STATE coffers enjoyed a 142 per cent increase in Capital Gains Tax in 2007, mainly as a result of the Cyprus property market boom.
According to the Inland Revenue Department (IRD) website, the IRD collected in total €1.82 billion in the first 11 months of 2007; a 43% increase over the previous year, resulting in an extra half a billion euros. Almost half the increase was accounted for by the rise in revenue from Capital Gains Tax, reflecting last year’s heightened activity in the property market.
The government collected €422.3 million in Capital Gains Tax from January to November 2007, showing a 142 per cent increase from the same period in 2006. The extra €247.8 million was mostly a result of the property market boom. Land and house sales enjoyed an increase last year as did prices, leaving the state with plenty to be happy about in terms of Capital Gains Tax.
House prices in 2007 saw a 17.5 per cent year-on-year increase, despite a Central Bank directive increasing cash coverage for second homes’ lending. Analysts put the increase down to adoption of the euro and the pending imposition of VAT on building land. Introduction of the common currency provided lower risks for European property buyers, thereby increasing foreign demand. Many local buyers rushed to buy land before the imposition of VAT at 15 per cent.
Cyprus was meant to apply VAT on building land by January 1, 2008, but given that the date coincided with adoption of the euro, the Finance Minister sought a delay until 2010. The European Commission has yet to approve the request. It is believed the government will likely impose VAT on building land on July 1, 2008, if they fail to secure the two year derogation. The uncertainty will likely continue to fuel demand for land as will euro adoption for housing. For the time being, the government will continue to enjoy the increase in capital gains tax.
However, VAT on land will not affect private transactions between individuals. VAT cannot be imposed when the land is sold by a private individual. One VAT official told the Cyprus Mail earlier: “We don’t intend to tax private transactions that happen on an ‘occasional basis’. But if you have lots of land and sell it, this is not considered occasional. We look at various factors to decide whether there is economic activity, like the frequency of sales, intent for profit and continuity,” noted Naya Simeonidou.
Copyright © Cyprus Mail 2007