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Our View: IPT bill was based on poor foundations

DEPUTIES did not approve of the new values for properties calculated by the government as part of its bailout commitments and have decided to keep 1980 valuations in place. So the annual immovable property tax (IPT) will once again be based on 1980 prices instead of current ones. The relevant bill, prepared by Disy, Diko and Evroko was approved by the House yesterday, Edek and Akel also backing it.

The main argument used by the parties against a tax based on current prices was that the main tax burden would fall on owners of medium-value properties. This, they claimed, was unfair which was why they decided to keep the 1980 benchmark. This argument is a bit difficult to comprehend, given that the tax-rate charged on current prices would have been lower. The government could not possibly have charged the same rates on current property values that would have been three or four times higher than those taxed last year.

In a rational world, the rate would have come down accordingly, with the government aiming to raise a similar amount to last year’s. If everything was calculated proportionally, how would any group of owners shoulder a bigger tax burden than last year? This would have been the case only if the government wanted to increase, substantially, its revenue from the IPT. In theory it did not, as the primary objective was to re-evaluate and update property prices.

Of course, the very idea that the government bureaucrats could sit down and work out a formula for calculating the current values of all properties in Cyprus for tax purposes is ludicrous. Is it the state that determines property prices or the market? And at a time when the real estate market is plagued by uncertainty, prices are sliding and foreclosures are looming can there be an accurate valuation of properties? The new valuations cannot be but arbitrary.

Then again, the authorities’ valuations of properties have always been arbitrary. Sellers have often paid tax based not on the price they were paid for a property, but on the arbitrary valuation made by Land Surveys Department officials. Nobody ever bothered to update the 1980 prices because they were an irrelevance. But now that the government is taxing property ownership, the prices have become of critical importance.

In a way, the political parties did the right thing to keep 1980 prices for the purpose of calculating the IPT. It would ensure nobody would have to pay more than they paid last year, which must be a good thing. Nobody could have trusted the government not to use the new prices as an excuse to squeeze even more money out of people.

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