CAIRO: While the reformed property tax law will exempt shantytowns and temporary housing for the poor from real estate taxes, it seems to turn a blind eye on middle-income housing.
The draft bill – currently being discussed by Parliament – has identified on Tuesday a threshold of LE 250,000 for the value of property below which real estate in Egypt is exempt from the tax. Property valued above that figure will be subject to a tax ranging between 70 and 250 piasters per LE 1,000.
“I am against this new real estate tax law, said Amr Mosaad, economist at the Ahram Center for Strategic Studies. “Prices of real estate are shooting up everyday. How many people in Egypt nowadays own property valued at less than this threshold? [The majority] of property should be completely exempt from real estate tax.
Under the current property tax law, a 40 percent tax rate applies to non-agricultural land and real estate in Greater Cairo and other big cities. “The law is being amended to reduce the tax rate to 10 percent, to expand the tax base to include property in tourism areas and suburbs, and to simplify administration of the law, stated Beltone Financial.
Ratification of the law is expected in March. According to Beltone Financial, the government under the new law could generate LE 4-5 billion per year versus the currently generated LE 500-700 million.
“Amendments to the property tax law are part of the revenue-related reforms being implemented by the government to reduce the budget deficit. The series of fiscal reforms being implemented aim to increase revenues through expansion of the different tax bases and reduction of tax evasion. to achieve a budget deficit target of 3-4 percent of GDP by FY2010/11.
The regional investment bank has found that, historically, growth in government revenues was slow due to limited tax bases, high tax rates, inefficient tax collection, and a generally complicated tax regime, resulting in widespread tax evasion and subsequently lower revenues.
Minister of Finance Youssef Boutros Ghali stated in local press that revenues collected from the property tax in the last five years ranged between LE175-200 million only. Following implementation of the amended law, he expected revenues to rise to LE1.5 billion.
Agricultural land is not included in the new draft bill, while land for industrial use will be taxed at LE 200 per meter, which is equal to value given to industrial investors.
The minister appeared on Egyptian state-owned television saying that the proposed draft achieves social solidarity, as any property valued at over LE 250,000 will be taxed versus the current law that exempts property on the North Coast and on newly established suburbs. Ghali added that closed or unused property above the stated threshold will also be taxed. Justifying the decision, he said that way owners of closed apartments will have to offer them for rent which would help solve housing problems and increase supply. He estimated that around 40 percent of unused apartments will be offered for rent once the new draft bill passes.
“It is illogical to pay taxes on closed apartments. Suppose I bought an apartment for my son to use when he gets married, why make me pay taxes on it when it is closed? objected Mosaad. “We pay taxes everyday. We pay income taxes, sales taxes, etc. We pay a tax here a tax there. The last thing we need is this new real estate tax.
Addressing the issue of possible double taxation with the introduction of the new policy, Boutros Ghali said early this year that real estate tax will be determined after property valuation and will be paid based on location of a property and subsequent investments in roads and other facilities that serve the location. On the other hand, income tax on property rental income will be determined based on rent charged to tenants and is unrelated to the property value, services or location.
He added that shantytowns will be completely exempt from real estate taxes under the reformed law, as these areas suffer from problems regarding electricity and water supply. He also pointed out that real estate tax takes into account “the societal rather than market value of a property when property categorizations are made. Property owned by government, foreign organizations, religious and charity organizations will also be exempt from payment of property tax.
