Homebuyers, builders set to see higher tax, price surge

Sales of cement may see an increase in value added tax (VAT) in the next budget, which, along with potential rise in taxes on property registration and crucial construction materials, will make homes and land costlier further. 

In the upcoming budget, it is proposed that for all companies, this VAT may be set at Tk20 per bag, which would be consistent with the tariff VAT, according to finance ministry officials.

The officials have also hinted at the possibility of hiking the import duty on elevators and ceramic raw materials.

Moreover, land registration costs in Dhaka and Chattogram are also anticipated to escalate, posing additional challenges for prospective buyers and developers. 

The planned tax hikes are anticipated to further drive up prices, burdening consumers who are already grappling with inflationary pressures.

Industry insiders have said prices of construction materials, including cement, rods, and bricks, have already surged by about 20% over the past year. 

The combined effect of increased taxes and rising construction material prices may pose significant financial hurdles for those looking to enter the property market or undertake construction projects.

The land registration tax in the Rajdhani Unnayan Kartripakkha (Rajuk) and Chattogram Development Authority (CDA) areas may increase from the existing 3% and 4% to 4% and 5%, respectively. Additionally, the gain tax on sale of flats may also go up. 

Capital gain tax is a type of tax imposed on the profit or gain made from the sale of certain assets, including property.

According to finance ministry officials, currently, the VAT and advance tax are paid at the import stage of raw materials for cement. After the manufacturing and sale of cement, an additional VAT of Tk5-7 per bag is paid, which is referred to as net VAT. However, the officials argue that the net VAT should be higher, taking into account the selling price at the retail level. 

However, the officials argue that the net VAT should be significantly higher, taking into account the selling price at the retail level. In the upcoming budget, there is a plan to raise this VAT to Tk20 per bag for all companies, similar to the tariff VAT.

Shafiqul Haque Talukder, former president of the Bangladesh Association of Construction Industry, told The Business Standard that currently, the price of construction materials has increased by over 20% on average. 

“Consequently, numerous projects have become stagnant after reaching 50-60% completion. This has led to delays and increased costs in development work. Another price hike would further exacerbate the negative impact,” he said.  

“Many developer companies have already reduced the sale of apartments. Because the price has gone up a lot,” he added.  

Due to these reasons, many construction companies will find it difficult to repay their bank loans in the coming days, he said.

Abu Hena Md Rahmatul Muneem, chairman of the National Board of Revenue (NBR), in pre-budget discussions, earlier indicated the increase of tax rates on several sectors and changes in VAT and duty rates due to the pressure on the government to increase revenue.

“Many sectors in the country are doing well now as the government has given tax benefits. Now there is pressure to raise revenue, so the tax should be increased on those sectors that have done well,” he added. 

Most of the companies in the cement sector pay VAT at the large taxpayers unit (LUT-VAT) office of NBR. 

A senior official of LTU-VAT told TBS on condition of anonymity, “If VAT is to be collected considering the market price, the net VAT will be Tk40 per bag. A similar recommendation was also made.”

“Since monitoring the market price is challenging, it has been recommended that the same VAT per bag be collected from all companies,” he added.

At present, 15% VAT, 2% advance income tax, 3% advance tax, customs duty of Tk500 per tonne are levied on the import of cement clinker.

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