I have studied the Finance Minister’s proposal which refers to the reduction of rents as they have been published in the media.
I will repeat our own prior proposals on the subject, which can be provided in detail to whoever is interested.
- I will not comment on the statistics provided, whereby, although the declared rental income in the market is €20 bln p.a., the tax returns refer to only €600 mln p.a. Let’s agree at this point that this is correct.
- The minister says that the difference between the above projections is partly due to ownership. I cannot understand how this comes about unless he is referring to the recent Tax Office announcement that owned/occupied properties should be taxed as an undeclared income. On the owner-occupation, I agree that there is extensive tax evasion which is encouraged by the tax system that we have, especially regarding the maintenance/ repair/ extension of existing units. Since such expenses are not tax-deductible, contractors/owners are encouraged not to declare the cost, thus saving 5% to 19% VAT since the contractors are more than happy to get paid in cash or under the table. So, the Government is losing VAT revenues, plus other useful information regarding income, both for the owners and contractors.
This state of affairs is not correct and that repairs, etc. on owned properties (not lets) should be allowed a tax deduction of say 10% on the cost. As such, the owners will have an incentive to declare these costs – attracting a maximum deduction for the owners’ income of €10,000 p.a. If this is adopted, the state stands to collect several million in taxes from the now under-declared expenses (as well as the view of fair tax treatment among the public).
Similarly, if tenants are to be allowed a deduction of an X amount from their own income tax, they will be encouraged to declare the rents and in this way, both the landlords and of course the tenants will be liable in terms of tax paid.
- The Airbnb concept in another lovely way to defraud the tax officer, especially since local and foreign owners let out their units mainly through the internet with the payments made abroad. This can be reduced, using the administrative committees/estate agents/local authorities, which can lessen this tax evasion, in addition, protecting to an extent the licenced hoteliers.
- The minister says that this tax evasion of non-declared rents will be reduced by the issue of titles, quoting “this is now possible, due to technology titles will be issued in a short period of time”. I beg to disagree since the title issue is not problematic due to the lack of technology, but the whole system of the title issue is archaic (introduced 50 years ago) and it needs a new foundation.
- The minister is quite correct that we should not adopt the across-the-board reduction of rents such as Greece has done, because in addition to our constitutional limitations, in the case of Greece, those who can benefit from this reduction (40%) must have either lost their job or business to have closed down. For us in Cyprus, why should those who have not been affected by any reduction, such as civil servants, public authorities’ employees, bank employees, benefit?
- I also agree that the best solution is for the tenants and landlords to have an agreed reduction or adjustment, but we live in Cyprus and this is more wishful thinking.
- In the case of a tax amnesty, again, we agree that it should not be adopted. All sorts of black money will appear in the market, claiming that it comes from undeclared rents, but the amnesty provided before cannot be adopted now, since this is pure laundering of money, with the possible intervention from the E.U. again.
- Real estate is taxed from all sorts of sources from municipal taxes, the VAT, GHS, etc., should also be considered, whereas in the case of the prohibition of property transfers for those who owe taxes or even water bills to the authorities, even if the taxes are due by the tenants, robs the Government for a considerable amount of income in lost transfer fees.
I appreciate the government’s effort to increase its revenues and encourage development:
- The encouragement of residential housing development and student accommodation is wrong.
- I have provided a written proposal on corrective ideas on the passports issue, suggesting hefty penalties to those who mislead the buyers.
- I have expressed disappointment regarding the various Commissioners, who definitely do not have the capability to carry out their duties, as well as a couple of ministers, which causes the government loss of income or even embarrassment from accusations expressed by foreign investors (such as the Bulgarian insurance fraud), the nonsensical opinion on personal data, the investigation on the halloumi saga, etc.
The Ministry needs a shake-up and the Minister must personally address the rents issue, but also other matters for the government to have a chance to survive the current economic crisis.
My views are not based on some sort of university think tank or analysts, but they are based on 40 years of experience of being at the forefront of the property market.