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Tax increase to add insult to real estate injury

Rafikul Islam
23 May 2023 01:05:30 | Update: 23 May 2023 09:27:22
Tax increase to add insult to real estate injury

The real estate businessmen have apprehended that adopting unfavourable policy amid the global economic recession triggered by the Russia-Ukraine war might put the country’s real estate sector in the soup in the next fiscal year.

According to media reports, the National Board of Revenue (NBR) is going to increase total gain taxes and fees on buying flats and plots, denying the proposals of Real Estate and Housing Association of Bangladesh (REHAB).

In response, industry insiders said the real estate sector is already suffering from the increasing prices of construction materials, and increasing the taxes and fees at such a time will add insult to the injury.

Besides, they also apprehended, the sector would be dealt with a severe blow if the government stops the special facility of allowing the whitening of black money in the real estate sector, where 269 backward linkage companies are involved, in the next national budget for the fiscal year (FY) 2023-24.

REHAB President Alamgir Shamsul Al-Amin said housing is one of the basic rights of the people and the real estate businessmen try to fulfil this basic right as a partner of the government‘s development.

“However, a real estate friendly policy is crucial in the upcoming national budget amid high construction material prices. Otherwise, a big impact may fall in the overall economy of the country,” he pointed out.

“No sooner had the shock of the Covid-19 pandemic subsided, the Russia-Ukraine war started, triggering a global economic crisis which has cast a negative impact on real estate sector also,” Al-Amin said, adding, “But the government policy of allowing undisclosed money in the real estate sector in FY21 helped the sector a lot to tackle the crisis. As a result, not only 11,839 people whitened about Tk 20,600 crore in that fiscal year, but the government also collected revenue worth Tk 2,000 crore.”

High prices of construction materials

At present, per tonne of rods is selling between Tk 100,000 and Tk 105,000 in cities while the price of a 50-kg cement sack is Tk 510-560. The cement price is Tk 10-40 higher in rural areas of the country.

According to state-run Trading Corporation of Bangladesh (TCB) data on May 20, the price of 60-grade SM rod has increased by 12.68 per cent per tonne this year, and 40-grade by 6.02 per cent, compared to the corresponding period of the previous year.

On May 20, the 60-grade rod was sold between Tk 98,500 and Tk 101,500 per tonne while 40-grade at Tk 90,000-95,000 in Dhaka municipality.

Mohammad Abdul Jalil, proprietor of M/S Arowa Traders, said, “We are selling BSRM rod at Tk 105,000 per tonne, AKS Tk 100,000, and GPI at Tk 98,000. Besides, we are selling 50-kg sack of Holcim cement at Tk 560, and Fresh cement at Tk 530.

Dr Sumon Chowdhury, managing director of Rani Re-Rolling Mills Ltd and also vice-president of Bangladesh Steel Manufacturers’ Association, told The Business Post, “Steel prices in the market have increased due to increased prices and scarcity of raw materials, rise in dollar rate, hike in electricity and gas prices and rising freight cost.”

“Besides, our production volume has also declined these reasons. At present, there is a lack of demand in the market as people are waiting for a reduction in price. All these are the key reasons behind the rod price hike in the retail market,” he added.

Observing that the hike in steel price has dealt a severe blow to the country’s infrastructural development, Dr Sumon said, “We need industry-friendly and smart tax policies to minimise business costs and ensure the ease of doing business which can help boost the country’s economy,”

REHAB recommendations for budget

The REHAB earlier placed a number of recommendations to the NBR, including allowing the whitening of black money, decreasing overall flat and plot registration rate to 7 per cent from the current 10-12.5 per cent, fixing flat reselling fee at 3.5 per cent, reducing VAT to 1.5 per cent from 2-2.5 per cent, ensuring tax holiday for five years in cities, and for 10 years outside the municipal areas to encourage urbanisation in the country.

“Our real estate market management should be improved like developed countries. However, hiking taxes in the next budget will not increase revenue collection. It might help to increase money laundering because of many people won’t invest in real estate sector,” said REHAB President Al-Amin.

He also said there is now a downtrend in the housing sector due to the economic slowdown. If the tax is increased again, sales in this sector will come down further, creating a negative impact on the country’s economy.

Anik Simanto, director (commercial and area operations) at Bproperty, said Dhaka is now one of the most expensive cities to live in, considering per square feet living cost.

“Providing long-term home loans can make the existing high prices of flat affordable for the buyers. The long period of time would enable them to manage the comparably small amount of money for the loan repayment instalments,” he added.

He said, “For the second time registration of a property, the fee is same as the first time, though it should be much less. A lower fee should be fixed, or a fee based on depreciation of the property in years.”