The government’s decision to reduce the source tax rate on land registration and restructure its collection method marks a significant step towards easing the financial burden on property buyers
Taxes, especially when it comes to purchasing property, can often feel like a heavy weight on one’s financial shoulders. But in a promising turn of events, the government has decided to shake things up and reduce the rate of source tax while changing the method of its collection from land registration. This bold move, as confirmed by finance ministry officials, is set to bring substantial relief to property buyers across the nation.
The government’s recent decision to revamp the source tax on land registration has stirred discussions among citizens and stakeholders alike. This pivotal change not only aims to reduce tax burdens but also transform the way taxes are collected. The government has decided to reduce the rate of source tax and change the method of its collection from land registration, according to finance ministry officials.
They indicated that the highest rate is expected to be in the range of 5% to 6%, representing a reduction of 2% to 3%. The remaining rates are likely to decrease proportionally.
According to the National Board of Revenue (NBR), the current source tax rate for land registration varies from 2% to 8%, with 8% being the highest and 2% the lowest. This rate was doubled in the newly enacted income tax law, which was passed by the National Parliament in June.
When purchasing land, buyers are responsible for paying all taxes, including the source tax, on behalf of the seller. Officials explained that the restructuring of the source tax was prompted by a decrease in land-flat registrations due to the high tax rate, as raised by various stakeholders with the authorities.
Furthermore, the NBR has already devised a new structure that emphasizes the collection of source tax based on mauza and land classification (residential, commercial, real estate, or developer-owned), departing from the existing area-based method. This change is expected to provide relief for land buyers, officials added.
Finance ministry officials also stated that the NBR has submitted a comprehensive proposal, which is anticipated to be published in a gazette later this week following legal review by the law ministry.
Reduction in Tax Rates
The current highest rate of source tax on land registration stands at a substantial 8%, which can be quite a burden for property buyers. However, the government is taking a stride in the right direction by planning to reduce this rate significantly.
According to finance ministry officials,
- The highest rate is expected to be slashed to a more manageable 5%-6%,
- It translates to a remarkable 2-3 percentage-point reduction.
Importantly, this rate reduction is set to apply proportionally to the other tax brackets as well.
Background and Necessity
This tax overhaul has been prompted by a decrease in land-flat registrations, attributed to the high tax rate, as raised by various stakeholders to the authorities.
In June, the National Parliament passed a new income tax law that effectively doubled the source tax on land registration.
Such a steep increase in taxation understandably discouraged property transactions, making this reform a much-needed breath of fresh air for both buyers and sellers.
Land Classification and Tax Rates
The National Board of Revenue (NBR) has revamped the tax collection system, shifting focus from an area-based method to one based on mauza (land classification).
- This change is expected to provide relief to land buyers and streamline the process.
- The new structure classifies land into five categories, with tax rates tailored to mauza.
The new structure categorizes land into five classifications for tax purposes:
- First Category: Commercial lands developed by city authorities of Dhaka, Chattogram, Gazipur, National Housing Authority, Public Works Department, and Cantonment Board.
- Second Category: Residential lands under the aforementioned entities.
- Third Category: Commercial lands developed by real estate companies but not under the control of the specified entities.
- Fourth Category: Residential lands in areas not covered by the first three categories.
- Fifth Category: All other areas outside the above-mentioned categories.
Further Tax Rate Differentiation
In addition to land classification, tax rates are also distinguished based on mauza for different scenarios.
- Mauzas within municipal limits located inside district towns,
- Mauzas within municipal areas outside district towns, and
- Areas outside the municipality will all have distinct tax rates.
In the case of flat registration, taxes will be determined at source per square meter, taking into account mauza and class.
Comprehensive Tax Structure
Property buyers should be aware that during land registration, they will still be required to pay various fees and taxes.
These include;
It’s worth noting that the actual tax amount can vary depending on the specific area.
In conclusion
The government’s decision to reduce the source tax rate on land registration and restructure its collection method marks a significant step towards easing the financial burden on property buyers. This reform is not only expected to encourage more property transactions but also streamline the taxation process, making it fairer and more efficient. As we await the publication of the detailed proposal, it is clear that these changes will have a positive impact on the real estate market and those looking to invest in property. A brighter and more affordable future for property buyers is on the horizon.
