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Egypt may stall property tax law

CAIRO: President Mubarak said Sunday that the property tax law is not finalized yet, and that he is "thinking of ways to render the implementation gradual."

Finance Minister Youssef Boutros Ghali, clarified, stating that the law would not undergo amendments, and that the current considerations pertain merely to its rate of implementation.

"There is no intention to change the current law," he said.

Reham ElDesoki, senior economist at Beltone Financial, considered that the president's comments may have resulted from extensive media coverage and protestations from members of parliament regarding the law.

She explained that some critics demand that each taxpayer be permitted to exempt their place of residence from the tax. Businesses, on the other hand, have declared that Egypt's economic condition is still too volatile, following the global economic crisis, and that the tax should not be levied until greater economic stability has returned.

"They [businesses] claim it will negatively affect them," ElDesoki explained.

Vacillations on the implementation and scope of the property tax have left property owners confused. The president's announcement will likely "increase the confusion currently prevalent in the market," ElDesoki predicted in an emailed statement from Beltone.

ElDesoki expects that the new law, "will not add significant financial burdens to property owners in Egypt."

"Although the law will generate revenues, it's not a big payment compared to the property's market value. It's very small, actually," she said.

"Enforcing the property tax law is not a big deal," she added, "I think that the media have over-emphasized it."

The annual tax on property that is worth LE 500,000 will be LE 30, while the annual tax on property that is valued at LE 1 million will be LE 660.

Beltone has released its opinion that "the tax is a good step by the government to increase its revenues... Under the new Law 196 of 2008, the tax rate was cute from 40 percent to 10 percent and the tax base expanded to include all property in Egypt" other than agricultural land and specific types of property.

As pointed out by Tarek Farrag, chairman of the Real Estate Tax Authority, 95 percent of the Egyptian population is exempt from the tax. However, of those taxed, Beltone predicts revenues could increase to LE 3 billion or LE 4 billion, as compared to the current annual average of LE 680 million.

Beltone believes that the tax could have additional positive benefits, causing property owners to "make economic use of their unused assets," thus raising property stock in economic activity as well as the number of residential units available, a welcome development in a country hobbled by an acute housing shortage.

Many believe the new law has received undue attention due to its impact upon Egypt's upper class. Some analysts expressed confusion at the president's decision to raise the specter of the controversial property tax law.

Abdel Fatah El-Gabaly, head of the Al-Ahram Center for Strategic and Political Studies' economics unit, laughed, "I don't know why he [Mubarak] mentioned it."

Asked about the possibility that upcoming parliamentary elections in 2010 and the presidential election in 2011 could be a source of pressure regarding the law, El-Gabaly dissented.

"I doubt [the impact of the elections] because the majority don't pay this tax. This is a burden only for the rich people, which means that it won't affect the results of the parliamentary election. This contrasts to the land property tax, that was postponed or deleted, two years ago," he added.

El-Gabaly expressed mild disgust that the property tax law is now receiving attention, a year and a half after its legislative implementation.

"In my opinion it is because this law has a negative effect on rich people, and they have a voice in the media and power to affect the media, that makes the big debate about this law. The law was approved a year and a half ago, in mid July 2008. When this law was discussed in parliament, there was no debate about it, but in the implementation there is a big debate."

"It is useless to have the debate now," he criticized, "you should participate in the discussion in parliament. [The law] took a lot of time in parliament, from the end of 2007 to the middle of 2008. They had seven months to make a debate... If this is a democratic society."

El-Gabaly did acknowledge that the law will take time to implement, "This is a very difficult law to carry out. It takes time to evaluate properties, [individuals and corporations had to submit their assets by December 31, 2009 to be evaluated]. You need to set up a big institution to carry it out... The expected revenues were not included in this fiscal year... [Revenues] increase to 5 or 600, this fiscal year, because the new law includes properties in New Cairo that were formerly exempt."

By Annelle Sheline

© Daily News Egypt 2010