Time to consider an inheritance tax

  • People are free to earn and spend, but for opulence and activities that hinder productivity, the state can push measures.
- SUJEEV SHAKYA

Apr 23, 2019-

In Nepal, it is not surprising that people who can efficiently learn how to create Virtual Private Networks on their smartphones to download restricted material pretend not to know how to use the calendar function. People tend to ignore things that they are not comfortable with. The digitisation of land records and bringing about transparency in maintaining land records as well as real estate transactions have, therefore, not been an area of priority. The Shah kings and the Rana rulers enjoyed the benefit through ownership of land. They created different structures to provide land grants, through birtas and jagirs, temporarily to people currying favour, thereby institutionalising rent-seeking.

After the advent of multiparty democracy, the leadership in all parties ensured that the politics surrounding land use and ownership was kept alive. Otherwise, how can one explain the building of ugly, illegal structures a short distance from Singha Durbar without the concerned authorities noticing? Societal measure of prosperity has been around how much real estate one owns. It is not uncommon to hear of people who own multiple properties. They rent away the best ones and live in the worst ones. Personally, I have never understood the logic of building better houses and choosing to live in the worst of the properties. Growing up, I knew of people who had toilets in the houses they rented out but did not have toilets in the ones they lived in,despite being able to afford it in their residence. This used to astonish me, but I never could understand the reason behind such behaviour.

Blood and money

I am always surprised when I hear of people who fight over inherited property. I perhaps grew up in an environment where we were taught to forgo things that we had not rightfully earned. We never saw our parents fighting over property that got taken away by relatives. We learnt how to earn and establish on one’s own. I get baffled when I hear of family members fighting for wealth that has been created by their ancestors. Going to court, fighting long arduous legal battles for things that are not yours! The religious saying of accumulating good deeds that can be remembered for seven generations has been twisted, and it seem that some are after accumulating wealth for seven generations.

The priest classes across religions and cultures have done well to redefine the scriptures so that makes one feel the need to amass property before getting consumed in flames. Society has also revered people who do nothing but live off rental income or by selling ancestral property. When I was younger, those who used to foot the bill in restaurants and bars and pay for all sorts of entertainment were people who just got money for free, literally. It is very difficult to believe and understand that people will squander hard-earned money in a manner that baffles everyone.

I have also known of people who actually don’t know how much rent is collected from their ancestral property. They have someone to handle that, and that someone loves taking his cut to build his mansions and accumulate land on the side. This other person also, as he accumulates free wealth, gets swindled by someone, or finds some other person who will squander his wealth. Therefore, despite having one of the highest property prices, income levels are low here, and people project themselves as being poor. This dichotomy in behaviour has cost Nepal’s economic development dear. Instead of fostering a culture of entrepreneurship, the country has seen rent-seeking people who have basically become icons for everyone to ape.

Hope for change

Big problems need big solutions. The recent land scams are the tip of the iceberg. Cartel leaders have no shame when their names appear as being blacklisted by banks or in the list of tax evaders. Similarly, political leaders, their cadres and associates have no shame when it comes to their names being linked to scams. Scams have become a way of life. Some go to jail and come out even stronger. In the past two decades, we know of many people belonging to this category. Societal transformation from the inside is a tough task; therefore, some regulatory interventions may help. There are three things that need to be done.

First, impose tax on inheritance beyond a certain threshold and have increased taxes for inherited properties. This has been a tested tool in many countries, and it ensures that people are better off seeing their assets from inheritance cost them more than the benefit. Second, we need trust laws to ensure that people can will their properties to trusts rather than their family members, if they wish to do so. Many a time, people who are inheriting property resort to inhuman tactics to ensure they get it. Further, the concept of wills also ensures that there is no automatic inheritance. Moreover, trusts, managed by independent trustees may be better managed than if the property in question was divided to multiple individual successors. Finally, there needs to be laws that will make ownership of more than one dwelling unit subject to more taxes. People are free to earn and spend, but for opulence and activities that hinder productivity, the state can push measures.

Nepal’s socialism across party lines has been about land management in favour of the people in power and people who ensure they are in power. Perhaps the next generation of political change agents will be the ones who will question the status quo. I wonder which of the newer, younger parties will dare to take the plunge.

Shakya tweets at @sujeevshakya.

Published: 23-04-2019 11:04

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