Landlords guilty if tax dodged

The landlords who charge more than Tk 25,000 as rent for a single living unit will have to receive the rent through banks from the next fiscal year.
This is what Finance Minister AMA Muhith proposed in the budget for the 2014-15 fiscal year, saying, "It is essential to bring transparency in the process of house-rent collection in order to widen tax net and deter tax evasion".
According to the new provision, tenants will pay rents in cheques payable to a designated account of the house owners. And it's the landlords, not the tenants, who will be held responsible in case of tax evasion.
Some analysts and taxmen, however, are sceptic of the success of the new move, saying it is likely to encourage a section of the intended taxpayers to conceal the real amount of rents.
According to Muhith, the new measure aims to bring transparency in the house rent collection process and boost revenue inflow.
"Amendments to the Income Tax Law will be made to define house rent as both rent and service charges and to ensure payment of monthly house rent amounting more than Tk 25,000 through banks," Muhith said in his budget speech at parliament yesterday.
Once the amendment is made, the landlords will have to open separate bank accounts to receive their rents from tenants.
"Financial penalty will be imposed for not depositing rents in the bank accounts or for not following the process properly," said National Board of Revenue (NBR) in a clarification yesterday.
The revenue authority rolled out the idea after it had found a huge number of house owners out of the tax net.
Till April this year, the NBR identified 45,601 such home owners in the country with 30,000 in Dhaka alone.
Sajjad Zohir, professor of Economics at Brac University, however believes the measure may encourage negative practices both among the landlords and the tax officials.
He said ideally the government needs to encourage a move towards such transactions that reduces dependence on hard cash.
"Instead, we are observing that the tax collecting authority is eyeing to use that route to raise tax revenue, which regular citizens are more likely to perceive as punishment," he argued.
"Payment through banking system is obviously a positive step. But if the government imposes the rule from the perspective of revenue generation, it is most likely to fail," he said, adding that it also will leave wider scopes for tax collectors to indulge in unfair practices.
"If we accept that there are tenants who under-report ... the house rent they pay, and there are landlords who under-report their income, why would one expect to oblige (to) the new regulation of transacting through banks?" Sajjad continued. "The proposed plan, with no cost effective measure for enforcement is likely to encourage telling more lies."
NBR officials said the amount of tax from house rents may not be significant but it may bring transparency in income statements of home owners in major cities, particularly in Dhaka, where house rents are exceptionally high and a section of landlords live solely on the income from rents.
Currently, government agencies, companies, banks, co-operatives, NGOs and educational institutions themselves deduct 5 percent tax from the payable house rents as advance tax.
No latest data is available from the NBR on the amount of advance tax collected from house rents. However, in 2010-11, taxes from this area amounted to Tk 95.81 crore, according to the NBR annual report.
Insiders said the NBR did not go for detailed study on the impact before proposing the new move.
Sajjad said the collection and the rate of compliance in the deduction of advance tax should have been reviewed before imposing the tax on individual house rents.
"Tax collector (NBR) is unlikely to achieve the goal ... Instead of bringing benefits, it will empower individual tax inspectors to exercise (their) discretionary power against weak home owners and tenants, and the move will antagonise people leading (to) further depletion of (social) values," he said.
"However, the very first step towards such an organised society may be to promote the space for registered rental agencies through which all rental transactions take place," Sajjad observed.