Wealth tax not the best way to tax rich

In Summary

• President Ruto had indicated that he plans to introduce a wealth tax to increase government revenues

• Higher property taxes could be more effective than a wealth tax in raising government revenue

Image: OZONE

President William Ruto last week rightly told Parliament that the rich should pay more in taxes.

Ruto told MPs that he favoured "a hierarchy that taxes wealth, consumption, income and trade in that order of preference."

That has led to widespread speculation that President Ruto plans to introduce a 'wealth tax', where wealthy people have to pay, say, one percent of their assets as tax every year.

This is highly problematic. 

Firstly, people can hide their assets by having them under company names, trusts or other names. This will encourage tax avoidance.

Secondly, what assets should be taxed? Is it land, houses, cars or shares? How do you deal with a poor farmer whose land is worth a lot?

Thirdly, what should be the threshold? Should it be when you own assets worth Sh100 million or Sh1 billion? Either way, people will manipulate the value of their assets to be below the threshold.

There are better ways to tax the rich. Capital Gains Tax pursues profit on investments, especially real estate. Make certain every landlord pays tax, including owners of office blocks. Increase inheritance tax. And increase traditional property taxes from their present negligible level.

Quote of the day: “Practise what you know, and it will help to make clear what you do not know.”

Rembrandt van Rijn
The Dutch painter died on October 4, 1669

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