Rethinking land sector taxation in Bangladesh for transparency and revenue growth

In Bangladesh, buying and selling land or apartments is not just about transferring ownership. It is closely tied to how our tax system works, how efficiently administration functions, and how transparent the market really is. Over the years, structural weaknesses have made the system difficult for honest taxpayers, while limiting the government’s ability to collect expected revenue.

This is why the time has come to take a fresh look at how we tax and value property transactions.

Consider a simple example: someone buys land many years ago for Tk 1 lakh. Today, its market value is Tk 1 crore. The gain is substantial. In theory, applying a 15 percent tax on that gain seems fair and straightforward. But in practice, things do not work that way.

In the property market, it has long been common to declare a lower value in the deed than the actual transaction price. A property sold for Tk 1 crore may be registered at Tk 10 or Tk 15 lakh, with the rest settled outside the formal system. This happens for a mix of reasons: high costs, weak verification mechanisms, and a long-standing culture of underreporting.

Over time, this practice has created another reality that is widely known but rarely discussed.

The land and apartment sector has become one of the easiest places to absorb undisclosed money. A person may have a large amount of unreported cash along with a smaller amount of declared income. When purchasing property, the full amount is paid in reality, but only the declared portion is shown in the deed. The rest remains outside the document.

Since that undeclared portion does not appear in official records, there is effectively no immediate question about its source within the transaction itself. The property, however, becomes a valid and recognised asset.

This has been a long-standing practice. Many individuals who do not move funds abroad tend to invest in land and flats, treating these as a relatively safe way to hold and regularise wealth over time. The result is a system where prices are distorted, transparency is weakened, and honest taxpayers feel disadvantaged.

At present, the tax system offers some level of simplicity. Under section 163 of the Income Tax Act, tax collected at the time of property transfer is treated as a final settlement. For many taxpayers, this works reasonably well because it avoids future complications.

However, if this is replaced by a higher tax on actual capital gains without addressing the underlying issues, it may create more problems than it solves.

In such a scenario, people are likely to continue underreporting values. Cash transactions may increase further. Compliance may become more difficult for honest taxpayers, and disputes with tax authorities may rise.

Tax policy cannot ignore how people actually behave. If the goal is to encourage people to declare the real transaction value, then the system needs to be simple and realistic. A lower, final tax—say in the range of 2 to 3 percent—may achieve better results by encouraging disclosure rather than avoidance.

But tax rate alone is not the answer.

A major weakness lies in how property values are determined. In many cases, official mouza values are far below market prices and are not updated regularly. This gap creates room for manipulation and makes enforcement difficult.

Improvement in this area is essential. Regular updating of mouza values, introduction of independent valuation practices, better use of digital verification, and stricter control over large cash transactions can gradually improve the situation.

Ultimately, the objective should be to build a system that is fair and workable. Honest taxpayers should not feel penalised for being compliant, and the system should not leave easy gaps for misuse.

If structural issues remain unchanged, simply increasing tax rates will not bring the desired results. It may, in fact, push more transactions further outside the formal system.

Reform in the land sector is therefore not just about revenue. It is about building trust, improving transparency, and creating a system that reflects economic reality.

The writer is a fellow chartered accountant. He is also a partner and in-charge of the Panthapath branch of MA Fazal & Co., Chartered Accountants. He can be reached at shakhawathossainacc@gmail.com