THE government turned down calls to slash property taxes amid findings that a staggering £241 m flowed into state coffers last year, a six-fold increase since 1998.
“We say no to a review of our tax system on immovable property“, Finance Minister Michalis Sarris told reporters.
Sarris said the 632% tax rise between 1998 and 2006 is owed to the Cyprus’ high rate of economic growth and not to undue taxation.
According to figures provided by the Cyprus Association of Property Owners, the state earned £33m in property taxes in 1998. That jumped to £241 m in 2006 and is expected to further increase by 133% this year.
Sarris said tax revenues aren’t on a steep incline, but experience fluctuations according to the economy’s performance.
But the minister was challeged by opposition Disy that said property values had reached “disconcerting levels” that warranted a tax review.
Disy deputy leader Averof Neophytou said the current state of the property market harks back to the 1980s when a property boom translated into a steady stream of tax hikes.
“Today we’re going through a crisis in our tourism product and if steps aren’t taken over property sales, then we’re going to be faced with a new huge crisis” said Neophytou.
The Disy official suggested that capital gains driving the property prices upwards be slashed.
“It’s unacceptable that of the £100,000 needed to buy an apartment, £49,000 goes towards states coffers,” he said.
Akel MP Stavros Evagorou said opting to either reduce or get rid of property taxes altogether isn’t the answer because any tax breaks would benefit big business and not ordinary homebuyers.
Instead, he proposed a government housing policy that would give young couples a break towards the purchase of a new home.
Evagorou said the government could return some of its tax revenues to couples in the form of grants provided they meet specific income criteria.
Property taxes came to the fore after the Cyprus Association of Property Owners came out with calls for tax relief. Association Chief George Strovolides said private property that is the engine driving the island’s economy is so overtaxed that it’s among the highest in Europe.
He told a news conference high taxation lead some property owners to resort to evading taxes altogether.
Moreover, the problem would be compounded by the 15% Value Added Tax that would be tacked on all land transactions as of January 1st, 2008.
A 15% VAT already exists on the purchase of new houses.
“Land is easy ‘prey’ for tax authorities… The existing system offers motives for tax evasion,” said Strovolides.
Instead, the Association proposed four ways that if implemented, would act to correct what it called “distortions” in the market.
First off, the Association proposed that either defence tax be dropped from rent, or that rent is taxed on income as profit.
Second, capital gains tax should be halved to 10% and the current £10,000 tax-free ceiling should be upped to £58,000 or €100,000.
The tax-free ceiling for a first home should be raised from £50,000 to £116,000 or £200,000.
Third, transfer tax should be scrapped in cases were VAT is paid. A flat 3% tax should apply in all other cases.
And fourth, either a property ownership tax is scrapped altogether, or a universal rate of 25% be imposed on property worth over €1m in January 1, 1980 prices.
Copyright © Cyprus Weekly, 2007