Tackling tax avoidance

There has been a worldwide effort to reduce the level of tax avoidance. We believe this effort can to an extent be aided by giving  taxpayers some sort of an incentive.

As things stand an expense is tax deductible only if the expense forms part of the procedure to produce income. So, if one lets a house, the expenses incurred for repairs, maintenance etc and so one are deducted from his income earned (rent) but if it is owner occupied there is no benefit, hence many opt to pay under the table, avoiding the VAT charge and paying less.

Keeping records of your receipts regarding real estate is very important, especially if you plan to sell your property in the future. These expenses are tax deductible and you stand to gain a 20 per cent tax benefit. Bear in mind that for any expenses that require a building permit, such as building a garage, you must provide the permits when you submit a claim to the tax authorities.

Receipts must have the recipient’s ID number and address and details of the work done. If payments are made to a contractor, make sure that they are licensed for the type of job done. If this is not the case, the tax authorities may not accept your payment as an allowable deductible expense.

There is a major issue regarding holiday home lets which are concluded locally and from abroad (through websites). It is practically impossible to detect the payee and the recipient. The Airbnb system is a major headache and although the very recent legislation on the subject has helped, according to the chairman of the hotel association approximately 17 per cent of tourists (local and foreign) are not declaring their lets. On the one hand if these lets are declared, recipients will bear the income tax payment, but on the other hand any repairs, improvements and replacing of furniture and equipment will be tax deductible.

Of course, the big tax evaders are primarily doctors, especially those who operate in Cyprus on a visiting visa from abroad (with surgeries usually held in hotel suites), followed by advocates and our own profession, estate agents.

In order for expenses to be encouraged to be declared, the payee must have some sort of benefit, deducting be it a percentage of the payment from one’s income (say 20 per cent of the payment), but then the tax authorities will benefit from the VAT and of course the undeclared income from the recipients.

The tax authorities are not very effective which gives taxpayers the impression that they can get away with not declaring. But then we have odd situations, such as the one which surfaced 10 years ago involving a kebab house in Nicosia centre, who operates almost 12 hours a day, but declares next to no income. The then-minister of economy Sarris, who was a client of this establishment, sent his staff to investigate and came up with the most imaginative way of gaging sales: by counting the number of the kebab wrapping papers bought by them. They estimated 1.000 sales per day! In another case, the beer supplier of a restaurant was called in and based on the volume of beer they provided, they came up with the restaurant’s income.

Antonis Loizou & Associates EPE – Real Estate Valuers, Estate Agents & Property Consultants, www.aloizou.com.cy, [email protected]