LAKIS Tofarides, the president of the Cyprus Chapter of FIABCI (the International Real Estate Federation), has called on the government to reform the island’s property taxation system in a way that will increase the flow of revenue into government coffers without suffocating the market.
Writing in the Financial Mirror, Mr Tofarides says that he has been following the thoughts and proposals on property taxation that the government has submitted to the Troika (European Union, European Central Bank and the International Monetary Fund).
Although he understands the need to guarantee and possibly increase government revenues in efforts to overcome the island’s present economic difficulties, Mr Tofarides believes that imposing high tax rates on property will be catastrophic for the real estate sector.
Higher taxes will result in many companies having to close and will increase the number of people unemployed. In addition to the jobs of tens of thousands of those who are directly employed in the construction sector, many other jobs will be put at risk in supply companies and property-related professions.
He is convinced that the proposed tax measures will further harm the island’s economic growth and will deal a further blow to the property sector, which has already been bit harder than any other business sector as a result of the recession.
Mr Tofarides suggests the following five changes to property taxation:
- Reducing the taxable threshold for local property tax from €120,000 to €40,000, but the tax rate should not exceed 8‰. The tax should be based on each property separately and not cumulatively (meaning that each property has its own tax).
- A property that has been sold (deposit of contract of sale at the Land Registry Office) should be included in the buyer’s tax return.
- A special taxing regime should be created for land development and construction companies, for projects that are under development.
- The building factor should increase to cover the property’s mortgage value.
- All these should be accompanied with a permanent reduction in the tax imposed when property is acquired (Stamp Duty, VAT and Property Transfer Fees).
Mr Tofarides concludes that if mistakes and rushed or easy solutions are avoided, the property sector can regain its position as the Cypriot economy’s workhorse. It will contribute to state revenues and open new job opportunities for thousands of workers and will reinforce the country’s effort to attract foreign capital and investment.