Govt plans to reimpose up to 1% wealth tax to net Tk5,000cr

The government may reintroduce a wealth tax of up to 1% in the next national budget, replacing the existing wealth surcharge system in a move aimed at raising an additional Tk5,000 crore in revenue and reducing income and wealth inequality.

The proposed tax, which could come into effect a year after its announcement in the next national budget, was discussed during a meeting between Finance Minister Amir Khosru Mahmud Chowdhury and officials of the National Board of Revenue on Monday as part of deliberations over income tax measures for the upcoming budget, according to officials familiar with the discussions.

Infograph: TBS

Under the proposal, the current surcharge imposed on taxpayers based on declared net wealth would be abolished and replaced with a direct tax on net assets. Initially, the tax would likely be calculated on the basis of net wealth declared in tax files because of complexities surrounding asset valuation. 

Officials said the government plans to gradually develop a mechanism for assessing assets at actual market value in the future.

NBR officials believe that if market-based valuation can eventually be implemented effectively, revenue collection from the proposed tax could increase several-fold.

NBR Chairman Abdur Rahman Khan had earlier indicated during budget discussions last month that the revenue authority was considering the introduction of a wealth tax.

Bangladesh first introduced a wealth tax system in 1963 through the Wealth Tax Act. However, the law was repealed in 1999 because of valuation complexities and concerns over double taxation.

In recent years, several policy think tanks have recommended reintroducing a wealth tax to address growing inequality, although previous attempts were delayed because of implementation concerns and valuation difficulties.

Proposed tax structure

According to an NBR official, net wealth of up to Tk4 crore may remain exempt from the proposed tax, similar to the current wealth surcharge threshold.

Under the initial proposal, wealth between Tk4 crore and Tk6 crore could face a tax rate of 0.25%, while the next Tk5 crore may be taxed at 0.50%. Another Tk5 crore of wealth could be taxed at 0.75%, and any remaining wealth above Tk16 crore may face a 1% tax rate.

The official said the proposal remains under consideration and that a final decision may be made during a meeting with Prime Minister Tarique Rahman tomorrow, before the budget proposal is finalised.

He added that the finance minister had instructed policymakers not to introduce any budgetary measures that would increase the burden on low-income people.

The proposed national budget for the next fiscal year is expected to be placed in parliament on 11 June.

Economists back move, warn of implementation challenges

Speaking to TBS, economists and experts have largely welcomed the proposal, arguing that Bangladesh needs stronger redistributive taxation policies as wealth inequality continues to widen.

Professor Mustafizur Rahman, distinguished fellow at the Centre for Policy Dialogue, said Bangladesh is approaching high levels of inequality in wealth distribution, particularly in urban areas.

He said, "In such a situation, imposing additional taxes on large wealth holdings is justified to ensure fairer distribution of wealth and reduce inequality between rich and poor."

The economist criticised the existing wealth surcharge system, saying it was not based on a scientific framework. "Many countries impose direct wealth taxes rather than surcharges linked to income tax," he said.

However, he acknowledged that implementation could become complicated because of asset valuation disputes and administrative challenges.

Former NBR member Apurbo Kanti Das expressed concern that the new tax could disproportionately affect compliant taxpayers who already disclose their assets in tax filings.

"If the government wants to collect Tk5,000 crore through wealth tax instead of Tk1,000 crore, the burden will largely fall on existing compliant taxpayers," he said.

Apurbo argued that taxpayers who conceal assets or evade taxes may remain unaffected unless enforcement and information-sharing systems improve significantly.

He also pointed to practical concerns regarding taxpayers who hold substantial but non-productive assets. Apurbo questioned whether individuals with low income but high-value assets would be forced to sell property to pay the tax.

He further warned that disagreements over asset valuation could trigger an increase in litigation.

Why govt expects higher revenue

Currently, Bangladesh imposes a wealth surcharge based on the amount of income tax payable rather than directly taxing wealth itself. The surcharge can be as high as 35% of total income tax liability.

NBR officials believe this method yields far lower revenue than a direct wealth tax system.

For example, if an individual owns assets worth Tk100 crore but pays annual income tax of Tk20 lakh, the maximum surcharge under the current system would amount to around Tk7 lakh. However, under a direct 1% wealth tax regime, the tax liability on Tk100 crore in assets would rise to Tk1 crore.

According to NBR data, slightly more than 11,000 taxpayers are currently under the wealth surcharge system. Officials believe this number could increase substantially in the coming years if the revenue authority strengthens information-sharing arrangements with various institutions and improves taxpayer identification systems.