Owning flat, land to get costlier as gain tax increase planned

Highlights:

• Currently, gain taxes and fees on flats and plots amount to 10-12.5%
• It may increase by 1-2 percentage points in the next budget
• REHAB earlier proposed bringing down taxes and fees to 7%
• Govt plans to reduce dependency on electronics imports by encouraging local manufacturing

Owning property may become costlier in the next fiscal year as the government moves to increase the gain tax, while benefits may be given to some specific electronics items to encourage local manufacturing, according to finance ministry officials.

Also, local manufacturers of refrigerators, freezers, and their compressors are likely to continue benefiting from the current duty rebate for an additional year.

Currently, the total gain taxes and fees on buying flats and plots amount to 10-12.5%, which may increase by 1-2 percentage points in the upcoming national budget.

According to sources in the National Board of Revenue (NBR), the revenue officials involved in the budget formation process headed by the finance minister on 14 May presented this plan to the prime minister to incorporate in the finance bill.

Finance Minister AHM Mustafa Kamal is expected to propose this change in parliament on 1 June.

However, real estate businessmen say there is currently a downtrend in the housing sector due to the economic slowdown. If the tax is increased again, sales in this sector will further decrease, which will have a negative impact on the economy.

"There is a slowdown in the buying and selling of the housing sector now. It is unfortunate that the tax will be increased in this situation. It will definitely reduce sales," Naimul Hassan, director of the Real Estate and Housing Association of Bangladesh (REHAB), told The Business Standard.

Capital gain tax is a type of tax imposed on the profit or gain made from the sale of certain assets, including property. When a person sells a property, such as a house or land, and makes a profit from the sale, that profit is considered a capital gain. Though sellers are supposed to pay taxes on capital gains, they usually charge buyers for this tax.

Currently, flat and plot buyers pay a gain tax of 4%, a stamp fee of 1.5%, a registration fee of 1%, a local government fee of 1.5%, and a value-added tax of 2-4.5%.

REHAB had earlier proposed to bring down these taxes and fees to 7% in the FY24 budget, saying, "People are losing interest in the registration of flats or plots due to the high costs. As a result, the government is deprived of adequate revenue from this sector."

"The registration cost in Bangladesh is very high compared to other Saarc countries. In those countries, this cost is not more than 4–7%. This registration fee needs to be reduced immediately," the trade body said in a written statement.

A senior field-level tax official told The Business Standard, on condition of anonymity, "Our office has tax files for several housing companies. Companies pass on all the taxes they have to buyers. They bear no burden of taxes."

Economists say that a huge amount of black money is being generated by buying and selling land and flats in the country. By ensuring actual valuation, it is possible to collect a huge amount of additional tax even in the current tax system. But raising taxes without doing so is not a logical solution.

MA Razzaque, research director of the Policy Research Institute (PRI), told TBS, "There are allegations that many people do not show the actual price while buying land or flats. It is generating a huge amount of undisclosed money."

"NBR's capacity to ensure accurate valuation needs to be enhanced. Instead of doing so, raising taxes as an easy way out is not a logical step," he added.

However, the sale of plots and flats has decreased for the past year due to various reasons, including a rise in the price of construction materials.

According to data from the Directorate of Registration, from January to October of 2022, the total registration, including plots, flats, and commercial space, amounted to Tk19,000 crore. And it stood at Tk35,000 crore in the January–December period of the previous year.
 
Duty rebate for electronics industries

The government is also planning to reduce dependency on imports by encouraging local manufacturing.

In this regard, the upcoming budget is going to offer a duty rebate for the local production of electric switches and sockets to substitute imported items. On the other hand, finished switch and socket importers will face high duty, said finance ministry sources.

They mentioned that the upcoming budget is going to propose ways to encourage local production and protect their interests.

At the same time, the local manufacturers of refrigerators, freezers, and compressors are likely to enjoy the current duty rebate benefits for one more year.

VAT exemption at the local production stage in the manufacturing of washing machines, microwave ovens, electric ovens, blenders, juicers, mixers, grinders, electric kettles, rice cookers, multi-cookers, and pressure cookers is likely to extend for one more year.

The NBR will issue separate statutory regulatory orders (SROs) over those issues by 30 June 2023.