Sources of unexplained investment can be investigated

The repealed wealth tax levy has not been instrumental in favouring the "crème de la crème," including big industrialists and landlords, as section 111 of the Income Tax Ordinance has given ample powers to the tax officials to probe into sources of unexplained investment.
Sources told Business Recorder on Friday that the assets, accumulated through unknown sources of investment, could be probed by using powers of section 111 of the Income Tax Ordinance 2001. The persons, having annual income of Rs 500,000, have to file wealth statement, but, on the contrary they usually skip this form.
The department still has powers under Ordinance 2001 to securitinise the cases where assets have been added by the rich people. Therefore, the wealth tax abolition has no practical value. Sources said that the concept behind section 111 was to tax the income, which was either consciously or by fiction concealed/avoided from the tax authorities.
The provision could check the source of any amount credited in the person's books of accounts, any investment made or persons being owner of the money or valuable article or a person's expenditure. Sources said that one of the major reasons for withdrawal of wealth tax was the government policy to reduce the overall number of taxes and concentrate on major revenue generating taxes.
Secondly, the government was pursuing the policy to levy tax at the consumption stage and not on investment and savings, they added. Thirdly, the total collection of wealth tax had never exceeded Rs 7-8 billion in a fiscal. In an economy of one trillion rupees, the contribution of wealth tax was merely 0.1 percent of the total collection.
Thus, the abolition of wealth tax had very limited implication on raising tax collection, they said. "It is totally incorrect and highly exaggerated that the government has suffered loss of Rs 50 billion in one year due to the abolition of the levy. The government abolished 'wealth tax' 5-6 years ago as this levy was not making any substantial contribution to overall revenue collection," said the sources.
In the past, the rate of wealth tax started from 4-5 percent. Later, the rate of tax was brought down, ranging between 0.5 percent to 2.5 percent. The exemption from wealth tax was available on an owner occupied house or amount up to Rs 500,000, whereas agricultural inputs and household goods were exempted from the levy.
The valuation of wealth tax on property, assets and gold etc always raised disputes between the taxpayers and the income tax officers. There were more hassles as compared to negligible contribution of its collection to total tax revenue.
Sources said that the wealth tax had played no role in broadening the tax-base due to inbuilt legal flaws in the levy, taxing 2.5 percent even on wealth, which had generated no income on an annual basis.
Sources said that the importance of wealth tax could be judged from the fact that it was not applicable anywhere in the best tax administrations of the world. Even in India, wealth tax virtually stands abolished, as the productive assets like shares, deposits, bonds, debentures, units, commercial buildings are free from wealth tax without any limit.
Sources said that one of the major ambiguities in the wealth tax was that it did not discriminate between legal and illegal wealth. The levy of 2.5 percent tax on wealth that has not accrued income may imply that the payee has transferred the assets to the government as tax in 30-40 years.
Sources said that the wealth tax levied on an occupied house to be paid year after year on the same property of its market value, irrespective whether it yielded any income. Legal ambiguities in the wealth tax rendered it unpopular as well as local clashes made it unfeasible to collect leading to its abolition. According to sources, the government has rightly abolished the wealth tax, which has inbuilt legal flaws, playing no role in broadening the tax-base.
In 1995, Fobre Magazine counted 129 US billionaires and their income in contrast to average family size shows a visible lack of wealth tax levy clearly making a case of its imposition on very rich people. Pakistan has its share of millionaires and it is to be the responsibility of the present Finance Ministry to explore the possibility of levy of such a tax on wealthy people.