Govt not to recognize revalued prices of gifted property

In a major policy change, the government has announced that it will not recognize revalued prices of gifted or donated property, but will consider pre-donation value of land and houses when they were in the ownership of donor as base price while imposing capital gains tax (CGT). The change aimed at curbing evasion of CGT in realty deals has been made after Inland Revenue Offices (IROs) in the Kathmandu Valley reported rising incidents where landowners were found gifting the property to their family members, sharply raising its value in the process, thus showing little value addition while selling the property to third party, which means less CGT to the state. "This was one of the new anomalies that has lately crept in land and housing deals. Hence, we annulled the system of rejecting revaluation of gifted or donated property," said Krishna Hari Baskota, revenue secretary at Ministry of Finance.

Inland Revenue Department (IRD) has already issued a circular to this effect to all the land tax offices (LTOs) for implementation. The government has also started closely monitoring property deals undertaken by the companies and also scrutinizing transfer of companies´ ownership in order to evade CGT. The step has been taken after IROs unearthed growing number of cases, where people registered their property under a dummy company and sold the company as a whole to evade tax. As disposal of company´s ownership is not regarded as profit-taking deals, the sellers need not pay CGT in such deals.

Following such revelation, MoF instructed Department of Land Reforms and Management (DoLRM) to keep records of the land and housing deals, worth over Rs 5 million, of all companies. Mainly, the department has been told to monitor whether the disposal of company was natural or is done just with a motive of evading CGT. "We have already asked all the LROs across to furnish details of untaxed property deals valued at or crossing over the ceiling of Rs 5 million," said an official at the DoLRM.

Practice of undervaluation and other anomalies in realty deals spurred in the market to avoid taxes after the government imposed CGT on land and houses valued at or over Rs 5 million from this fiscal year. The rate of CGT stands at 10 percent for frequently disposed land and 5 percent for land being sold after the duration of 5 years.

The growing anomaly in the real estate business came into light after IROs´ quick study revealed that most of the individual sellers and property dealers are largely compelling the buyers to either pay CGT for them or agree on the coveted undervalued deal. In this connection, IRO Kathmandu Sector 1 in September had even collected additional tax of well above Rs 4.2 million from the sellers who were attempting to evade taxes by undervaluing their deals. Of that amount, Rs 4 million was collected from a single seller.
Source:Republica