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Property tax bill about-turn

Following representations from hoteliers, property developers and others the government is rethinking its property tax bill which aimed to raise €180 million; €120 million more than suggested by the troika.

THE GOVERNMENT has backed down from its intention to update immovable property prices by applying a formula that stakeholders had said would hike up taxes many times over and would drive the Cyprus economy deeper into recession.

The House plenum is due to discuss an amended bill on January 17 that will remove a provision to update property prices, which was part of the preliminary agreement between Cyprus and its international lenders.

Interior Minister Eleni Mavrou said that the bill would not now update property values using the Consumer Price Index (CPI) over 1980 to 2012.

“We’re going back to the 1980 values,” Mavrou said referring to the way immovable property tax is currently calculated, which is on the property’s value on January 1, 1980.

Lawmakers recently discussed, but postponed voting on, a previous bill that was going to update the values to 2012.

Hotels said that would increase by nine times the amount of tax a hotel would have to pay, and stakeholders and lawmakers asked the government to amend the bill.

“It now seems that the amount that we must aim for is significantly lower than the €180 million we were discussing,” Mavrou said.

She said that the terms of the amended bill are under discussion with Cyprus’ lenders and the finance ministry to clarify how much the government should aim to receive in taxes, though she added the figure might be somewhere over €60 million.

It was not immediately clear if the tax rate for the value bands – also subject to changes under the bills previous guise – was part of discussions.

But Mavrou said that “the average household” would not be impacted as they fall under the tax threshold.

The CPI provision had drawn a large reaction from landowners, property developers and hoteliers who said the changes would drive the economy deeper into recession.

Under the changes as they were tabled for discussion under the bailout agreement, the taxable figure –levied on the total value of all properties in a person’s or company’s name – would be the result of multiplying the 1980 value of the property by about 3.5.

A property worth €170,000 in 1980 values would have risen to €595,000 after multiplying it with the CPI. The chairman of property developers Pantelis Leptos said it was an unfair bill that would act as a deterrent for investment.

The hotels association PASYXE chairman, Haris Loizides, said that the bill as it stood increased the tax a hotel had to pay by nine times, which would have translated to a hotel that paid €27,600 in IPT last year needing to pay €253,380 in 2013.

Cyprus property tax bill about-turn

Readers' comments

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  • Costas Apacket says:

    Yes Jill it’s puzzling that, on the face of it up to now, only we few peasants appear to have been able to deduce the obvious benefits of Title Deeds being issued promptly, but now the Troika has waded into the mix and has included targets in 2013 for the issuing of all TD’s, outstanding for over 1 year.

    Let’s see if our hard working Cypriot Public Servant friends can deliver, with the help of the Troika, what has been seemingly impossible for them to do over the last 10 years?

    In addition, perhaps our Irish friends who are without their Cypriot property Title Deeds could help to publicise the issue further by protesting outside the Rotunda of Dublin City Hall on the 10th January when EU Commission President José Manuel Barroso, Vice-President Viviane Reding, Irish Prime Minister Enda Kenny and Minister for European Affairs, Lucinda Creighton, open the European Year of Citizens 2013, which marks the 20th anniversary of EU Citizenship?

    As Ms Reding puts it: “We need the direct involvement of citizens in building a stronger and more political Union. That is why 2013 is the European Year of Citizens – a year dedicated to you and your rights as Europeans,”.

    and as Viviane also pointed out:

    “European citizens must be able to voice their concerns and prepare the ground for future European elections. It`s time we all took ownership of our common future”.

    Sounds good Viviane! Perhaps you could put your own words into practice?

  • Jill says:

    Is it only us peasants that can see ever so clearly that getting the title deeds to every household on the Island, without all the rubbish about amnesties, etc., would, in itself, rake in millions, set people’s minds at rest, and get the market moving again?

  • Costas Apacket says:

    Yes, updating values for all Cypriot properties is a daunting task, but this doesn’t mean that thousands of ‘invisible’ properties should not be properly registered with the authorities so that their owners are obliged to pay the correct level of annual IPT and the correct Title Deed Transfer Taxes updated with the addition of their properties.

    The rest of us have to pay our correct taxes, why not these people?

    After all the finances of the country are in a mess and continued non payment of the correct levels of taxation will only prolong this situation.

    I’m very surprised that the clever people in the Legal and Architectural professions have not latched onto this potential money making scheme instead of pursuing the ineffective and fruitless amnesty process, but then maybe there’s an age old reason for this.

  • Steve says:

    Updating property valuations sounds simple, but it is anything but simple. Rather than increasing revenue, it begins with heavy expenditure on valuers for every individual property, followed by a lengthy appeals procedure in which virtually every property paying more than under the old scheme puts in an appeal. Then there is the tribunal for those who lose and are still not satisfied, in which they point out lots of similar properties that have lower valuations. It is, in fact, a nightmare, and takes years to bring in more revenue.

    Against that, there are the many who do not understand the current system and choose, consequently, to criticise it. The concept of a building that did not exist in 1980 having a 1980 value seem hard to grasp for some. Effectively the amount of IPT paid is based on the original price paid for the property adjusted back to a common base value, 1980, using the inflation rate as denoted by CPI. The government can at any time increase the revenue by adjusting the charge bands. As circumstances and popularity of different areas have changed, there have been some gainers and losers overall, but that does not mean it is worth throwing out the system altogether.

  • Johnny Cyprus says:

    It is true what you say about the UK ‘Poll Tax’ Nigel.

    Your younger readers might not remember it was said at the time to be fairer than the original ‘Council Tax’ that it in fact replaced. Under the provisions of the Bill, I think the local tax burden was extended to a much wider section of the electorate, including students, so that it could be reduced for a few wealthy owners of large properties.

    It’s unpopularity with a large section of the populace was, as you say a major factor in the downfall of Margaret Thatcher. That and the cack-handed implementation.

    The displaced Premiers hated enemy, Michael Heseltine as left to return the tax system to a property based tax as existed before the ill fated legislation. However, the tax was spread more evenly so as to keep the wealthy and the middle classes quiet.

    What is the lesson for Cyprus?

    Perhaps that any attempt to tax the majority of the electors is bound to lead to the downfall of a Democratically elected Government.

    John Stuart Mill said so in effect, 150 years ago, but I think he wasn’t being read in the 1980’s.

    Perhaps the Cyprus Government will perceive the opportunity to tax weathy expat owners of second homes in Cyprus. After all they can’t vote.

    Maybe we shouldn’t give them any ideas.

  • @Stuart – you seem to forget the ineptitude of the HMG under Maggie Thatcher’s leadership – or perhaps you’re too young to remember.

    When she introduced the dreaded Community Charge (the ‘poll tax’) to replace the rating system there was rioting on the streets of London and it contributed to her eventual downfall. John Major was left to pick up the pieces and eventually introduced the Council Tax, which continues to this day.

    Council Tax bands are based on the property’s value on 1 April 1991 (for England) or 1 April 2003 (for Wales).

    Cyprus revised the IPT charge bands in 1990, 2003 and 2012.

  • Stuart says:

    Not to have updated property valuations for 32 years for IPT purposes demonstrates the ineptitude on the part of the Cyprus government. Any intelligent government would have either reviewed valuations periodically or introduced some form of indexation from the outset.

    As recently predicted on this forum, the protests will grow ever more vociferous until the government is forced to back away from introducing any legislation that promises to bring about its own downfall. Far safer to pursue the current tax evaders if sufficient corruption-free officials can be found to do so.

  • steve says:

    More U Turns than the coalition government

  • Paul Lambert says:

    They will make no agree to find these ‘invisible ‘ properties because the investigators are probably as guilty as everyone else. Cyprus needs a change of government and not just being replaced by those who have previously been in power. How does any corrupt nation change? Honest people must step forward and be brave enough to challenge the system. Not easy I know but there are many Cypriots with a sense of right and wrong.. Expat Brits should get involved in local politics. It’s not enough to stand on the sidelines and moan. ;

  • @All – As Pavlos Loizou has noted previously:

    “The local authority (municipality or community council) can instruct a private valuer to value what is currently on a plot of land with 1980 prices. It then uses this amount to charge the immovable property tax.

    A number of councils are going down this route, but their problem is that they don’t have the budget to undertake the valuations that will give them the income they lack.”

  • Clive says:

    Finding these invisible properties was tackled in Spain years ago but comparing land registry property addresses with electricity bill addresses – caught hundreds of thousands out.

  • mouflon says:

    @Costas
    Your comments are spot on.
    There are so many houses not registered, and you quite rightly said, before deciding on taxes, set up a department to register all these properties in family names.
    This would bring in some more taxes.

  • Costas Apacket says:

    ‘Mavrou said that “the average household” would not be impacted as they fall under the tax threshold.’

    In fact a large number of ‘average households’ will not be affected at all since the DLO’s and tax authorities don’t even know the owners have a house built on their often family owned land because it has never been registered with or declared to the authorities, enabling the property owners to avoid paying the correct level of annual IPT nor indeed any Title Deed transfer taxes on their ‘invisible’ property.

    Citizens not paying the correct taxes to the state I hear you cry? Surely not?

    Why don’t the authorities sort out this massive tax evasion scheme first before trying to saddle the rest of us law abiding Citizens with unwarranted and unnecessary tax increases?

    I’m sure a quick cross check of highly visible utility bills for the ‘invisible properties’ against Land Registry and DLO records would yield some quick and easy results?

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