FINANCE Minister Vassos Shiarly yesterday rushed to assure homeowners and businesses that they would not feel the squeeze from the changes in immovable property tax (IPT) which are provided for in the preliminary deal with the troika, which is due to kick in next year.
The minister said some 80 per cent of private citizens will not be paying while those who would be paying a small amount would be around 17 per cent.
"So 97.5 per cent of the population will either not pay or will pay a very small amount,"? he said. The number of people who would have to pay the maximum amount was just 0.5 per cent, the minister added.
Opposition to the changes has been growing this week with landowners, property developers and hoteliers warning that the changes, which hike up the taxes currently based on 1980 values by tenfold in some instances, will drive the economy deeper into recession.
The preliminary agreement between Cyprus and international lenders provides for updating the 1980's property prices by applying the consumer price index (CPI) over 1980 to 2012 and amending tax rates for the value bands.
Until now, immovable property tax was calculated based on the value of the property on January 1, 1980.
Under the new regime, the taxable figure would be the result of multiplying the value of the property in 1980 by around 3.5 ? the CPI, according to deputy land registry director Andreas Socratous
The updated value will then be taxed by applying the new rates. The first ?150,000 is tax-free. From then on: ?150,001- ?500,000 coefficient of 6 per thousand, ?500,001- ?1,000,000 coefficient of 8 per thousand, ?1,000,001 and above coefficient of 10 per thousand. ?
The tax will be levied on the total value of all the properties in a person?s name.
Shiarly said the measure was temporary, with new legislation coming into effect in 2015 that will be based on contemporary values and not those of 1980 that are used now for tax purposes.
When it comes to companies, Shiarly said, 40 per cent would be exempt while 24 per cent would pay ?very small amounts.?
He said of the companies which qualify for the tax ? 65 per cent ? would pay ?850.
Legal entities paying up to ?42,000 would make up 22 per cent of those who would have to pay, he said.
The minister noted that immovable property worth ?1 million by 1980s prices would now be valued at ?10 million in today?s prices.
MPs yesterday expressed concerns over the potential effects of the tax on the tourism industry and construction, as well as on companies that have already sold property but the transfers are still pending.
Concerning the latter, they were told that it could be resolved by applying the current practice of the user paying the tax.
Hoteliers have warned that the new regime would put them out of business and kill off any competitive edge Cyprus has over neighbouring countries.
The Cyprus Hotels Association and the Association of Cyprus Tourist Enterprises said on Thursday they were willing to pay double what they pay now but argued that the new rates effectively increased hotel taxes tenfold in some high-end hotels.
Developers also opposed the new system, arguing it would force people to sell, forcing the value of mortgaged property down and creating fresh recapitalisation needs for the banks.
Lakis Tofarides, the chairman of the Cyprus chapter of the International Real Estate Federation, said the government?s tax would fetch ?200 million while international lenders were only asking for ?69 million.
Tofarides suggested it was an attempt to plug holes elsewhere, adding that they will ask for explanation on how the decision was made.
?We are suffering today because the 1980s prices are unreal. The proposals ? based on a simple multiplication are unreal. They have nothing to do with reality,? he said.
Source: http://www.cyprus-mail.com/cyprus/most-people-will-not-pay-new-property-tax-minister-says/20121208
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