By Loucas Charalambous
THE PROPOSAL to scrap the Immovable Property Tax (IPT) may have been made by DISY boss Averof Neophytou as part of the row on the subject in the legislature, but when one looks at the substance of the issue, the proposal makes perfect sense. The IPT should be scrapped because it is an unjustified and unfair tax.
It violates the purpose of taxation. Taxation is the means by which the state takes resources from citizens that are needed for its upkeep. The basic principle of taxation is that it is applied on incomes. This is dictated by the idea of justice in the distribution of public burdens. What should be taxed is the income of a citizen and not their property.
The property someone owns has been acquired with part of their incomes or those of their parents or their ancestors. These incomes were taxed when they were earned. With the imposition of IPT on the value of property, in practice, we have double taxation. The fair thing would have been to tax the return from the property – for example rent or the profit of the business that is housed in it.
It should be noted that in Cyprus, in particular, rents are already taxed twice – once through income tax and once through the defence levy. In other words, an immovable property is taxed three times which is inconceivable.
The taxation of immovable property in the way it is implemented today leads to a series of absurd situations. Take for instance a firm that is housed in a shop or office, which was bought so the firm could carry out its business. The state taxes the profit made by the firm, which has the property as one of its assets but then comes and taxes the company again on the value of its property. And if the property was bought with a loan and is mortgaged to the bank the owner pays tax on the value of the property owed to the bank; in other words he pays tax on his loan.
A property, from the smallest shop to the biggest hotel is a tool that a business uses to earn income that will be taxed by the state. It is irrational to tax both the profit it produced and its cost.
An even more absurd example relates to companies that deal with properties. A company that buys and sells properties is obliged to pay huge amounts in tax for land or buildings it buys to develop and sell. In effect this absurd tax discourages investment in property and entrepreneurship.
It would be no exaggeration if we said that IPT was, in essence, a gradual theft of citizens’ property by the state. If, for example, a property is taxed at a rate corresponding to 3 per cent of its cost (not its current value) this would mean that in 33 years the state would have eaten up the property (it would also have forced the owner to pay for it twice).
It is totally irrational. By the same thinking deposits in a bank as well as other assets such as cars, jewellery, furniture etc should also have been taxed. If two people have the same value of assets, but for one it is a house and for the other a bank deposit of €400,000, by what logic is the house taxed, but not the deposit? Is the bank deposit not also an asset?
But our politicians, who today consider it fair and reasonable to tax people’s houses every year, are the same hypocrites that in 2013 rejected the one-off levy on all bank deposits that would have saved the economy, leading us to the disaster of the second Eurogroup decision. It is futile to expect rational thinking from these politicians.