Tax benefits for real estate investment outside cities
Sunday, 9 August 2009
Doulot Akter Mala
The government's tax incentive for real estate investment outside the country's six main cities has failed to generate little enthusiasm among realtors who termed the sop 'useless' without ensuring basic utilities.
The National Board of Revenue (NBR) made the ten-year tax benefit offer last week, making it effective from the first day of the current financial year on income generated from buildings with at least five stories and 10 flats.
The real estate companies would get the benefit if the building is constructed between July 2009 and June 2014 in areas excepting the country's six divisional cities and Tongi, Narayanganj and major towns in Dhaka districts.
"Tax benefit will be effective from the day when construction of the building will be finished," a top tax official said, explaining the NBR's order on the incentive.
NBR officials said this out-of-the-box tax sop was issued to lure the realtors to the district towns where investment in real estate companies is still 'not satisfactory.'
"The aim is to ease the population burden and mushrooming construction in the major cities. The tax incentive would make construction cheaper in the district towns," he added.
But the tax incentive was greeted with tepid response from the country's real estate companies.
"I agree it is a positive move by the NBR. It shows that the government is willing to encourage real estate investment in district towns and rural areas," Real Estate and Housing Association of Bangladesh (Rehab) president Tanvirul Islam Probal said.
But he expressed his doubt whether the tax benefit would make any immediate impact.
"Most of our district towns and rural areas don't have adequate supplies of utilities such as electricity, water and gas. So it would be impossible to find out buyers for costly flats," he said.
"Without utilities, no businessmen would spend his fortune in risky construction. I think at the moment it's a useless offer."
The facility should be offered for towns and municipalities where utility connections are available, he added.
The Rehab has more than 600 member companies who build 7000-10,000 flats a year in the capital Dhaka and Chittagong metropolitan cities.
Probal says despite the poor utility services some 50-60 members have already started construction of buildings outside the two major cities, mainly in the beach towns of Cox's Bazar and Kuakata.
NBR officials said they expect the order would have a slow but gradual impact, as majority of the people still want to buy flats in Dhaka and Chittagong.
"But once utility services get better outside these two cities, we hope a lot of companies would come forward to cash in on the tax benefit," the official said.
The latest order is a part of series of sops announced by the NBR to boost investment in the construction sector, which accounts for some 10 per cent of the country's Gross Domestic Product.
In the current budget the NBR has said it would raise no question on the money spent by taxpayers to buy one flat or a house during the 2009-10 fiscal year.
The government's tax incentive for real estate investment outside the country's six main cities has failed to generate little enthusiasm among realtors who termed the sop 'useless' without ensuring basic utilities.
The National Board of Revenue (NBR) made the ten-year tax benefit offer last week, making it effective from the first day of the current financial year on income generated from buildings with at least five stories and 10 flats.
The real estate companies would get the benefit if the building is constructed between July 2009 and June 2014 in areas excepting the country's six divisional cities and Tongi, Narayanganj and major towns in Dhaka districts.
"Tax benefit will be effective from the day when construction of the building will be finished," a top tax official said, explaining the NBR's order on the incentive.
NBR officials said this out-of-the-box tax sop was issued to lure the realtors to the district towns where investment in real estate companies is still 'not satisfactory.'
"The aim is to ease the population burden and mushrooming construction in the major cities. The tax incentive would make construction cheaper in the district towns," he added.
But the tax incentive was greeted with tepid response from the country's real estate companies.
"I agree it is a positive move by the NBR. It shows that the government is willing to encourage real estate investment in district towns and rural areas," Real Estate and Housing Association of Bangladesh (Rehab) president Tanvirul Islam Probal said.
But he expressed his doubt whether the tax benefit would make any immediate impact.
"Most of our district towns and rural areas don't have adequate supplies of utilities such as electricity, water and gas. So it would be impossible to find out buyers for costly flats," he said.
"Without utilities, no businessmen would spend his fortune in risky construction. I think at the moment it's a useless offer."
The facility should be offered for towns and municipalities where utility connections are available, he added.
The Rehab has more than 600 member companies who build 7000-10,000 flats a year in the capital Dhaka and Chittagong metropolitan cities.
Probal says despite the poor utility services some 50-60 members have already started construction of buildings outside the two major cities, mainly in the beach towns of Cox's Bazar and Kuakata.
NBR officials said they expect the order would have a slow but gradual impact, as majority of the people still want to buy flats in Dhaka and Chittagong.
"But once utility services get better outside these two cities, we hope a lot of companies would come forward to cash in on the tax benefit," the official said.
The latest order is a part of series of sops announced by the NBR to boost investment in the construction sector, which accounts for some 10 per cent of the country's Gross Domestic Product.
In the current budget the NBR has said it would raise no question on the money spent by taxpayers to buy one flat or a house during the 2009-10 fiscal year.