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Egypt gives property tax law final approval
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EGYPT. After long and heated discussions, the People’s Assembly in Cairo ratified last week the property tax law with an exemption threshold of LE 500,000 and a levy at 10% of a property’s annual rental value.
According to Minister of Finance Youssef Botrous Ghali, since the new law will only apply to the 2.1% of Egyptians who own property valued at more than LE 500,000 (US$93,700), it will not affect the majority of Egyptians
The new legislation exempts property valued at less than LE 500,000 as well as units with a rental value below LE 6,000 per annum. Property valued above that figure will be taxed based on an assessment of its annual rental value.
The legislation stipulated a levy of 10% of a property’s annual rental value after deducting 30% to 32% as maintenance costs.
“I’m in favour of this new law because it raised the exemption threshold to LE 500,000 and reduced the levy to 10%. In my opinion, the government made the right decision amending [the proposed] legislation,” said Magdi Sobhi, senior economist at Al-Ahram Center for Strategic Studies.
“At this exemption threshold, the new law will tax the upper-middle classes or the wealthy people, and I don’t think it will be a burden on the poorer segments of society.”
Initially, the legislation identified an exemption threshold of LE 250,000 and a levy at 12% of annual rental value. However, facing mounting criticism, the draft bill was amended several times to include a higher threshold.
Prior to passing the new amendments, Sobhi opposed the draft bill of the law, saying the proposed threshold was very low and did not exempt low-middle income citizens from paying the new tax. The proposed legislation, he pointed out, turned a blind eye to upsurges in prices of dwellings and posed an extra burden on regular citizens.
“The new legislation is quite reasonable....because the taxation is based on a property’s rental value,” explained Abdel Fattah El Gibaly, senior economist at Al-Ahram Center for Strategic Studies. “Units with rental value above LE 6,000 per annum - equivalent to LE 500 per month [US$94] - are subject to a 10% tax that will be further reduced after deducting the 30% maintenance costs.”
The People’s Assembly also capped on Tuesday the maximum adjustment ratio for a property’s value at 30% for residential units and 45% for non-residential units that will be calculated every five years.
Under the new legislation, property on the North Coast and on newly established suburbs will be subject to paying the property tax, which promotes social solidarity and supports poorer segments of the society, according to Ghali.
“Under the current property tax law, there were several setbacks such as inefficient tax collection, tax evasion, and tax exemptions on properties on the North Coast,” El Gibaly pointed out.
“But now the new law is more impartial and will take from the rich to give the poor.”
Beltone Financial expects implementation of the law to be faster in new urban communities and tourist areas compared to other urban and rural areas, where real estate is not all registered and would require a longer inventory process.
“We believe the implementation of this law would have a positive impact on government revenues as part of the revenue-related reforms being implemented by the government to reduce the budget deficit,” commented the Cairo-based investment bank.
The reformed law will also tax closed or unused property above the stated threshold.
Justifying the decision, Ghali said that way owners of closed apartments will have to offer them for rent which would help solve housing problems and increase supply.
That way, Beltone Financial said, the new law will eventually restructure the housing market, in terms of increasing supply of housing units and creating benchmarks for real estate market value in different areas.
According to Beltone Financial, the government under the new law could generate up to LE 4 billion (US$750 million) per year versus the currently generated LE 500 million to LE 700 million.
Shantytowns will be completely exempt from real estate taxes under the reformed law, as these areas suffer from problems regarding electricity and water supply. Property owned by government, foreign organizations, religious and charity organisations will also be exempt from the property tax.
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