Summary:

The draft regulatory order has been approved by Finance Minister AHM Mustafa Kamal and is presently under vetting at the law ministry. As per the latest updates, the government is expected to revoke the newly introduced 15% tax on profits or capital gains earned from the sale of land under the income tax law.

Content:

According to sources at the finance ministry, the National Board of Revenue (NBR) is planning to issue an order that will waive taxes for individual taxpayers in order to reduce their financial burden. The draft regulatory order has been approved by Finance Minister AHM Mustafa Kamal and is presently under vetting at the law ministry. 

In the old income tax law, the source tax for six income sectors was considered as a final statement or a fixed tax. The six sectors included government compensation for land acquisition, income from savings certificates, cash incentives for exporters, MPO schools’ FDR interest received, registration-related land sales, and money paid by land developers. After abolishing the concerned clause, all of the taxpayer’s income will now be added to their annual income for this tax year. They must also submit income details along with their slab-based tax return.

The government has reduced the tax burden on exporters’ cash incentives, income from savings certificates and fixed deposits and savings deposits after facing criticism from stockholders. The National Board of Revenue (NBR) issued a gazette on August 23 that does not mention source tax on the sale of land during registration.

To illustrate, if a taxpayer bought a plot of land in the Badda area a decade ago and sells it at any point during the current tax year (1 July 2022 – 30 June 2023) for Tk10 crore, they would have made a gain amounting to Tk9 crore. In this case, the land buyer paid Tk80 lakh as 8% source tax on land registration, which is typically paid by the seller in Bangladesh. Under the new income tax law, taxpayers must include capital gains from land sales in their income tax returns and pay 15% tax on their capital gain of Tk9 crore. However, since Tk80 lakh was paid during land registration, it will be deducted from the taxable amount. This amount must be paid during the taxpayer’s return submission, as per the new law. On the other hand, when selling ancestral land, the buying value of the land is unknown. Therefore, 15% capital gains tax will be applicable on the full amount of the sales value. Under the new law, the capital gain on land sales by individual taxpayers is divided into two categories. If the land is sold within five years of registration, the tax rate will be similar to the individual tax rate. After five years, the rate will be 15%. 

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The NBR has sent a summary to Finance Minister AHM Mustafa Kamal to withdraw the provision of deduction of tax at sources from the transfer of property. The new income tax law removes the provision of deduction of tax at the sources from the transfer of property as final settlement. This is increasing the tax liabilities on marginal taxpayers and resulting in an additional tax burden, which will lead to an increase in 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. 

Picture and Article Sources: The Business Standard