Real estate provision rekindles black money debate

A controversial provision in the proposed national budget for fiscal year 2026-27 has reignited debate over the legalisation of undisclosed income, with economists warning that the measure could undermine tax compliance and good governance while the government insists it will stimulate investment in the housing sector and increase revenue collection.

The provision comes against the backdrop of rapid population growth and urbanization, which have significantly increased demand for housing across the country.

To address the growing need for investment in the real estate sector, the proposed budget includes a mechanism allowing individuals to declare previously undisclosed income used for purchasing land, buildings or apartments upon payment of prescribed taxes.

Although the National Board of Revenue (NBR) has rejected claims that the measure amounts to a traditional “black money whitening” facility, economists and policy analysts argue that the proposed framework effectively creates a pathway for legitimizing undeclared wealth.

What the new provision says
Under amendments proposed in the Finance Bill to the First Schedule of the Income Tax Act, 2023, individuals who voluntarily disclose undisclosed income invested in land, buildings or apartments and pay the applicable taxes will not face questions regarding the source of those funds from any authority.

The proposal also addresses a common practice in the property market whereby the value stated in deeds is lower than the actual transaction value.

Buyers who voluntarily disclose the additional amount paid beyond the declared deed value will be able to regularize the funds by paying regular income tax along with an additional specified tax.

According to the Finance Bill, notwithstanding anything contained in existing laws, no authority will be permitted to raise questions or initiate proceedings regarding the source of voluntarily declared investments or purchases and the taxes paid on those amounts.

NBR rejects ‘black money’ label
Officials of the NBR argue that the provision should not be viewed as a conventional opportunity to whiten black money.

They note that taxpayers declaring previously undisclosed income will be required to pay not only regular income tax but also an additional 15 percent gain tax.

In their view, the measure merely provides a mechanism for bringing undeclared income into the formal tax system.

NBR Chairman Md Abdur Rahman Khan said many people are incorrectly portraying the initiative as a black money whitening facility.

He explained that a similar provision was introduced last year for land sellers. Under that arrangement, sellers who had understated property values in deeds could subsequently establish the actual sale price through bank transactions and sale agreements and regularize the difference by paying regular taxes plus an additional 15 percent tax.

The proposed budget extends a similar opportunity to property buyers, he said.

“In many cases, the actual purchase price of flats or land is not reflected in the deed. If buyers voluntarily disclose the real amount paid, they can show the funds legally by paying regular taxes and additional tax.

Those whose funds are already legal and tax-paid will not face any extra burden,” he said.

According to the NBR chief, the measure has been proposed primarily to reduce taxpayer harassment. He added that the government could reconsider the provision if substantial objections arise.

Government defends initiative
Finance Minister Amir Khasru Mahmud Chowdhury has also rejected suggestions that the proposal institutionalizes black money whitening.

Responding to questions during the post-budget press conference on June 12, he argued that the opportunity would effectively disappear once official land valuation rates are aligned with actual market prices.

He noted that underreporting of land values in registration documents remains widespread and that the government has already initiated efforts to reassess mouza rates through a dedicated committee.

“If realistic land values are determined based on location and reflected in mouza rates, the scope for legalizing undisclosed money through property transactions will no longer exist,” the finance minister said.

Real estate sector welcomes move
The real estate industry has largely welcomed the proposal.

Dr Ali Afzal, president of the Real Estate and Housing Association of Bangladesh (REHAB), said the decision to allow investment of undisclosed income in productive sectors, including housing, through payment of prescribed taxes could benefit the economy.

According to him, a substantial amount of money currently remains outside the formal economy. Bringing such funds into productive investment would stimulate economic activities, generate employment and increase overall investment.

He emphasized that the housing sector has strong linkages with approximately 269 related industries, meaning increased investment in real estate could create positive spillover effects across the broader economy.

However, the REHAB president criticized the additional taxes imposed on construction materials, particularly steel rods, arguing that higher construction costs would ultimately be passed on to apartment buyers. He urged the government to reconsider those tax measures.

Economists raise concerns
The proposal has nevertheless drawn criticism from economists and policy experts who argue that it rewards tax evasion and sends the wrong message to compliant taxpayers.

The debate is particularly sensitive because the interim government had initially included a black money whitening provision in the FY2025-26 budget but later withdrew it following widespread criticism.

Now, less than a year later, analysts say the BNP-led government’s Finance Bill contains a mechanism that could once again allow undisclosed income to be legitimized through investment in the housing sector.

Professor Dr Mustafizur Rahman, Distinguished Fellow of the Centre for Policy Dialogue (CPD), said the provision is unacceptable from economic, ethical and political perspectives.

He argued that similar facilities introduced in the past failed to generate significant additional revenue while creating moral hazards for regular taxpayers.

According to him, repeated opportunities to legalize undisclosed income weaken tax discipline and undermine confidence among citizens who comply with tax laws.