Source tax on land reg to be reduced

The government has decided to reduce the rate of source tax and change the method of its collection from land registration, according to finance ministry officials.

They mentioned the highest rate is likely to be 5%-6%, a 2-3 percentage-point reduction. The rest of the rates are likely to reduce as per the ratio. 

The current highest rate of source tax on land registration is 8% and the lowest rate is 2% according to the National Board of Revenue (NBR). 

It was doubled in the new income tax law passed by the National Parliament in June.

During the purchase of lands, buyers pay all the taxes including the tax at source on behalf of the seller. 

The officials said the source tax has been restructured in response to a decrease in land-flat registrations attributed to the high tax rate, as raised by various stakeholders to the authorities.

The NBR has already developed a new structure, which focuses on collecting source tax based on mauza and land classification (residential, commercial, real estate or land developed by developers), instead of the existing area-based method, which will give a relief for land buyers, they added. 

Finance ministry officials also said the NBR has already sent a detailed proposal, which is likely to be published in a gazette within this week after legal batting at the law ministry.

The new structure has five classifications of land and tax rate has been fixed at separate sources based on mauza. 

First classification includes commercial lands development city authorities of Dhaka, Chattogram and Gazipur, National Housing Authority, Public Works Department and Cantonment Board. Residential lands under the above mentioned entities will be considered the second category. 

Commercial lands, not under the control of those entities, but developed by real estate companies are the third category, while the fourth are residential lands in these areas.

Finally, all areas outside the areas mentioned are the fifth classification.

Besides, tax rates have been fixed at separate sources for all mauzas belonging to the municipality located inside the district towns, mauzas belonging to the municipal area outside the district towns, and all areas other than the municipality. 

Similarly, in case of flat registration, tax is being determined at source per square metre based on mauza and class.

According to sources, during land registration, a fee of 1% of the deed value, stamp duty of 1.50%, local government tax of 2%-3%, is to be paid at source. The tax can vary depending on the area.

In the previous system, there was tax at source 4% on deed value or land according to the area.