15% gain tax on sales of land likely to go

The government is likely to withdraw a gain tax of 15% on capital gains or profit from the sales of land, which was imposed by the new income tax law.

The National Board of Revenue (NBR) is going to issue a Statutory Regulatory Order to waive the tax to reduce the tax burden of individual taxpayers, said sources at the finance ministry.

The draft regulatory order is currently under vetting at the law ministry, after approval by Finance Minister AHM Mustafa Kamal, according to sources.

Earlier, source tax on six income sectors was treated as a final statement or a fixed tax in the old income tax law.

The six sectors are – land acquisition compensation given by the government, income from savings certificates, cash incentive to exporters, FDR interest received by MPO schools, sale of land during registration and signing money given by the land developers.

After abolishing the concerned clause, all income of the taxpayer will now be added to the annual income from this tax year, and taxpayers also have to submit details of income with the slab-based tax return.

After criticism from stockholders, the government has relieved additional tax burden on exporters' cash incentives, income from savings certificates and fixed deposits and savings deposits.

The NBR issued a gazette on 23 August in this regard.

On 24 August, The Business Standard published a report, "Govt reduces tax on cash incentive, land gain tax stays high".

However, that gazette notification does not mention source tax on the sale of land during registration, which remains a high tax burden on individual taxpayers.

For example, if a taxpayer bought a piece of land in the Badda area about 10 years ago, and if he sells it at any time of the current tax year (1 July 2022- 30 June 2023) at Tk10 crore, his gain amount is Tk9 crore.

In this case, the land buyer has paid Tk80 lakh as 8% source tax on land registration (as gain tax), instead of the land seller as practised in Bangladesh.

Under the new income tax law, any taxpayer has to mention capital gain from land sales in their income tax return. Therefore, he has to pay 15% tax on their capital gain of Tk9 crore. Here, Tk80 lakh will be deducted as it was paid during land registration.

This taxpayer will have to pay this amount of tax during his return submission as per the new law.

On the other hand, in cases of sales of ancestral land, the buying value of that land remains unknown. Therefore, 15% capital gain tax will be applicable on the full amount of sales value.

Under the new law, individual taxpayers' capital gain on land sales is separated into two categories -- this tax will be like an individual tax rate if the land is sold within five years of registration, and after five years the rate will be 15%.

Considering the situation, the NBR has sent a summary to Finance Minister AHM Mustafa Kamal to withdraw this provision mentioning that it may increase the tax burden on individual taxpayers.

The summary also mentioned that, under the new income tax law, the provision of deduction of tax at sources from the transfer of property will not be considered as final settlement (minimum tax), like the old income tax law, which is increasing tax liabilities on marginal taxpayers.

In this case, realising an additional tax burden will also increase the taxpayers' overall expenditure.

If the source tax on land registration was considered as the final statement, it would not have raised any tax burden further.