CAIRO: Egypt is due to amend the controversial real estate tax law and delay its enactment, the finance minister told a state-run daily.
The ministry may postpone the enactment of the law for two or three years, while amendments seek to increase the tax threshold to twice the current value of LE 500,000 per housing unit, which would exempt more people from being taxed.
Minister of Finance Samir Radwan said Monday amendments to the real estate tax law are meant to ease the burden on citizens, according to Al-Akhbar daily.
Hany Samy, real estate expert at investment bank CI Capital, said that the decision to raise the threshold would be positive for the real estate market.
Even when the tax was raised on units worth LE 500,000, this only represented 5 percent of units in Egypt, generating a very low income that did not justify the public outrage which accompanied the law.
“If the government raises it to LE 1million this could ease the tension and the burden on citizens and have some small positive effect on the real estate market even though demand for these units is inelastic,” he said.
Magda Kandil, director of research at the Egyptian Center for Economic Studies, disagreed. “I have to think like a fiscal economist, responsible for sustainability of public finance. The proposed amendments are intended to reduce pressure on the public, adding to the growing list of populist measures that are being sought to appeal to the public,” she said.
“While I am sympathetic to the objective, I remain very concerned about resorting to these measures without compensating for the potential revenue loss, in light of the growing expenditures bill by the government,” she added.
Kandil thinks that something else will have to give in order to sustain government operations and financial viability. Otherwise, delaying the law and increasing the threshold will further shrink projected revenues for the government.
“I would advocate a progressive tax per value, above the threshold, to compensate for the potential revenue loss and ensure that the revenue collection will not be adversely affected by the proposed amendment,” she said.
In related news, Housing Minister Fathi ElBaradei decided to facilitate procedures and ease the burden on those who had payments due on land, residential units or shops.
Safwat Ghanem, vice president for financial affairs of the New Urban Communities Authority, said that many requests were submitted by citizens and businesses to postpone the payment of installments due, particularly on large plots on land, due to current economic conditions.
He is currently studying the system in which the state grants housing and land with all relevant stakeholders and is coordinating efforts to better enforce current legislation that prevents the sale of the land unless after construction has begun or after five years have passed in the contract, to prevent land speculation.
Ghanem added that while these studies are being carried out the current law will be in full effect and pointed out that they are currently studying how they can give priority to families of the martyrs of the January 25 Revolution in obtaining housing units.
Samy said that better enforcement of the current law is needed, explaining that even though most contractors in new cities were meeting requirements, there have been examples of corruption and fraud when it comes to buying land.
For Kandil, the idea is to prohibit speculative demand for land, which provides the buyer and seller an opportunity to capitalize on the gain, without spreading the return on investment to other partners.
“The restrictions help increase the economic benefit of land sale, by ensuring construction activity is in place, which would increase the benefit of the activity to other partners in the plan,” she said.
She disagreed with the five year restriction however, saying that “given the history of land sale in Egypt, it provides an opportunity for investors to seize land for this long and make a killer profit, without sweating or exerting any effort that could be more beneficial for the economy in terms of distributing the value added across a larger pool of partners in economic activity.”
