Land property to get costlier as tax hikes likely

The ownership of land property under Rajdhani Unnayan Kartipakkha (RAJUK), Chattogram Development Authority (CDA) and areas outside of such jurisdictions may become costlier in the next fiscal year, as the government is likely to increase the gain tax by 1 per cent.

Owners currently have to pay 4 per cent and 3 per cent gain tax for land registration under RAJUK and CDA respectively, and in areas outside of those jurisdictions. But finance ministry sources say the rate will be set at 5 per cent and 4 per cent in the next FY.

Besides, the special facility allowing no-questions-asked whitening of black money in the housing and relevant sectors may also come to an end in the upcoming budget. If such moves are implemented, the real estate and housing sector will have to bear the brunt of the blow.

Industry leaders also point out that the decisions could fuel capital flight, instead of boosting the government’s revenue collection.

During land registration, owners now pay 14 per cent to 16 per cent in taxes and fees, including 3 per cent – 4 per cent gain tax, 3 per cent stamp duty, 2 per cent registration fee, 2 per cent local government tax, and 3 per cent VAT.

In a recent pre-budget discussion with the National Board of Revenue (NBR), land developers and the Real Estate and Housing Association of Bangladesh (REHAB) urged the government to reduce overall land registration costs to 7 per cent in the upcoming budget to attract investors.

REHAB says the land owners are losing interest in registering their properties. That is why the government is also losing a significant amount of revenue from the sector.

At the same time, real estate businessmen are witnessing downtrend sales in the housing sector due to the economic shock. If the taxes are hiked again, this sector will face further strain, which in turn will have a negative impact on the economy.

They demanded cutting registration costs, claiming that it will boost revenue. Industry leaders pointed out that the registration cost in Bangladesh is higher compared to other nations. For example, such costs in SAARC countries range from 4 per cent to 7 per cent.

Realtors also urged the NBR to continue investment permission of undisclosed money in the real estate sector.

In FY21, the government allowed unconditional investment of black money in any sector including housing for only a 10 per cent tax, along with a provision barring authorities from raising questions about the source of those investments.

Speaking to The Business Post, REHAB President Alamgir Shamsul Al-Amin said, “As a result, 11,839 people whitened about Tk 20,500 crore in FY21 – the highest in a single year in the country’s history. Meanwhile, the government collected more than Tk 2,000 crore.

“If the government does not introduce a real estate friendly policy next FY, it will severely impact the overall economy of Bangladesh, as there are 270 sub-sectors related to this industry. Hiking taxes will not boost revenue collection. Instead it might cause money laundering to go up as people may not invest in land properties anymore.”

Recently, the REHAB president had put forward a budget proposal to the NBR for FY24, stating, “There is no ‘secondary market’ management in the housing sector of the country. It is high time the market operated in a way where the registration cost would be fixed nominally.”

The government is also planning to remove tax rebates on investments made in the secondary stock market in the upcoming budget.

Alamgir said on the issue, “The secondary market can take the real estate sector forward, and the government can earn more revenue as well. The registration fee for reselling a flat within five years should be 3.5 per cent.

“The industry needs a tax holiday for five years in cities, municipalities and cantonment areas, and for ten years in areas outside of municipalities, to encourage urbanisation.”

According to the Bangladesh Land Developers Association (BLDA), the real estate and housing sector’s contribution to Bangladesh’s GDP was over 20 per cent at a time when the investment in this sector exceeded Tk 2 lakh crore.

But the industry’s contribution to the GDP declined due to economic headwinds, as its growth is directly dependent on the country’s economic development. The government earns more than Tk 50,000 crore in revenue from the sector annually, according to BLDA.