Capital gains tax on flats sparks fears of slowdown in housing sector

A proposed overhaul of Bangladesh's tax treatment of real estate transactions is triggering concern across the housing sector, with developers and tax experts warning that the measure could disrupt the country's most widely used property development model and slow urban renewal efforts.

Under the proposed Income Tax provisions for FY2026-27, landowners entering joint development agreements with developers would be required to pay a 15% capital gains tax on the economic benefits they receive in exchange for their land including signing money, apartments, rental compensation during construction, or any other monetisable benefit.

The tax would be calculated by deducting the land's original acquisition value from the total value of benefits received. More significantly, the liability would arise when the apartments or assets are transferred to the landowner, regardless of whether any cash income has actually been realised.

Industry leaders say the proposal effectively taxes unrealised gains and could discourage thousands of landowners from entering redevelopment agreements.

Joint development agreements have become the backbone of Bangladesh's housing sector over the past three decades.

From Dhanmondi, Mohammadpur and Uttara in Dhaka to rapidly growing urban centres in Chattogram, Sylhet, Khulna and Rajshahi, most apartment projects are developed through partnerships between landowners and developers.

The model allows landowners to unlock the value of their land without bearing construction risks, while developers avoid the massive capital outlay required to purchase land outright.

However, developers fear the proposed tax regime could fundamentally alter that equation.

"The issue is not taxation itself; it is the timing and method of taxation," said REHAB President Dr Ali Afzal.

"When a landowner receives a flat, he does not receive cash income. He simply acquires an asset. Whether that asset will eventually generate income depends on future market conditions. Imposing a large tax burden at that stage is unrealistic and may discourage landowners from entering development agreements altogether."

How the tax would work

The proposed law treats all benefits received from a developer as part of a capital gain.

For example, if a landowner receives Tk50 lakh as signing money and two apartments worth Tk1.5 crore each, the total benefit amounts to Tk2 crore.

If the land was originally acquired for Tk80 lakh, the taxable gain becomes Tk1.2 crores. Under the proposed rule, the landowner would be required to pay Tk18 lakh in tax.

According to Dr Afzal, the challenge is that much of the gain exists only on paper.

"In many cases the landowner has not sold anything for cash. He simply owns apartments. Yet he must arrange substantial funds to pay the tax," he said.

The burden becomes far larger for long-held or inherited properties.

Industry insiders cite a hypothetical case in which a landowner contributes a 10-katha plot and receives 12 apartments valued at Tk12 crore. If the land was purchased decades ago for Tk50 lakh, the taxable gain would reach roughly Tk11.5 crore, resulting in a tax liability of around Tk1.73 crore.

"To pay such an amount, many landowners would either need to take loans or sell part of the apartments they receive," said a senior developer. "Many may simply decide not to redevelop their land."

Fears of multiple layers of taxation

Tax expert Snehasish Barua says the proposed provision could significantly increase tax liabilities for landowners and create concerns about multiple taxation.

He points to another example where a landowner receives monthly rental compensation of Tk35,000 during a three-year construction period and later takes possession of five apartments valued at Tk2.5 crore.

Under the proposed framework, the landowner could face taxation at several stages.

First, the rental compensation would be treated as taxable income each year. Second, a capital gains tax would be imposed when the apartments are handed over. Third, if those apartments are later sold at a higher price, additional capital gains tax could apply on the subsequent appreciation.

"This substantially increases the overall tax burden compared with the existing system," Barua said.

Developers argue that signing money is already subject to taxation under current rules, and imposing another tax at the time of apartment transfer could effectively create multiple layers of taxation on the same economic transaction.

Officials involved in drafting the proposal argue that landowners receive a significant economic benefit even when no cash changes hands. Since transferred apartments have a measurable market value, they represent a form of gain that should fall within the tax net.

The draft law therefore proposes to calculate taxable gains by aggregating the value of signing money, rental compensation, apartments received and other benefits, then deducting the land's original acquisition cost.

Potential disputes over who pays

The proposal may also create practical complications for ongoing projects.

REHAB Senior Vice-President Abdur Razzak said one of the biggest unanswered questions concerns responsibility for paying the tax.

"Landowners may argue that they have not received cash and therefore cannot bear the burden. Developers may respond that such taxes were not part of the original contract terms. This could create disputes, legal complications and delays in project implementation," he said.

Industry stakeholders fear many landowners may demand higher shares of apartments or additional compensation from developers to offset future tax liabilities, further raising project costs.

Impact beyond housing

The consequences, sector leaders warn, could extend far beyond real estate.

According to REHAB, approximately 269 industries and service sectors are directly or indirectly linked to housing construction. These include steel, cement, ceramics, glass, aluminium, elevators, electrical equipment, transportation and furniture manufacturing.

A slowdown in new housing projects could therefore ripple across a wide range of industries, affecting production, sales and employment.

The timing is particularly sensitive as Bangladesh's construction sector is already facing elevated financing costs, slower property demand and rising material prices.

Developers also warn that the proposal could undermine efforts to modernise Bangladesh's ageing urban infrastructure.

Dhaka alone contains thousands of old, structurally vulnerable buildings, many located in densely populated neighbourhoods and earthquake-prone zones. Redevelopment through joint ventures has long been considered one of the most practical ways to replace such buildings without requiring direct government financing.

Industry leaders argue that if landowners become reluctant to enter redevelopment agreements because of the new tax burden, efforts to rebuild older sections of the capital, particularly Old Dhaka, could slow dramatically.

"Planned urban regeneration cannot happen without participation from private landowners," said Dr Afzal. "If redevelopment becomes financially unattractive, the pace of safe and modern urbanisation will inevitably suffer."