CGT on multiple land deals totaling Rs 5m

Finance Ministry, which imposed a capital gains tax (CGT) on land transactions valued at above Rs 5 million has clarified that the tax will be applicable not just on single high-value transactions but also in case the total value of annual transactions by one individual or firm crosses the threshold.

What this means is that a person or firm conducting multiple transactions crossing Rs 5 million in total will need to pay CGT, even if individual transactions are far less value than the threshold.

“This provision has been put in place because we want to make sure that persons or firms holding large tracts of land do not escape tax liability through fragmented sales,” said Shanta Bahadur Shrestha, director general at the Inland Revenue Department.

The provision mainly aims to tighten the knot on land developers and individuals holding large stretches of land with a commercial motive. The government had imposed CGT on land deals, pointing out that a large number of such deals in Kathmandu Valley and also in the major cities are done with a profit motive.

It has imposed 10 percent CGT on transactions wherein ownership is transferred within five years of acquisition and 5 percent CGT for transactions after the five year period. “Higher tax has been imposed on frequent transactions because these represent a commercial interest,” said Shrestha.

However, IRD has not yet finalized ways to implement the tax even though it has already instructed land revenue offices (LROs) to collect the tax.

“We hope the implementation manual will reach us soon,” said an official at Chabahil LRO.

For now, LROs have made it compulsory for those selling land to produce past registration documents to establish the base price for calculating the capital gain. “There have been fewer transactions of high value over the past eight weeks, and fortunately all the sellers have come up with past documents. So, we have not faced any problem so far,” said Amrit Lal Karmacharya, chief of Chabahil LRO.

But he said that the office will need specific guidelines on what to do in case sellers claimed they have lost registration papers or that the land in question has never changed hands before.

Source: Republica