Wealth

and
Inheritance Taxes

Presentation by
Yuji MIYAKI
Place Date here Public Management Specialist (Taxation)
Sustainable Development and Climate Change Department
Asian Development Bank
November 2016, Metro Manila, Philippines
 Asia has comparatively limited revenue base….
Tax revenues, share of GDP

% of GDP
1990s 2000s
35

28

21

Place Date here

14

7
Developing Asia Latin America & Caribbean OECD World

2
 ….. faces big future fiscal demands
– e.g. health
Share of public spending on health in GDP, 2010 (actual) and 2050 (projected)
12.0

2010 2050, projected

10.0

8.0

6.0

Place Date here

4.0

2.0

-
Developing Asia Central Asia East Asia Southeast Asia South Asia The Pacific

3
 …..big future fiscal demands
– e.g. social security
Share of public spending on social security and welfare in GDP, 2010 (actual) and 2050 (projected)
8.0

7.0

6.0

5.0

4.0

3.0
Place Date here
2.0

1.0

-
Developing Asia Central Asia East Asia Southeast Asia South Asia The Pacific

2010 2050

4
…..implying a clear need to improve revenue
mobilization across all categories

5
 Property Taxation

ACQUISITION

POSSESSION

DISPOSAL

Revenues = Base x Rate x Coverage x Valuation x Collection

• Annual taxes on land and property (LPT)
• Stamp duties on property transfer
• Development fees, betterment levies
• Estate duties or inheritance taxes
• Capital gains taxes on property transfers
 Classification of Property Taxation

Wealth Tax
Tax on Wealth
Stock
Capital Levy

Estate Tax
Succession
Duties
Tax on Wealth
Transfer Inheritance Tax

Gift Tax
 Tax revenue by kind of tax

Source: OECD Revenue Statistics

Wealth-related tax in EU
(Averages 2000-2012)

Source: Ernst & Young (2014)

 Why we need a global wealth tax?

•A global wealth tax and not a consumption

tax is the way to go when it comes to fixing
wealth inequality around the world

• Thomas Piketty
 Rationale for a Wealth Tax
• Equality
• More productive use of assets
• Small part of the population but powerful group
• Incentive effects

Same Income

Same Tax?
 Current examples of Wealth Tax

• Argentina: (Impuesto a los Bienes Personales)

For assets above ARS 800,000 (USD 53500), The annual rates are 0,75% for 2016,
0,50% for 2017 and 0,25% in 2018.
• Norway:
0.7% (municipal) and 0.15% (national) a total of 0.85% levied on net assets
exceeding 1,200,000 kr as of 2015.
• Spain: (Patrimonio)
The tax rate is progressive, from 0.2 to 3.75% of net assets above the threshold of
€700,000 after €300,000 primary residence allowance. The exact amount varies
between provinces.
• Switzerland:
A progressive wealth tax that varies by residence location. Most cantons have no
wealth tax for individual net worth less than CHF 100,000 and progressively raise the
tax rate on net assets with a top rate ranging from 0.13% to 0.94% depending on
canton and municipality of residence.
• Historical Examples
Iceland (2006, 2010-2014), Austria, Denmark (- 1995), Germany (- 1997), Finland (-
2006), Luxembourg ( -2006) and Sweden (- 2007).
 What is Wealth? Disadvantages?
• What is Wealth?
Wealth (or net worth) is the difference between assets and debt.
There are four major types of assets:
– Homes (technically referred to as “owner-occupied housing”);
– Liquid assets, including cash, bank deposits, money market funds, and
savings in insurance and pension plans;
– Investment real estate and unincorporated businesses; and
– Corporate stock, financial securities, and personal trusts.
• Disadvantages?
• Capital Flight
• Valuation issues – High management cost
• Economic Effect
"wealth taxes were not as equitable as they appeared"
(Wealth Tax in Europe: Why The Decline? Institut de l'enterprise, June 2004)
 Why we need an inheritance tax?

“We on the Government side believe that, if there is no limit on the

ability of the wealthy minority to pass on the fruits of their labour to
their children, we introduce into the class structure of this country a
degree of rigidity, indeed, immobility, which is deeply damaging to both
its economic efficiency and its social unity. There is overwhelming
agreement on this point in the country”

(Chancellor Denis Healey on the introduction of Capital Transfer Tax, in 1975, UK)
 Basic Structure Estate and Inheritance
Taxes

• An inheritance or estate tax is a tax paid by a person

who inherits money or property or a levy on the estate
(money and property) of a person who has died
• An estate tax is assessed on the assets of the deceased.
• An inheritance tax is assessed on the legacies received
by the estate's beneficiaries.
 Inheritance tax burden ratio
Jan 2016
%
Japan
(2015-)
Spouse
+ 2 children
Ratio (tax/amount taxable asset)

UK

Japan
(- 2014)
France

Germany

US

Amount taxable asset (100 Million JPY)

≒ Million USD
Source: Japan MOF
 Japan’s Inheritance tax
Calculation of total Calculation of inheritance
inheritance tax tax of each heir

Spouse
Allocated by civil code

amount heir received

Allocate tax by actual
Progressive tax rate
Amount

of inheritance
Total amount

Tax credit
taxable
asset

tax
Child

Child
Basic
Deduction
 KEY REASONS FOR REPEALING THE
ESTATE/INHERITANCE TAX

• Taxes property that has already been taxed when earned

• Many individuals will save less
• Slow business activity
• Harmful to small businesses and farms
• Revenue is relatively small while high expenses incurred for
collection.
• Substantial expenses in paying for estate planning advice to help
minimize estate/inheritance tax
 KEY REASONS FOR THE KEEPING
ESTATEINHERITANCE TAX
• Revenue
• Reduce the concentration of Wealth
• Encourage donation by wealth individuals
• Tax on windfall of massive amounts of wealth
• Exemption prevents small business to pay tax

Key Consideration in designing Inheritance Tax

• Standard Deduction: apply separately for each
legatees/devisees.
• Exempt Assets: e.g. family owned small businesses, farms
• Tax rates and brackets: Progressive rate structures are more
likely to be important in an inheritance tax.
 Varieties of inheritance and estate taxes
• Philippines:
Currently, the Philippines have an estate tax in place. After deducting all expenses,
losses, debts and taxes related to the property.
• Indonesia:
Indonesia does not levy inheritance tax. As long as there is no business or
employment relationship, there is also no gift tax. However, if real estate is transferred after
the death of a proprietary, a real estate transfer tax can be levied.
• Viet Nam:
Any inherited property exceeding VND10 million (US$460,000) is taxed at a flat rate
of 10 percent. However, exemptions from inheritance tax are made if the income is generated
from the inheritance of real property as long as one of the following relationships is applicable
to the heir and the deceased person: husband and wife; parent and child, including adopted
children and foster parents; Mother and father-in-law, Child-in-law; Grandparent and
Grandchild; Sibling..
• Malaysia:
Inheritance tax in Malaysia was abolished in 1991. Until then, net worth exceeding
MYR2 million (US$543,000) was taxed at five per cent, and a rate of 10 percent was
imposed on net worth exceeding MYR 4 million.
 Varieties of inheritance and estate taxes
• Thailand:
In August 2014, the head of Thailand’s National Council for Peace and Order (NCPO),
General Prayuth Chan-ocha approved plans to reform the tax system – which included the
creation of an inheritance tax. The 10 percent tax will be levied on values over the amount of
US$ 1.5 million, effectively making this a wealth distribution tax.
• Cambodia, Laos, Myanmar:
Neither Cambodia, Laos nor Myanmar levies inheritance taxes. However, in the case
of Myanmar, inheritances and gifts are subject to stamp duty.
• Singapore:
Before 2008, Singapore levied a tax called the “Estate Duty”, however, this was
removed in order to encourage more local and overseas investors to hold their assets in the
city-state. Before the abolition of the Estate Duty, immovable property, bank accounts,
publicly listed shares and items in a safe deposit box were all taxable.
• Australia:
Australia abolished the federal estate tax in 1979, but capital gains tax is levied on the
sale of an asset or its transfer of ownership and if this occurs upon the death of the owner it
constitutes a "crystalising action", and capital gains tax becomes assessable.
• Canada:
Canada abolished inheritance tax in 1972. However, capital gains are 50% taxable
and added to all other income of the deceased on their final return.
 CONCLUSIONS AND FUTURE POLICY
DIRECTIONS

• What is the future of net wealth and transfer taxation?

• Simplification

• More efficient wealth taxes

• Counter avoidance and evasion

• Appropriate mix of taxes in contemporary society

Thank you very much.
Maraming salamat.

Yuji MIYAKI
Asian Development Bank
Mandaluyong City, Metro Manila
E-mail: ymiyaki@adb.org
Telephone: +63 2 683 1864