The government plans a two-fold hike in the rates of gain tax on land and flat registration, and penalties for late submission of income tax returns in the upcoming fiscal 2023-24.
Under the new measures, the gain tax on land and flat registration will be raised to 8% from 4% in the Rajdhani Unnayan Kartripakkha (Rajuk) and Chattogram Development Authority (CDA) areas, according to officials of the finance ministry.
In other areas, the rate will be increased to 6% from 3%, they added.
Additionally, the maximum limit for the gain tax will be raised to Tk20 lakh per katha or 10% of the deed value, whichever is higher, up from the current Tk10.80 lakh and 4%, respectively.
The penalty for late submission of income tax returns will also be doubled to 4% of the payable tax, and these changes will be incorporated into the new income tax law, expected to be passed in parliament during the upcoming budget session.
Currently, the registration costs for land include a 1% registration fee, 1.5% stamp duty, 2% local government tax, and 4% or 3% gain tax.
Officials of the National Board of Revenue (NBR), speaking anonymously, stated that these measures are aimed at promoting tax compliance, as many property owners are currently reluctant to pay the appropriate taxes on their assets during registration.
They also mentioned a significant number of taxpayer identification number holders who have been neglecting to submit their returns for long.
However, some experts have expressed concerns regarding the high tax on land registration, as it may impose a burden on those accustomed to registering properties based on their actual prices.
A legal expert from a multinational company, who preferred to remain anonymous, explained that this increase could discourage middle-class individuals from registering their properties at their true values.
On the other hand, wealthy individuals purchasing properties up to Tk5 crore will benefit from the cap on the gain tax upper limit.
Tax analyst Snehasish Barua, while speaking to TBS, highlighted that land and apartments are currently major sources of undisclosed money, with a significant gap between the prices on paper and the actual transaction values.
He emphasised that if the registration costs increase, buyers and sellers may be reluctant to disclose the actual prices on their documents, leading to increased undisclosed money and a significant portion of the economy remaining informal.
He suggested that reducing tax rates and revising the mouza rate, which represents the lowest price at which land can be bought and sold, according to market rates, would help stimulate the formal economy without hindering revenue generation.
Snehasish further believed that if the government establishes mouza rates in line with market rates, it would enable the realization of more revenue and surcharge from wealthy individuals.
According to the NBR, approximately 15,000 taxpayers paid a surcharge totaling Tk600 crore in FY21.
Dr Ahsan H Mansur, executive director of the Policy Research Institute (PRI), criticised the current surcharge calculation method, stating that it allows wealthy individuals to evade surcharges.
For example, if someone bought a house in the Gulshan area 40 years ago, they pay tax on its market value at that time, it should be based on current value.
Another wrong concept is here it is imposed on taxable income, if any wealthy individual has no income in a year, he may stay out of surcharge which is justified, added the eminent economist.
“Surcharge should be calculated based on asset value, not income” he added.
NBR officials also acknowledged that the number of wealthy people in the country is low due to the evaluation methods which allow valuing assets at purchase price, not at market rates.
Double penalty on late submission of Income tax returns
As per the present law, provisions are in place for the imposition of penalties, simple interest, and late interest if tax returns are not filed on time.
Finance ministry officials have stated that the late submission penalty for income tax returns along with other penalties is set to double next year.
Currently, if a taxpayer files income tax returns after 30 November with permission from tax authorities, they will be subject to a 2% penalty and 50% additional simple interest on the payable tax. Officials have indicated that the penalty rate will increase to 4% in the upcoming fiscal year.
On the other hand, if taxpayers file their income tax returns after the deadline without taking permission from tax officials, they are required to pay a penalty of 10% on the payable tax or Tk1,000, whichever is higher. In addition, an extra Tk50 will need to be paid for each day of delay.
The National Board of Revenue (NBR) has calculated that the current number of Taxpayer Identification Number (TIN) holders in the country is 90 lakh. Last year, approximately 32 lakh people filed tax returns, of which around three lakh applied for a time extension.
Snehasish Barua, a founding partner at Snehasish Mahmud and Co, has stated that the new initiative of imposing a 4% penalty for late submission of income tax returns will help raise awareness among taxpayers to submit their tax returns on time.
However, he points out that the monthly 4% penalty rate would amount to 48% by the end of the year, which is considerably high despite its aim to encourage tax compliance.