a commensurate share of taxes. While this is a valid concern, the imposition of wealth tax is likely to play out as an added burden on the already strained honest taxpaying segments. The measure would not only drive the existing taxpayers away from accumulating assets in the country, it also offers precious little to reign in those flouting the system through Benaami (absentee owner) on immovable and movable properties.
According to a PILDAT study; 65 percent of the countrys parliamentarians don own cars. That is true in case of industrialists as well who have all such services on rent for tax benefits. How the wealth tax would extract more tax from them, is a big question.
"There is no alternate to income tax. All the earning assets shall be taxed - human capital and all," stressed seasoned economist Dr Akbar Zaidi.
What is needed is enforceable taxation on services such as event management, beauty salons, boutiques and consultants along with income tax on transactions of assets like selling immovable properties; tax on agriculture and any other sort of income. These all are subjects of provinces and should be collected at the level of second and third tier of government.
But the level of lethargy displayed by the provinces so far towards improving revenue generation is what is forcing the Federal government to consider such desperate measures in the first place. The only plausible resolution thus, would be reached through inclusive discourse within the Council of Common Interests, just as the Seventh NFC Award negotiations led by former finance minister Shaukat Tareen.