NBR targets inflated gold declarations with 15% capital gains tax

Highlights:

• Gold sale profits to be taxed on capital gains basis
• Five-year holding required for 15% preferential tax rate
• Short-term asset sales taxed up to 35% income tax
• NBR targets misuse of gold declarations for black money 
• Inflated gold holdings used to legitimise undisclosed income flagged

Taxpayers who declare income from the sale of gold or gold jewellery may soon face a 15% capital gains tax under proposed amendments to the Finance Act, a move that tax officials say is aimed at curbing the widespread practice of using inflated gold holdings to legitimise unexplained wealth.

According to officials at the National Board of Revenue (NBR), many tax returns in Bangladesh contain declarations of 30 to 40 bhori of gold jewellery, often listed with an "unknown value". In some cases, the declared quantity is even higher, despite taxpayers possessing little or no gold in reality.

Infograph: TBS

Tax officials say such declarations are frequently used as a future tax-planning tool. When money or assets from undisclosed, questionable or otherwise unexplained sources later enter a taxpayer's accounts, they are often shown as proceeds from the sale of previously declared gold jewellery, allowing the assets to be incorporated into tax records without attracting additional scrutiny.

A senior NBR official, speaking to The Business Standard on condition of anonymity, said, "Many people do not actually possess the amount of gold shown in their tax files. When assets from unknown sources appear later, they are often reported as income from selling that gold to evade taxes."

Under the proposed Finance Act, income generated from the sale of gold will be treated as a capital gain. The gain will be calculated by deducting the market value of the gold at the time it was acquired from its market value at the time of sale. The resulting gain will be subject to a 15% capital gains tax.

The official said the tax would apply regardless of whether the income shown in the tax return genuinely originated from a gold sale.

The proposed measure will not be limited to gold. Other assets coming under the capital gains regime include silver, gemstones and diamonds, metallic coins, precious metals, digital currencies, artworks, antiques and club memberships.

How the tax will be calculated

According to NBR officials, taxpayers must have previously declared the asset as acquired in a specific year. The tax authority will use the market value prevailing in the year of acquisition and compare it with the market value in the year the asset is claimed to have been sold.

The difference between those two values will be treated as the capital gain and taxed at 15%.

However, the preferential capital gains rate will apply only if the asset has been held for at least five years. If it is sold within five years of acquisition, the income will be taxed under the regular income tax schedule, where the highest rate for individuals is currently 30%. That rate is scheduled to rise to 35% in the 2028-29 tax year.

Officials noted that a 15% capital gains tax is broadly consistent with international practice.

For example, if a taxpayer declared ownership of 30 bhori of gold in 2010, when the market price of high-quality gold was approximately Tk42,000 per bhori, and now claims Tk20 lakh in income from selling gold, the NBR would estimate how much gold would need to be sold to generate that amount.

At the current market price of roughly Tk2.22 lakh per bhori, about nine bhori of gold would need to be sold to realise Tk20 lakh.

The acquisition value of those nine bhori in 2010 would have been about Tk3.78 lakh. Subtracting that amount from the current sale value of Tk20 lakh leaves a capital gain of approximately Tk16.22 lakh. Under the proposed rules, the taxpayer would owe around Tk2.43 lakh in capital gains tax.