Gains tax on land and property is set to be hiked as a budgetary measure to collect more taxes from well-off people, stoking fear of greater accumulation of untaxed money.
The tax authority currently imposes different forms of gains tax, including 3.0 per cent of total deed value in district municipalities, 2.0 per cent inside other municipalities and 1.0 per cent outside municipalities.
Official sources said the tax rate might be increased in the budget for upcoming financial year (FY) 2023-24.
They feel that the full potential of tax collection from land property remained untapped as tax is collected on Mouza value.
However, tax experts have cautioned that an increase in gains tax on land and property would worsen the existing problems with land purchase.
They suggest imposition of tax on transaction value of land to avoid accumulation of black money through investment in land.
The tax incidence on land property is 11 to12 per cent inclusive of VAT, Stamp Duty and other forms of taxing.
If proposed in the new budget, the fiscal measure may generate tax revenue on temporary basis but would not help remove the existing "vicious cycle".
Snehasish Barua, a founding-partner at Snehasish Mahmud and Co, says increasing tax on property registration might give a short-term solution in collecting some additional amounts of tax but it will not work out in long-term perspective rather this might increase the size of the informal economy.
"Currently, property registration is done based on the minimum value set by government for each area, which in most cases is significantly lower than the actual price, at which the buy-sell of the property takes place and the government taxes are paid," he adds.
He suggests that the minimum value of property for each area ought to be revisited on a periodic basis so that it is in line with the current market price.
At the same time, the registration cost should also be reduced.
Syed Shameem Reza, Managing Director of Imperial Consultants and Development Ltd, says the government should rather devise fiscal measure to attract investment in the country and discourage capital flight.
He fears a significant hike in prices of apartments as prices of construction materials, including MS rod and cement, have increased substantially.
"Flat sale will go down further if it (price) goes beyond the level of affordability," he predicts.
In the pre-budget proposal, the Real Estate and Housing Association of Bangladesh (REHAB) has demanded opportunity to disclose undeclared income by investing in housing sector by paying 10-percent tax.
Mr Shameem, former Executive Member of REHAB, said tax-break for a period of five years is required to encourage investors and generate more employment.
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