Financial assets unlikely to come under proposed wealth tax

• By Nishel Fernando

Financial assets are unlikely to come under the proposed wealth tax, which is set to come into effect in 2025, due to practical difficulties and complex nature in administration and tax collection, according to a top tax expert.

“It’s too early to comment as to how it will come or whether it will come at all. The recent tax collections are not what they really expected and they are concerned about tax collections. Since they have mentioned property tax, that’s an indication that they may leave out financial assets and focus on land and buildings,” KPMG Tax & Regulatory Principal Suresh R.I. Perera said. 

The International Monetary Fund (IMF) in March announced the possible introduction of a property tax and wealth transfer tax in 2025 while hinting it may take a longer period to prepare and develop asset evaluation for the proposed wealth tax.

Sri Lanka and IMF have also agreed to introduce a gift and inheritance tax with a tax-free allowance and minimal exemptions. Preparatory work for these tax reforms will commence by mid-2023, supported by IMF technical assistance.
“It’s very difficult to administer and collect wealth tax,” Perera remarked. 

He pointed out that countries such as Argentina, which have implemented similar wealth tax, are struggling toenforce it.

“Rather than introducing a tax that cannot be administered efficiently, the focus should be on taxes that can be collected. Land tax might be the compromise that they are looking at,” he said.

In terms of taxation on capital markets, Perera stressed that the government should consider a consistent tax structure that incentivises the market players as the current tax regime is in transition.

In particular, he emphasised that the government should focus on reigniting the venture capital sector while re-evaluating the tax structure on unit trusts.