Partial exemptions to apply to limited-income housing
CAIRO: A new law lowering property taxes from 46 percent to 10 percent of the rental value of a home has been drafted by the Ministry of Finance (MOF) and will be presented to the People’s Assembly (PA) in January, Minister Youssef Boutros Ghali said Sunday.
The law proposes a flat annual tax on all properties including the registered and unregistered limited-income housing communities. It does not, however, eliminate partial exemptions currently applicable to limited-income housing and all units with a rental value of less than LE 150 per month. More than 80 percent of properties in Egypt are unregistered, according to MOF figures.
Still, the legislation will eliminate exemptions commonly awarded to investors in exchange for the lower tax rate.
If ratified, the new property tax law is set to become the first of two major promised reforms for 2007 by MOF in 2006. A coordinated effort between MOF and the Ministries of Housing and Population and Investment was launched in the last half of 2006 to draft a new Unified Construction Law (UCL).
A final draft is yet to be agreed upon, but all three entities have said presentation will be made to PA during its current session.
Both property laws were criticized heavily by local and foreign investors and international institutions, such as The World Bank and International Monetary Fund, last year for deterring investment despite reforms that have been mad in other areas such as customs and income taxes.
What happens is investors are welcomed with open arms in Egypt but are then faced with numerous complications that could take months, even years to resolve, said Alexandria Business Association Chairman Mohamed Ragab.
More than 20 clearances and permits are currently required to begin construction, cited Ragab, also Chairman of Ragab Group.
In September, International Finance Corporation (IFC)’s annual Ease of Doing Business report ranked Egypt among the bottom 10 of 175 countries and last in the MENA region after rating 10 areas of doing business in each economy under study, including starting a business, obtaining licenses, employing workers and obtaining credit.
Although some reforms have been implemented by several government authorities in 2006 to address investors’ concerns, none have relied on institutional reforms made at the ministerial level as is now proposed by MOF.
According to the Industrial Development Authority (IDA), a General Authority for Free Zones and Investment (Gafi) affiliate, business registration and licensing procedures, including property registration and acquisition of building permits, used to require an average of 277 days and six steps for completion.
In the past year, IDA Chairman Amr Asal says the organization lowered the numbers to 135 days and four steps and is now working toward 45 days and three steps.
According to Ghali, the new property tax and construction laws will complement the highly touted reforms to customs and income tax systems implemented over the past two years.
In 2004, Prime Minister Ahmed Nazif’s economic cabinet agreed to lower customs on imported goods by as much as 50 percent excluding “sensitive industries such as agriculture and textiles. The New Tax Law of 2005 also lowered income taxes from a maximum of 40 percent to 20 percent and combined income and sales tax authorities into one entity.
Despite the government’s ongoing efforts to implement reforms favorable to investors, Gafi Chairman Ziad Bahaeddin says it will take more efforts on the part of the executive government entities in charge of implementation.
According to the Ministry of Investment, Egypt attracted an all time high of $6.1 billion (LE 34.8 billion) in direct foreign investment in FY 2005-06, up from $3.9 billion (LE 22.3 billion) the previous year and $400 million (LE 2.3 billion) in FY 2003-04.
“It takes time to dig into rules and policies that have been put in place over the years, said Bahaeddin. “There are certain obstacles to investment but it is an issue not for the government alone, it is a matter of national importance. Each of us has a role to play.
