Real estate taxation reform a must in Cyprus

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By George Mouskides
The Cypriot government has undertaken the task, as demanded by the Troika bailout agreement, to reform real estate taxation. It is widely accepted that there are too many, (11 to be specific), and complex taxes (government fees, duties, etc.) regarding real estate. To make things worse, there are a number of authorities imposing and collecting these taxes.
• Real estate owners end up having trouble to either calculate the taxes due and/or find out where and when to pay them;
• The administrative cost for collecting these taxes is huge for the state and consequently for the taxpayer;
• Cyprus real estate taxes are considerably higher when compared to most other European countries.
What must be done?
We know that the government has already commissioned consultants to advise them on the issue. We truly wish sound advice reaches the government soon and that the implementation starts sooner than later.
The characteristics of a sound real estate taxation framework must meet the following:
• The system must be simple, with as few different taxes as possible;
• Taxation must be low so as to offer profitability to land developers to develop, and landlords to buy and own property;
• Taxation must be predictable, so that a buyer will know how many taxes are to be paid when buying and holding a property.
So, an urgently needed reform must establish just three different taxes.
BUYER’S TAX: Payable by the buyer, should basically aim to cover the administration cost of the state to implement the purchase.
OWNER’S TAX: A holding tax, must cover the cost of services offered to the property by the various authorities.
VENDOR’S TAX: A sales tax must be imposed, based on the profitability/gains generated by a specific transaction, payable by the vendor.
These three could easily replace the 11 existing taxes, something which will greatly speed up and simplify current procedures. The state will then do the math and distribute funds from the three taxes to the various authorities (local administration, municipalities, sewage board, etc).
To keep things simple, we should put an end to the wrong notion that taxing real estate amounts to taxing wealth. If the government wishes to tax wealth, they could tax all types of assets and also take into consideration the debt related to these assets (we do ¬not suggest such a tax).
Governments have tried to implement social policies through property taxation. This approach has created many problems and led many owners to transfer properties to their children and the rest of family to avoid taxation and inheritance levies.
Concluding, the owner’s tax mentioned above, which is the total of state property tax and municipal property tax and perhaps some other existing taxes and fees, must be levied on a uniform tax rate for every property. Rather than using the existing model, that taxes property owners with numerous and different rates, one flat tax rate must be used for all properties so that the same property is taxed the same amount regardless of the owner.