CPD: Tk6,000cr lost in property tax annually

With a proper valuation of land and effective calculation methods as well as the collection, Bangladesh can earn revenue worth Tk 6,000 crore per year from property tax alone, says a new study by the Centre for Policy Dialogue (CPD).

However, it said, implementation and upgradation of the existing property tax system should be ensured to gain from the increased prices of property, which happened along with the country’s economic development.

The observations were made when CPD unveiled the study, “State and Scope of Property Taxation in Bangladesh,” at a Dhaka hotel on Wednesday.

Presenting the results, CPD’s Distinguished Fellow Dr Debapriya Bhattacharya said that if a country’s GDP increases by 1 per cent, then the property tax as a percentage of GDP increases by 0.47 per cent.

By this calculation, Bangladesh could get Tk 6,000 crore from property tax alone every year, he said.

He said that Bangladesh’s property tax situation is comparable to Africa’s. “African countries have a wealth tax of 0.3 per cent of GDP. Here, this rate is 0.27 per cent. As a result, there is a significant rise in social inequality.”

“We have to raise taxes every year at a rate of 0.5 per cent of our GDP as per IMF conditions. Therefore, there is no option to increase the collection of property tax. Such taxes increase productivity and ensure equality in society,” the economist added.

Burden on marginalised people

CPD highlighted that revenue collection in Bangladesh is largely dependent on indirect taxes, particularly on VAT. More than 55 per cent of indirect tax revenue comes from domestic sources.

This imposes a burden on marginalised people through double taxation, which deviates from tax justice and leads to income inequality rise.

The share of direct tax has been stagnant at around 33 per cent for the last five fiscal years. With the transition, income level and wealth accumulation will increase and so property tax has to be the potential source of revenue, said the study.

“A person will pay tax according to their ability. This is what should be done to ensure tax proportionality. However, tax simplification and awareness should also be increased in increasing property tax,” said CPD Executive Director Dr Fahmida Khatun.

CPD also said that there are six major property taxes in Bangladesh — land development tax, wealth surcharge, holding tax, capital gains tax, stamp duty and gift tax.

It mentioned that property tax obtained from land tax and stamp duty has been constantly declining for the last five years and has been only about 5 per cent of the total direct tax during this timeframe.

The experience of developed countries indicates that inheritance tax and gift tax can also be a potential source of tax revenue. In Bangladesh, inheritance tax can be introduced, and gift tax collection should be improved, CPD said in its presentation.

Property tax comparison

Property tax is an important source of tax revenue for OECD (Organisation for Economic Co-operation and Development) countries after income tax, VAT and excise taxes, mobilising 5.6 per cent of the total tax revenue.

Australia, Canada, the UK and the US had more than 10 per cent of total tax revenue as property tax revenue in 2021 compared to Bangladesh, where property tax accounted for only 0.24 per cent of total tax revenue in 2021 — one of the weakest revenue collection sources.

Property tax as a share of total tax revenue and GDP has been one of the lowest in Bangladesh among selected OECD, Asian and African countries over the last five years irrespective of the effect of the Covid-19 pandemic.

Addressing the event, Land Minister Saifuzzaman Chowdhury said that everything not will change overnight. The government is trying. The Land Ministry is being digitised. “I think this process will continue in future.”

He said that Tk 326 crore of land tax has been collected online in just one month. An average of Tk 700 crore was collected in the entire financial year before.

About unused lands

Speakers at the discussion also emphasised the need to use the land for productive purposes instead of leaving them unused. They suggested raising the tax rate on lands that cannot be used in the productive sector.

Ahsan H Mansur, the executive director of the Policy Research Institute of Bangladesh, said, “I have seen in Dubai and Saudi Arabia where no one buys land and keeps it, or has no opportunity to keep it because of the high tax rates imposed on unused lands.”

“But if we look at Dhaka’s Purbachal, hundreds of plots are lying empty. Here, money is being spent in unproductive sectors and the economy is not getting any benefit,” he said.

The economist recommended imposing additional tax if a piece of land is bought and kept unused. “If we can do this, the price of land will not increase abnormally. No one will want to keep their lands unused because of tax pressure.”

Recommendations

The CPD study recommended that exemptions are not clearly defined by law and it should be consistent with minimal distortions for several years, preferably at least five years.

The government should pay tax for its projects maintaining required procedures and calculations to ensure a fair tax system, it said.

Under land development tax, capital gains tax and wealth surcharge, property is assessed based on acquisition value or deed value instead of the real value at the current market price. This creates significant social and income inequality and should be addressed.

High tax rates of wealth surcharge also discourage taxpayers, so it should be reduced along with the entire registration cost of land or flats, it said.

The study also recommended that a comprehensive data system should be developed, where new relevant data-related initiatives like the digitisation of land ownership information should be seen as an opportunity.