Shoring up revenue earning from land registration
Wednesday, 22 August 2007
Shamsul Huq Zahid
The immediate past political government tried to streamline the land registration system with the objectives of reducing the hassles that both buyers and sellers of land and immovable property have to face very often and bringing down the incidences of forgery. It is difficult to assess the effectiveness of the move in the absence of any evaluation study.
The present interim administration has rather focused on revenue aspect of the land registration. The ministry of finance has recently decided to waive the deduction of 5.0 per cent tax at source at the time land registration, reduce the existing 5.0 per cent stamp duty to 2.0 per cent in case of registration of land in rural areas and the land registration fees for both urban and rural areas by 0.5 per cent.
The decision has made the National Revenue Board (NBR) worried since the waiver of 5.0 tax deducted at source for all types of land registration will cost it an estimated amount of Tk. 5.0 billion.
The decision of the government which is bent upon beefing up its revenue earning might come as a surprise to many. But finance ministry's calculation could be based on a different premise. It has, possibly, banked on the idea that waiver of tax and reduction in stamp duty would encourage the buyers and sellers in both urban and rural areas to show the actual or the near-actual value of land in their registration deeds, thus, generating revenue more than what is received now. Who does not know that transfer deeds (or documents) relating to land and immovable property are registered at values that match with the government-fixed area-specific notional prices and not with actual market-based ones? This has been going on, since long, and is a ground-level reality.
It is believed that the origin of a big chunk of the undisclosed income is the money received through the sale of land and structures on it. Many people having such funds are finding it difficult to avail themselves of the opportunity offered by the government to legalise the undisclosed income because of the 'source' problem. Though the NBR is not supposed to ask the source, owners, justifiably, remain hesitant, fearing possible harassment in future. The NBR and other authorities concerned should better accept the hard ground-level realities while the government takes its action to bridge the gap between market-prices of land and related property (including apartments and real estate) and their market prices.
The outcome of the latest decision of the finance ministry to shore up revenue through tax and stamp duty waiver is difficult to predict. It might produce some positive results, but that is unlikely to be at the desired level.
The government, apparently, has addressed the problem of poor revenue earning from land registration partially by reducing taxes and stamp duty. It should also address the root cause, the actual market value of land. Since the market prices of land, either in urban or rural areas, are much higher than value of the same that both buyers and sellers show, for some objective reasons, in related registration deeds, the difference between the two is extremely high in case in urban land, particularly that of Dhaka and Chittagong.
The government, from time to time, fixes land prices in some major urban areas, including the metropolitan Dhaka, making the same as the basis for land registration. The ministry of works has recently re-fixed the area-wise prices of land in Dhaka and some of its adjoining areas. However, there still remains a gulf of difference between the actual prices of land and the re-fixed value of the same.
Had the government fixed land prices in all the major cities and towns and also in rural areas realistically and levied taxes and stamp duty and fees at an affordable level, it could have earned a much bigger amount of revenue from land registration.
One may wonder: why is the government deliberately avoiding fixation of land prices at ruling market prices or somewhere near to those?
There could be two plausible reasons for keeping its land prices at lower levels than the actual ones. Firstly, the government has to acquire private land for development and housing purposes and it would have to spend a large amount of fund for such acquisition if the prices are kept at the actual level. And secondly, many investors seeking to buy government land for building up mills and factories might feel discouraged if the latter demands actual price of land.
The authorities concerned might consider fixing two different sets of prices for government and private landed property to help streamline things and, thus, relieve all those involved in transactions relating to purchase or sale of land and other immovable property of the burden of undisclosed but not corruption-ridden money and related receipts and payments, taking the hard ground-level realities into consideration. The prices of land need to be revised after every two to three years. The price adjustment, of course, would be on the higher side in a country where the land-man ratio is one of the lowest in the world.
The immediate past political government tried to streamline the land registration system with the objectives of reducing the hassles that both buyers and sellers of land and immovable property have to face very often and bringing down the incidences of forgery. It is difficult to assess the effectiveness of the move in the absence of any evaluation study.
The present interim administration has rather focused on revenue aspect of the land registration. The ministry of finance has recently decided to waive the deduction of 5.0 per cent tax at source at the time land registration, reduce the existing 5.0 per cent stamp duty to 2.0 per cent in case of registration of land in rural areas and the land registration fees for both urban and rural areas by 0.5 per cent.
The decision has made the National Revenue Board (NBR) worried since the waiver of 5.0 tax deducted at source for all types of land registration will cost it an estimated amount of Tk. 5.0 billion.
The decision of the government which is bent upon beefing up its revenue earning might come as a surprise to many. But finance ministry's calculation could be based on a different premise. It has, possibly, banked on the idea that waiver of tax and reduction in stamp duty would encourage the buyers and sellers in both urban and rural areas to show the actual or the near-actual value of land in their registration deeds, thus, generating revenue more than what is received now. Who does not know that transfer deeds (or documents) relating to land and immovable property are registered at values that match with the government-fixed area-specific notional prices and not with actual market-based ones? This has been going on, since long, and is a ground-level reality.
It is believed that the origin of a big chunk of the undisclosed income is the money received through the sale of land and structures on it. Many people having such funds are finding it difficult to avail themselves of the opportunity offered by the government to legalise the undisclosed income because of the 'source' problem. Though the NBR is not supposed to ask the source, owners, justifiably, remain hesitant, fearing possible harassment in future. The NBR and other authorities concerned should better accept the hard ground-level realities while the government takes its action to bridge the gap between market-prices of land and related property (including apartments and real estate) and their market prices.
The outcome of the latest decision of the finance ministry to shore up revenue through tax and stamp duty waiver is difficult to predict. It might produce some positive results, but that is unlikely to be at the desired level.
The government, apparently, has addressed the problem of poor revenue earning from land registration partially by reducing taxes and stamp duty. It should also address the root cause, the actual market value of land. Since the market prices of land, either in urban or rural areas, are much higher than value of the same that both buyers and sellers show, for some objective reasons, in related registration deeds, the difference between the two is extremely high in case in urban land, particularly that of Dhaka and Chittagong.
The government, from time to time, fixes land prices in some major urban areas, including the metropolitan Dhaka, making the same as the basis for land registration. The ministry of works has recently re-fixed the area-wise prices of land in Dhaka and some of its adjoining areas. However, there still remains a gulf of difference between the actual prices of land and the re-fixed value of the same.
Had the government fixed land prices in all the major cities and towns and also in rural areas realistically and levied taxes and stamp duty and fees at an affordable level, it could have earned a much bigger amount of revenue from land registration.
One may wonder: why is the government deliberately avoiding fixation of land prices at ruling market prices or somewhere near to those?
There could be two plausible reasons for keeping its land prices at lower levels than the actual ones. Firstly, the government has to acquire private land for development and housing purposes and it would have to spend a large amount of fund for such acquisition if the prices are kept at the actual level. And secondly, many investors seeking to buy government land for building up mills and factories might feel discouraged if the latter demands actual price of land.
The authorities concerned might consider fixing two different sets of prices for government and private landed property to help streamline things and, thus, relieve all those involved in transactions relating to purchase or sale of land and other immovable property of the burden of undisclosed but not corruption-ridden money and related receipts and payments, taking the hard ground-level realities into consideration. The prices of land need to be revised after every two to three years. The price adjustment, of course, would be on the higher side in a country where the land-man ratio is one of the lowest in the world.