Real es­tate taxation re­form a must

Financial Mirror (Cyprus) - - FRONT PAGE -

The Cypriot govern­ment has un­der­taken the task, as de­manded by the Troika bailout agree­ment, to re­form real es­tate taxation. It is widely ac­cepted that there are too many, (11 to be spe­cific), and com­plex taxes (govern­ment fees, du­ties, etc.) re­gard­ing real es­tate. To make things worse, there are a num­ber of au­thor­i­ties im­pos­ing and col­lect­ing these taxes.

Real es­tate own­ers end up hav­ing trou­ble to ei­ther cal­cu­late the taxes due and/or find out where and when to pay them;

The ad­min­is­tra­tive cost for col­lect­ing these taxes is huge for the state and con­se­quently for the tax­payer;

Cyprus real es­tate taxes are con­sid­er­ably higher when com­pared to most other Euro­pean coun­tries. What must be done? We know that the govern­ment has al­ready com­mis­sioned con­sul­tants to ad­vise them on the is­sue. We truly wish sound ad­vice reaches the govern­ment soon and that the im­ple­men­ta­tion starts sooner than later.

The char­ac­ter­is­tics of a sound real frame­work must meet the fol­low­ing:

es­tate

taxation

The sys­tem must be sim­ple, with as few dif­fer­ent taxes as pos­si­ble;

Taxation must be low so as to of­fer prof­itabil­ity to land de­vel­op­ers to de­velop, and land­lords to buy and own property;

Taxation must be pre­dictable, so that a buyer will know how many taxes are to be paid when buy­ing and hold­ing a property.

So, an ur­gently needed re­form must es­tab­lish just three dif­fer­ent taxes. Payable by the buyer, should ba­si­cally aim to cover the ad­min­is­tra­tion cost of the state to im­ple­ment the pur­chase.

A hold­ing tax, must cover the cost of ser­vices of­fered to the property by the var­i­ous au­thor­i­ties.

A sales tax must be im­posed, based on the prof­itabil­ity/gains gen­er­ated by a spe­cific trans­ac­tion, payable by the ven­dor. These three could eas­ily re­place the 11 ex­ist­ing taxes, some­thing which will greatly speed up and sim­plify cur­rent pro­ce­dures. The state will then do the math and dis­trib­ute funds from the three taxes to the var­i­ous

BUYER’S TAX:

OWNER’S TAX:

VEN­DOR’S TAX:

au­thor­i­ties board, etc).

To keep things sim­ple, we should put an end to the wrong no­tion that tax­ing real es­tate amounts to tax­ing wealth. If the govern­ment wishes to tax wealth, they could tax all types of as­sets and also take into con­sid­er­a­tion the debt re­lated to these as­sets (we do not sug­gest such a tax).

Gov­ern­ments have tried to im­ple­ment so­cial poli­cies through property taxation. This ap­proach has cre­ated many prob­lems and led many own­ers to trans­fer prop­er­ties to their chil­dren and the rest of fam­ily to avoid taxation and in­her­i­tance levies.

Con­clud­ing, the owner’s tax men­tioned above, which is the to­tal of state property tax and mu­nic­i­pal property tax and per­haps some other ex­ist­ing taxes and fees, must be levied on a uni­form tax rate for ev­ery property. Rather than us­ing the ex­ist­ing model, that taxes property own­ers with nu­mer­ous and dif­fer­ent rates, one flat tax rate must be used for all prop­er­ties so that the same property is taxed the same amount re­gard­less of the owner.

(lo­cal

ad­min­is­tra­tion, mu­nic­i­pal­i­ties,

sewage

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