Economy

Govt tightens CGT on realty deals

Published by Octron on November 26, 2010

The government has lowered the capital gains tax (CGT) ceiling on realty transactions to Rs 3 million from Rs 5 million, bringing smaller transactions within the tax net. As per the new provision, now realty dealers and people selling personal land and house worth Rs 3 million or more will need to pay CGT of 10 percent, if the property being sold had been in their possession for less than five years. They will need to pay only 5 percent as CGT if the property being sold was under their possession for more than five years.

The change in limit of transaction value has been incorporated in the new financial ordinance that Finance Minister Surendra Pandey unveiled on Saturday. “The ceiling has been to tap revenue potential of smaller dealers and also to bring in smaller realty dealers and developers in the tax net,” said a Ministry of Finance (MoF) official. Officials at Inland Revenue Department said the changes were effected also because the previous decision to impose tax on transaction worth Rs 5 million and above excluded a large bulk of transactions.

According to the department´s report, more than 70 percent of realty transactions registered in the country are worth less than Rs 5 million. “The change will now bring more than 75 percent of realty deals in the Valley in the tax net,” the official said. The change in ceiling was made also to deal with the growing practice of sharply undervaluing their realty transactions. Investigation of the revenue offices in the Kathmandu Valley had found dealers of undervaluing the property worth well over Rs 10 million as being less than Rs 5 million to evade the tax. It had also unearthed the cases of sellers enforcing buyers to pay the CGT involved as well.

“With the lowering of the limit, it will now be easier for us to identify whether or not the disclosed transaction value is undervalued,” the official said. Land and housing developers, meanwhile, flayed the change effected on the ceiling. They said it will discourage the already downturn market. Records of Department of Land Reforms and Management (DoLRM) show that realty transactions in the recently concluded fourth month of this fiscal year (mid-October to mid-November) have dropped by more than two-thirds in the Valley. The overheated realty business has caught a reverse gear particularly after the central bank intervened into the market, capping bank and financial institutions loans exposure in the sector.

Source: Republica

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