Mahfi Eğilmez on 'wealth tax': 'It will increase injustice in taxation'

With the 'wealth tax' on the agenda due to the budget deficit, Mahfi Eğilmez has shared his assessments. Eğilmez stated, "In countries like ours where the informal economy is widespread, the priority should not be to impose a wealth tax, but to try to capture and tax informal earnings." 

Eğilmez's article is as follows:

"Due to the record budget deficit expected, some proposals for implementing a wealth tax have recently begun to appear in the media and on social media.

A wealth tax is a direct tax levied on the movable and immovable property, money, and receivables that constitute the wealth of natural and legal persons. Rather than being a continuous tax, it has generally emerged as a tax type applied temporarily during difficult periods for a country, such as in times of war, natural disasters (including events like a pandemic), or during a major economic crisis. The most typical example is the inheritance and transfer tax, which is accrued on assets when they are passed to heirs upon the death of the testator or to individuals who acquire assets through a donation.

In Turkey, apart from the inheritance and transfer tax, a wealth tax was implemented with the Wealth Tax law enacted in 1942. As a result of significant criticism, the Wealth Tax application was abolished in 1944 with the cancellation of taxes that had been assessed but not yet collected up to that date. Although it was applied for a short time, it is remembered as one of the darkest pages in the history of Turkish public finance.

Leaving the inheritance and transfer tax aside, the wealth tax, which is applied temporarily in extraordinary circumstances in most countries, has begun to be among the taxes applied continuously in some countries, especially after the global crisis and the pandemic. Some countries in Europe apply this tax continuously under the name of net wealth tax (net wealth refers to the amount remaining after deducting debts from a person's assets). Some countries in Europe also apply a wealth tax on certain wealth items (we can call this a partial wealth tax).

The attached table shows the situation of European countries regarding wealth tax (source: Cristina Enache, Wealth Taxes in Europe, 2024, Tax Foundation Europe, February 27, 2024. https://taxfoundation.org/data/all/eu/wealth-taxes-europe-2024/ )

Accordingly, out of 32 countries in Europe, a partial wealth tax applied to certain assets is continuously implemented in four (Belgium, France, Italy, and the Netherlands), and a net wealth tax is continuously implemented in three (Norway, Spain, Switzerland).

All countries that apply either a net wealth tax or a partial wealth tax are developed countries. There is no wealth tax application in the rest of the developed countries or in any of the developing countries.  

A wealth tax is a type of tax that involves difficulties in its implementation. First and foremost, for such a tax to be applied, the informal economy must not be widespread. Otherwise, since such a tax would not cover the segment that has already managed to avoid taxation, it would further increase injustice in taxation. While those who have earned informal income and kept their earnings outside the system by not paying taxes remain untaxed, those who are within the formal system and have declared their income and paid their taxes will be punished once more by paying a wealth tax.

Therefore, in countries like ours where the informal economy is widespread, the priority should not be to impose a wealth tax, but to try to capture and tax informal earnings. The most direct way to do this is to reintroduce the principles of expenditure declaration and wealth declaration into the tax system, which were applied in the past.

Another way to close budget deficits is to eliminate waste in the public sector. This cannot be achieved by saving on paper and pens, but by putting an end to practices such as security details, cars, luxury buildings, palaces, and positions with three or four salaries. While the public sector (managers in certain positions and politicians) lives in a way that leads to luxury spending, imposing an additional tax on people who have paid their taxes correctly due to their specific wealth would be an application similar to the Wealth Tax."

Appendix Table: Wealth Tax Implementation in Europe: