By Mohammed Ayyad
A group of property owners has submitted a memorandum to the Ministry of Investment rejecting the revised property tax law, approved only week, which they claim is “defective” and could lead to double taxation.
The cabinet last Monday approved a draft law from the president amending some provisions of the property tax law. The most important features include exemptions for property units used for housing purposes with net rental values of less than EGP 24,000 annually, or EGP 2,000 per month, and commercial properties with net values below EGP 1200, over EGP 100 per month. Values over this amount are now subject to taxation.
Under the draft law, the government will collect a property tax of 10% of the rental value of housing and commercial units. In the early stages of its implementation, the Ministry of Finance estimates that the measure will bring in between EGP 3bn and EGP 4bn annually.
“The government must implement a tax on properties, not activities, as it does not matter whether the dwelling is rented for residential or commercial activities,” said Alia Al-Mahdi, professor of Economics at Cairo University. “The government receives taxes on commercial profits, so this will result in a double tax.”
Al-Mahdi said the new legislation suffers from legal shortcomings, including stipulation that the government will re-evaluate properties every five years and review the level tax exemption and link it to inflation rates.
Al-Mahdi believes that keeping the tax exemption in place is worth a “fixed” EGP 2m with property evaluations. The exemption will introduce a new low-income bracket, raising their property values without increasing their income due to inflation.
She said the exemption should go toward only one apartment only while the remainder of the property is subject to what the owner is taxed rather than property taxes.
“We have communicated with the Investment Ministry and sent them a memorandum that reveals the legal proceedings behind legislating a property tax that achieves double taxation for commercial and industrial transactions, which are currently already subject to taxes,” said Hisham Mehdy, spokesperson for Owners Group Real Estate and member of the Association for Those Affected by the Old Rent Law.
Al-Mahdi said: “How is the government going to receive taxes on the inflated market value of properties because of inflation, when the owners will not collect any profits?”
A number of real estate owners, according to Al-Mahdi, agreed to challenge the constitutionality of the law because it discriminates between citizens in paying taxes according to economic activity.
Al-Mahdi said the application of the law in its new form would inevitably amount to a double taxation, in that property taxes will be placed on real estate units according to their type of activity, while the state will still be collecting income tax for commercial activity.
According to tables attached to the property tax law, residencies whose annual commercial value are EGP 24,000 will not exceed a market value of EGP 1.5m.