• Legal, institutional, and political hurdles hinder wealth tax implementation
• Focus on enhancing existing asset-based taxes as a short-term solution

Introducing a board wealth tax in Sri Lanka is currently unfeasible due to limited legal and institutional capacity, along with low political support for new taxes, a Colombo-based policy think tank said.

According to the think tank Arutha, having a nationwide wealth tax in Sri Lanka is not feasible due to legal issues and institutions, and there is low political support.

It said that existing wealth tax proposals are tailored to advanced economies and their administrative frameworks, making them unsuitable for Sri Lanka’s context.

“Additionally, the constitutional devolution of power between central and local governments imposes legal restrictions on property-related tax collection,” it said.

Arutha revealed that according to estimates, the wealthiest 10% of Sri Lankans hold around 64% of the nation’s wealth, while the bottom 50% control just 4%.

“Research confirms that inequality continues to widen as the wealthy accumulate more investments, further concentrating wealth,” the report said.

Also, it said that taxing income or capital gains does not address the underlying inequality in asset ownership as wealth, even if not generating income, confers social status, security, and access to credit, further entrenching inequality.

Additionally, high concentrations of wealth encourage rent-seeking behaviour and the stagnation of resources.

Arutha said that a wealth tax, by contrast, is more progressive, making it a crucial tool for a fairer tax system.

“For a country like Sri Lanka, which relies heavily on regressive taxes, adopting wealth taxes would represent a significant step toward a more equitable fiscal policy,” it added.

Therefore, it recommends that in the short term, the focus should be on enhancing existing asset-based taxes, which will help build the necessary capacity for more comprehensive policies in the future. A realistic timeline must be established, dependent on the success of these short-term measures.

While in the long term, it should consider implementing a property tax at the subnational level or a rental income tax at the national level, provided there is sufficient data on property values and administrative capacity to ensure minimal costs and substantial revenue.

“The introduction of inheritance and gift taxes can be considered at a later phase, focusing on offshore and dynastic wealth accumulation,” it said.