Want to whiten black money through real estate? Now you must pay 5x higher tax

The government has significantly increased taxes on undeclared wealth, known as black money, invested in the housing sector, much to the chagrin of real estate developers. 

The change in tax rates made in the budget is geared towards discouraging the use of black money in real estate and bringing tax rates closer to market values, according to officials at the National Board of Revenue (NBR).

Any individual investing undeclared funds in the sector will face scrutiny regarding the source of their wealth by any relevant agency, a departure from previous, more lenient provisions.

Speaking to The Business Standard, MA Awal, vice president of the Real Estate and Housing Association of Bangladesh (REHAB), said, "If taxes are increased across the board and conditions are made stringent, the housing sector will completely collapse. No one will want to buy apartments with such high taxes."

He further cautioned, "If there is no opportunity to invest undeclared funds in the housing sector and the stock market, this money will be laundered abroad, as happened in the past."

Currently, in affluent Dhaka areas, including Gulshan, Banani, Baridhara and Motijheel commercial areas, for apartments over 200 square metres, a fixed tax of Tk6,000 per square metre is levied regardless of the property's value. For apartments under 200 square metres, the tax is Tk4,000 per square metre when investing undeclared funds.

In other areas such as Mirpur, Mohammadpur, Dhanmondi, Mohakhali, Lalmatia Housing Society, Uttara Model Town, Bashundhara Residential Area, Siddheswari, Karwan Bazar, Banasree, Bijoynagar, Wari, Segunbagicha, Nikunja, and Chattogram's Panchlaish, Khulshi Agrabad and Nasirabad areas, the current tax on undeclared funds is Tk3,000 per square metre for apartments under 200 square metres and Tk3,500 for those over 200 square metres. 

The officials said that the existing taxes in these specified areas could increase fivefold.

For other areas beyond those specified, the current tax per square metre ranges from Tk500 to Tk1,500, where a threefold increase is anticipated.

To illustrate, consider someone investing black money to purchase a 200-square-metre apartment in Dhaka's Gulshan area. Under the current system, the tax would be Tk8 lakh. If the proposed fivefold increase is implemented, the tax liability would jump to Tk40 lakh.