Not just signing money, landowners face 15% capital gains tax on developer-built flats
The proposed measure, included in the income tax provisions of the bill presented by Finance Minister Amir Khosru Mahmud Chowdhury, seeks to broaden the capital gains tax base by treating apartments and other non-cash benefits received from developers as taxable gains
Highlights:
- Landowner apartments from developers become subject to 15% tax
- Tax applies to apartment value minus land acquisition cost
- Government mouza valuations determine taxable apartment values
- Inherited or low-cost land may face higher tax
- Developers warn measure could increase tax evasion incentives
- NBR expects significant additional revenue from the proposal
Landowners will soon have to pay a 15% capital gains tax on the value of apartments or any other financial benefits received from developers beyond the initial signing money, according to changes proposed in the new Finance Bill.
The proposed measure, included in the income tax provisions of the bill presented by Finance Minister Amir Khosru Mahmud Chowdhury, seeks to broaden the capital gains tax base by treating apartments and other non-cash benefits received from developers as taxable gains.
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Under the existing system, the signing money received by landowners when entering into a development agreement is subject to a 15% capital gains tax. However, apartments allocated to landowners as part of the development arrangement are currently exempt from such taxation.
The new proposal would change that. Apartments received in place of land will be valued at the current official government valuation for the specific area, known as the mouza value. The acquisition cost of the land will then be deducted, and the remaining amount will be treated as capital gains subject to a 15% tax.
How it would work
Speaking to TBS, a senior official from the National Board of Revenue explained that if a landowner, who purchased a 10-katha plot for Tk50 lakh two decades ago and later handed it over to a developer, could face a substantial tax liability.
In the example cited by the official, the landowner receives Tk50 lakh as signing money and is allocated 10 apartments out of a 20-unit project. If each apartment carries a mouza value of Tk50 lakh, the total value of the apartments would amount to Tk5 crore.
Including the signing money, the landowner's total proceeds would reach Tk5.5 crore. After deducting the original acquisition cost of Tk50 lakh, the taxable gains would stand at Tk5 crore, resulting in a capital gains tax liability of Tk75 lakh.
Tax liabilities would vary depending on location, land valuation and acquisition history. In cases where land was inherited or acquired many years ago at relatively low values, the taxable gain could be significantly higher because the acquisition cost would be comparatively small.
Government-assessed mouza values for both land and apartments are periodically updated by the relevant valuation committee.
Sector insiders estimate that more than 10,000 flats are sold annually in Bangladesh, with the market value exceeding Tk10,000 crore.
Industry raises concerns
Developers and tax specialists have expressed concerns that the proposed measure could encourage under-reporting of property values and increase tax evasion.
MA Awal, former vice-president of the Real Estate and Housing Association of Bangladesh, told TBS, "If such a tax is imposed, there will be a greater tendency to conceal the actual value of transactions. For that reason, it would be more reasonable not to increase taxation in this area."
Snehasish Barua, tax expert and managing partner of Snehasish Mahmud and Company, said taxpayers already tend to understate actual property values.
"If additional taxes are imposed on landowners, the tendency to conceal values may increase further because higher declared income would result in higher tax liabilities," he said.
Industry participants warned that if compliance is effectively enforced and opportunities for concealment are limited, the additional tax burden could ultimately be reflected in higher apartment prices, affecting buyers rather than sellers.
'Substantial revenue generation likely'
NBR officials said the measures could generate substantial revenue. Syed Md Aminul Karim, a former member of the NBR, said, "Even when based on official government valuation, this measure is highly likely to generate substantial revenue."
He thinks transitioning to actual market valuation would yield far greater returns. "Regardless, this remains a commendable step towards boosting state revenue."
Karim further noted that the policy would not place an additional financial burden on ordinary or low-income citizens, as the tax is effectively levied indirectly on substantial wealth and assets.
