New real estate law to tax the rich and punish evaders

A new real estate tax law currently being introduced will not impose a heavy burden on Egyptians, said Tarek Farag, head of the Real Estate Tax Authority. "Only houses valued at over LE500,000 are subject to the new bill, so we are not demanding that limited income or shanty homes owners pay anything." The law, which aims to unify the current system of real estate taxation, has been passed by parliament and is due to come into force on 31 March.

According to Farag, only rental units exceeding LE6000 a month will be subject to the law. “Even rental value in classy neighborhoods such as Zamalek and Mohandessin usually do not exceed this rate," said Farag. In the case of old rent, the tenant will bear part of the tax within the rental value. "Subsequently, almost all rental unit owners are exempted from tax. Housing units under construction are also exempted."

The new law cuts tax collected on real estate from 40 percent down to 10 percent. And if property owners feel that their homes have been unfairly valued, they can appeal against the tax within sixty days of the valuation and their home will be appraised again. "So I think the tax law is fair enough as only 10 percent of citizens will pay it," commented Farag.

Regarding tax evasion, Farag said: “The citizen will pay under all conditions. A penalty will be determined on the basis of the property’s value, ranging between LE200 to LE2000 or imprisonment for a term not less than six months, in the case of avoiding paying both [tax and penalty].”

Chairman of the Independent Union of Employees of the Real Estate Tax Authority, Kamal Abu Eita, said: "Passing one specialized law for real estate tax is an advantage. We used to get mixed up between several laws when evaluating a property and were unable to make accurate assessments as each case was different.”

Abu Eita agreed with Farag about the imposition of a penalty for tax evasion: “Either a penalty or imprisonment for real estate tax evaders will compel people to pay the tax. Punishment should be strictly applied because people used to ignorepaying for years and easily evaded tax while escaping punishment.”

Abu Eita adds: “The tax must only be applied to those who can afford it such as the owners of villas and mansion houses, in addition to members of the Shura Council and the People’s Assembly, who passed the law.”

Economist and Deputy Director of Al-Ahram Center for Political and Strategic Studies, Abdel Fatah el-Gabali, said that there is a widespread misconception thatthe law is new. On the contrary, he said, “This is one of the oldest taxation systems in Egypt, since May 1883.”

“There have been a number of complicated tax regimes imposed on agricultural land, properties and night clubs too,” he added, “Consequently, the government decided to modify and collect them all into one efficient law, instead of drafting several amendments every now and then.”

Another advantage of the new law, according to el-Gabali, is that the new tax will form an additional source of income for the government. Amending the existing property tax law is part of revenue-related reforms intended to reduce the budget deficit and to boost the Egyptian economy. “I think implementation of an efficient tax law will help to enhance economic development as well as achieve social solidarity,” said el-Gabali.

El-Gabali also called for the formation of a supreme council for taxation, which is stipulated in Articles 139 to 146 of Law 91/2005 (the income tax law). A supreme council would be a specialized authority for passing laws concerning different kinds of taxes. "It should be experts, not members of the People Assembly, who determine the measures according to which taxes are imposed on citizens."

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