An appeal to the President Interim Budget 2015: Mansion Tax

Friday, 6 February 2015 00:00 - - {{hitsCtrl.values.hits}}

Finance Minister Ravi Karunanayake presenting the 100-Day Revolution statement in Parliament By S.R. Balachandran BSc. FCA, FCMA With reference to the Interim Budget Proposals 2015 announced on 29 January, it is observed that an annual levy called Mansion Tax of Rs. 1 million has been introduced on house and property if value exceeds Rs. 100 million or floor area exceeds 5,000 sqft, whichever is more. This is indirectly a wealth tax which needs close scrutiny. It is an accepted fact that property values multiplied after 1977 without extra Income generation. Even the Department of Inland Revenue has recognised this and therefore value as at 31 March 1977 was taken as base value for tax purposes. High value properties need not generate high income unless they are sold and reinvested. Therefore, a person who owns high valued properties may not have adequate income even to survive, whereas he/she is going to be liable to pay Rs. 1 million annually as additional tax. The same rule is applicable for property which exceeds floor area of 5,000 sqft. It may be an owner occupied property where, the net annual value is exempt from tax at present. On this basis it is believed that wealth tax is reintroduced now and may cover other assets in the future. The imposition tax on 5,000 sqft floor area is arbitrary. There is a vast difference between Rs. 100 million value and 5,000 sqft ceiling fixed. A person having a house and property in rural areas exceeding 5,000 sqft may have to pay Rs. 1 million tax though the value would be very much less than Rs. 100 million. Owning a house and property is an encouragement for saving and investing, especially for people who are not aware of the stock market dealing or investment in fixed deposits, etc. Normally retired people prefer to live in their own premises and may generate income by renting out a portion though not separately assessed. House and property are safe investments encouraged by the Government. Further they increase in value due to inflation and there is no danger of frauds or loss in market value as in the case of deposits and shares. Now this levy is a discouragement for owing house and property, as there is a fear in the minds of people that this 5,000 sqft requirement may reduce further over a period of time. Even if exemption is granted to inherited property people who demolish and rebuild or modify, according to modern trends will face a problem. They may stop rebuilding and renovating. In addition, rent will increase tremendously. A person who possess two or more units which are not separately assessed may allow a unit on rent. When total square area of the units, exceed 5,000 sqft he is liable to pay Rs. 1 million and is compelled to increase the monthly rent by nearly Rs. 83,500 p.m. A tenant may not be in a position to pay such rent and would have to leave to occupy a smaller unit. Now the second condition of Rs. 100 million value is also critical. Land values in values in municipal/urban areas are high when compared with those in rural areas. Therefore a person in Colombo would easily meet the Rs. 100 million condition and would be liable for this tax with no corresponding income. It may be an owner occupied premises as well. Therefore this discouragement for investment in house and property results in black money accumulation. A very important fact to be considered is that a person who builds a house has income generated after paying taxes is liable for mansion tax once again every year. Similar levy is not imposed on stocks, shares and fixed deposits, etc. Again there is a fear in peoples mind that the present Rs. 100 million ceiling may be reduced later on, to tax even more houses in the future. At present when a property of material value is purchased, Department of Inland Revenue sends notices requesting for explanation in respect of funds raised for the purchase. Similar action could be taken in respect of houses valued at more than Rs. 100 million or 10,000 sqft floor area. If black money is detected, additional tax may be levied. It is necessary to have black money accumulation reduced materially and finally wiped out after some time. This is of national interest. This is an appeal to the President to defer imposition of this tax until finality is reached after consulting the economic experts, chambers of commerce, etc. It is very important to make the people to feel that this Budget is beneficial to all and economic progress is achievable. Public goodwill is very important