DIKO MP Angelos Votsis has prepared a bill which would force property buyers to pay property tax before even getting their hands on the Title Deeds, sparing developers millions of euros as part of the new immovable property tax (IPT) regime.
Votsis tabled the bill for discussion in the House Finance Committee on Monday, kicking off discussion on the proposal, which he hopes will conclude before September, when the new IPT legal framework is expected to kick in.
The latest rules on IPT were passed by parliament over a month ago as part of the government’s commitments to the troika, stipulated in the memorandum of understanding signed to secure a €10 billion bailout.
The government said at the time that the IPT bill was a provisional one which would be replaced in the summer, once the authorities have time to prepare a replacement.
In the meantime, the current ‘provisional’ legal framework on IPT provides for the collection of around €136 million in taxes.
Under the new law, all registered owners of property will be liable to pay a minimum of €75 a year for property valued up to €12,500 by the Land Registry based on a 1980 assessment.
The new tax bands range from 0.60 per cent (for property valued up to €12,500) to 1.90 per cent (for property valued at over €3m based on 1980 prices), providing a significant increase to the previous IPT regime.
Many developers, holding on to large swathes of property for whatever reason, are concerned that the new tax will dry up any liquidity they may still have.
The draft bill tabled by Votsis basically proposes that people who bought property will be obliged by law to pay the necessary taxes once they are in possession and have use of the property, even if they do not have the Title Deed issued in their name.
This effectively will force property buyers to pay the tax on properties that they may never see the Title Deed for, if for example the developer is guilty of irregularities or illegalities on the complex or even mortgaged property that they have already sold to buyers.
The acting head of the Land Registry Cleanthis Cleanthous was quoted in yesterday’s Politis saying the proposal would likely act as a disincentive to developers to do what needs to be done to get the large number of Title Deeds pending in Cyprus issued.
The Inland Revenue Department said the proposal would create more bureaucracy, making it very difficult for the department to distinguish which property buyers who submitted a Deed of sale to the land registry were actually in possession of and using the property in question.
For his part, Votsis told the Cyprus Mail yesterday that the IPT regime was already failing to act as an incentive to developers to sort out the Title Deeds fiasco, even though the new regime has yet to be implemented.
While acknowledging that very often it was the developers causing delays in issuing the Title Deeds of homes already paid for, he said: “Yes, but this (new IPT regime) is not the way to make the developer cooperate.
“We need to come up with better ways to put pressure on developers, as this won’t work,” he said.
The MP argued that if a person buys property from a developer today, until ownership is transferred, the developer has to pay the IPT.
Since the property is part of a larger sum, the developer pays much more in IPT than the single buyer of one unit would, as he’s put in a higher tax band.
However, when the Title Deed is ready to be issued, the developer forces the buyer to pay the higher tax before handing over the Deed. The buyer then has the right to apply to the tax authorities to get a rebate.
So, argued Votsis, it would make more sense to avoid all the bureaucracy and delays and higher tax bands by making the buyer, who is in possession of the property, and who has submitted a Deed of sale to the land registry responsible for paying the IPT.
“Now that the IPT is much higher, it will create a problem of liquidity for developers,” said Votsis, adding that buyers would be burdened with long procedures to secure the difference from the two tax bands from the tax authorities.