Black money may still enter real estate, but at a cost

The government is poised to introduce a highly debated provision that would allow the investment of undisclosed income, commonly known as black money, in the real estate sector with indemnity from scrutiny regarding its source.

Officials at the National Board of Revenue told TBS that the proposed measure would permit buyers or sellers of land and property to disclose the actual transaction value if it exceeds the registered deed value without any agency questioning the source of the additional funds.

Under the proposal, individuals would be required to pay the applicable rate of tax on the previously undisclosed amount, which could be as high as 30% in the case of individual taxpayers, along with a penalty equivalent to 20% of the tax payable.

For example, if a property was registered at a deed value of Tk50 lakh but was actually purchased for Tk3 crore, and only the deed value had previously been disclosed by both the buyer and the seller, either party would be able to declare the remaining amount by paying the applicable tax and the additional 20% penalty. 

In return, no authority would question the source of those funds. The same treatment would also apply to future transactions if the undeclared portion are subsequently disclosed under the proposed mechanism.

Industry scepticism

Representatives of the real estate sector said the proposed framework is unlikely to attract participation if taxpayers are required to pay tax at their normal applicable rates on the undisclosed amount.

According to industry representatives, buyers and sellers would have little incentive to regularise previously unreported funds under such a structure. They argue that a fixed-rate tax combined with protection from scrutiny over the source of funds would be more likely to encourage disclosures and investment.

Mohammed Akter Biswas, vice-president of the Real Estate and Housing Association of Bangladesh, said, "If tax is imposed based on the applicable rate linked to the deed value, nobody would want to disclose it. However, if taxpayers are allowed to pay tax at a fixed rate and no authority questions the source of the money, investment may increase."

Experts oppose indemnity for undeclared funds

Tax experts have opposed any form of indemnity that would allow undeclared money to enter the economy without investigation into its origin, arguing that such provisions could legitimise illegally earned income.

Syed Md Aminul Karim, former member for income tax policy at the NBR, said, "Allowing undeclared money to be invested through any mechanism would not be the right decision. It undermines tax justice for compliant taxpayers."