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Calls to change property tax provisions

MPs have urged the government to look again at the bill to increase Immovable Property Tax following warnings that the tax hike will drive the island’s economy deeper into recession.

LAWMAKERS yesterday asked the government to amend a bill that increases annual Immovable Property Tax (IPT) as part of the island’s bailout, as various interest groups suggest it is unfair and would only lead to bigger problems.

Landowners, property developers and hoteliers warn that the changes, which hike up the taxes currently based on 1980 values, will drive the economy deeper into recession.

Hoteliers yesterday suggested that the bill was unconstitutional and warned that they would file an appeal with the Supreme Court.

Haris Loizides, Chairman of the hotels association PASYXE, said the bill increased the tax a hotel had to pay nine-fold.

Loizides said a hotel that paid €27,600 in IPT last year would have to pay €253,380 in 2013.

Loizides said international lenders had asked for €60 million from immovable property taxation whereas the government bill provides for €180 million.

The Chamber of Commerce and Industry (KEVE) said the bill was unacceptable and that it would be impossible for the government to achieve the target.

KEVE proposed a flat rate of 1.5 per thousand that they say would raise €60 million.

The chairman of the developers Pantelis Leptos said it was an unfair bill that would act as a deterrent for investment.

The preliminary agreement between Cyprus and international lenders provides for updating the 1980’s property prices by applying the consumer price index (CPI) over 1980 to 2012 and amending tax rates for the value bands.

Until now, Immovable Property Tax was calculated based on the value of the property on January 1, 1980.

Under the new regime, the taxable figure would be the result of multiplying the value of the property in 1980 by around 3.5 – the CPI, according to deputy land registry director Andreas Socratous.

The updated value will then be taxed by applying the new rates. The first €150,000 is tax-free. From then on: €150,001- €500,000 coefficient of €6 per thousand, €500,001- €1,000,000 coefficient of €8 per thousand, €1,000,001 and above coefficient of €10 per thousand.

The director of the Inland Revenue department rejected suggestions the legislation was unconstitutional.

Giorgos Poufos said lenders had imposed “very conservative” calculations to be sure the target amount would be collected.

According to IRD data, 44,000 people would have to pay IPT under the new regime, while 293,000 would be exempted because their property was worth less than the tax-free threshold.

Of the 16,000 companies affected, 8,900 would be exempted for the same reason, while 2,500 would pay €111 million.

The state expects to collect an additional €18.9 million from 1,450 people whose property is worth over €1 million. Some €40 million will be paid by 38,500 people.

Main opposition DISY deputy chairman Averof Neophytou asked the government to find a fairer solution.

“If there is a will, we can find fairer solutions,” he said.

Neophytou suggested the tax would hurt middle income people.

“A middle class family who owned property worth €300,000 by 1980 prices paid €375 up until 2011; today they would have to pay €6,450. We are talking about 17 times more taxes,” Neophytou said.

Their property would now be valued at around €1 million.

Ruling AKEL MP Yiannos Lamaris said his party wants to make a lot of amendments if it was allowed – not only as regards the IPT.

He added however that 90 per cent of the people did not fall in any of the IPT tax bands.

The matter was discussed by the House Finance Committee, which also looked into several other austerity bills agreed with international lenders.

Before it was a bill that cut allowances to large families and students who voiced their opposition.

Large family organisation chairman Paraskevas Samaras said it was a “multiple hit.” The measures, he said, were wrong and unfair.

Civil servants also protested, saying they were “under persecution.”

They were complaining about a bill that changes public sector work hours in a bid to cut overtime and shift pay.

Some 20,000 people who live in the mountains are also complaining after the government decided to cut the heating fuel allowance afforded to them in winter.

Large families, teacher unions and people with disabilities, will hold protests against the austerity outside parliament on Wednesday.

Readers' comments

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  • Martyn says:

    So the Government looks like backing down already in the face of strong lobbying by ‘vested interests’!

  • @All – the controversial bill hiking Immovable Property Tax has been temporarily withdrawn and pending a further study.

  • Clive says:

    For those properties not registered with the Land Registry why not try catching them by comparing the list of properties receiving electricity bills with those registered with the Land Registry. For all dwellings, legal and illegal must have electricity.

  • steve says:

    AT LAST the Cyriots are starting to complain and they expect us all to feel sorry for them. As Martyn so rightly said, the bleating and squealing is under way. After years of complaining from foreign buyers they now know how it feels. I can bet this IPT debate gets sorted out a lot faster than the Title Deed scenario.

  • Costas Apacket says:

    Martyn, if the Government could only collect the correct IPT from all those thousands of properties that are not even registered with the Land Registry and as such, do not exist as far as tax collection is concerned, then there would probably be less of a need to increase these taxes for the rest of us law abiding Citizens.

    For a start, it would be interesting if they compared all of the properties that are issued with a water bill to see if they were actually registered as existing at the Land Registry.

    After all, we’re all in this together aren’t we?

  • Adrian says:

    It was never a problem for the Cypriots when the “foreigners” were being tied up in red tape and ripped of by all and sundry but now that they are being “persecuted” by their government it is “everybody out”. There is nothing like asking a Cypriot to pay to get him motivated.

  • Martyn says:

    It comes as no surprise that after 3 decades of massive economic growth, followed by 4 years of Cyprus governmental/national Denial (that the impacts of the global Credit Crunch affected the island state) there is much bleating/complaining from many sectors/organisations about the now urgent measures that need to be taken to avoid a complete national bankruptcy. For without the EU/ECB/IMF bail-out – not yet even fully Approved – this is clearly where the country was headed. The public sector unions have had their Golden period, now it has to be a severe dose of economic reality, to reverse some of the ridiculous excesses of recent decades, if the unions decide to ‘hold the nation to ransom’ then their leaders need to think what the ultimate impacts of further sectoral profligacy will be. Similarly the property, construction, legal, banking and ‘leisure’ (including hotels) sectors have also had ‘a good run’, had their share of huge growth, economic Prosperity and Profitability.

    The proposed uplift of IPT on the key providers to international tourism does certainly look excessive, and, given the parlous state of the country’s overall economy, there may well be a danger of damaging, short-term, at least, one of the key assets that the country sorely needs to begin it’s much overdue Revival. But then how ‘realistic’ are the proposed new IPT tax levels anyway, based on seemingly reasonable CPI increases applied to what now seem to be ridiculously low property values determined over 3 decades ago? The new maximum IPT tax rate should now become, it seems, only 1.0% p.a, hardly a major dent in overall profitability of well run /managed businesses – even the CCI seem to think 1.5% would be ‘reasonable’.

    It could well be though that other taxes on private sector businesses need to be looked at too, business and corporation taxes for instance, the whole bundle of taxation measures?

    But, anyway it’s good that the bleating and squealing is underway, signs that at last real and long-overdue remedial action is about to be taken. What Cyprus needs now is a strong Government from February, 2013 to ensure these measures are pushed through. Many have said/ shown that in the past the country has responded to severe setbacks, harsh realities and, with potential huge future earnings from the E Mediterranean gasfields looking increasingly likely, there must be a real opportunity to address some of the current glaring economic, fiscal and structural weaknesses, ‘clear the decks’ for another potentially massive period of growth from 2018 onwards. If the gas reserves are as good as being projected, and the revenues realised, Cyprus could be another Norway by 2025.

    “No Pain – No Gain’!!

  • Frank says:

    Interesting to read that: “The chairman of the developers Pantelis Leptos said it was an unfair bill that would act as a deterrent for investment.” He and the other developers have exploited a flawed system and killed investment in property. This claim comes from an expert in unfairness.

    Having turned customers into victims; with the aid of a legal community of dubious ethics and with conspiracy from the banks; we are asked to now believe that the developers are victims of an “unfair bill”. It would be sweet to think so; were it not for the developers’ debts being underwritten by those customer victims.

    Those who have paid in full, or are saddled with mortgage debt, will lose their untitled properties long before a developer has his Mercedes repossessed on this benighted island of Cyprus

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