Reducing tax, fees in real estate sector

The outcome of the government's plan to mobilise an increased volume of revenues during the current financial year (FY) by raising the tax rates on registration of land and apartments might backfire. The registration tax rate for both has been doubled. In addition, a capital gain tax at the rate of 15 per cent is in place. The rate hike coupled with economic downturn has notably slowed down the land and apartment sales, leading to a reported decline in tax revenue mobilisation during the first two months of the current FY.

It hardly comes as a surprise that transactions in the sector have gone down by as much as 40 per cent. This is reflected in the National Board of Revenue's (NBR) sharp fall in revenue collection from this lucrative sector. Transactions in land and apartments have long been a favourite tool to whiten money as the practice has been to register these at a fraction of their actual values. Needless to say, the NBR is keen to increase its revenue, but the move taken was too fast and at a time of economic downturn which has left a lot of prospective buyers struggling with their finances.

The other issue is that the value of apartments has gone up significantly since the outbreak of the war in Europe. One cannot but take cognizance of the fact that additional duty has been imposed on a number of building blocks for real estate like cement, stone, tiles, lifts, ceramics, switches, sockets, etc. The Bangladesh Taka has also depreciated significantly against the US$. The idea of "Housing for All" has taken a major hit because the bulk of the market is in the 1,000 square feet segment that services the middle class. Prior to the latest fiscal measures (and rise in cost of various inputs), the average value per square feet for an apartment of this size was Tk 4,000. A prospective buyer would come up with own finance of about Tk2.0 million and take bank finance of the rest (as banks usually finance about 50 per cent of the transaction value). Now, the same apartment is retailing for about Tk7.0 million, which has resulted in the reduction in sale by more than 50 per cent. Because it is not possible for most buyers to come up with extra Tk1.5 million given today's economic realities.

The various rates of fixed taxes have been fixed by the NBR on areas, some of which are absent from the land survey records. Reportedly, many areas like Sayedabad and Gulshan fall under the jurisdiction of Dogara and Ranabhola mouza, which are not covered by the land survey and hence it has become difficult for sub-registry offices to collect taxes effectively. As per NBR data, it is understood that only Tk320 million land taxes has been collected in July, 2023 as opposed to Tk1.01 billion in taxes over the same period last fiscal. The target had been to collect Tk47 billion taxes from land and flat sales this fiscal. At the end of the day, the NBR needs to rethink its policy of raising taxes and registration fees as it has seriously cut its revenue stream.