Urgent need for property tax reform

Contributing sentiments towards policy:

64% : Whereas the corporate tax rate is to be increased from 12.5 to 15.0 per cent, the much-criticised deemed dividend distribution system for tax purposes is abolished, and the tax on actual dividend payments is to be reduced from 17 to 5 per cent.
56% : Accordingly, there is the issue of whether these tax incentives are too generous and are even being largely abused in promoting the excessive allocation of resources to the up-market property sector.
55% : Thirdly, the low level of taxes on the property sector - compared with many other countries - is stimulating a strong foreign demand for Cyprus real estate, particularly for "luxury" apartments, that in turn is pricing and crowding out many domestic residents, particularly younger persons, from the housing market.
54% : Reviewing tax incentives But, the housing crisis problem in Cyprus is far from being entirely due to the purchases by foreigners.
52% : This compares with progressive tax rates ranging from 2.6 to 6.4 per cent for Denmark levied annually on property values, 1.5 to 2.3 per cent for Germany, 0.4 to 0.7 per cent for Italy, 0.3 to 0.8 per cent for Portugal, 0.3 to 0.4 per cent for Spain, and 0 to 2.0 per cent for Greece with properties over €500,000 subject to higher rates.
52% : There needs to be a serious and critical review of such incentives by the Cyprus authorities, so as to roll back and adjust tax incentives deemed inappropriate in order to get at least contractors and property developers to allocate their resources better in constructing essential infrastructure and in building social housing.
47% : And property taxes are the obvious candidate for broadening the tax base since they are at a very low level in Cyprus as well as being according to fiscal experts and the IMF the least "growth-unfriendly" of taxes.
46% : Notably, the proposed tax reform focuses on giving additional tax breaks to existing companies, including big property developers, that appear to be more geared to propping up their financial viability rather than advancing the economy's competitiveness.
45% : Notably, Cyprus receives less than 2 per cent of its tax revenue from property taxes compared with the average for EU countries of around 4.7 per cent.
45% : Indeed, property developers can take advantage of appealing tax incentives offered by Cyprus, including of a Notional Interest Deduction (NID) scheme that allows a deduction of up to 80 per cent on taxable profits from new equity financing, that in turn enables the effective corporate tax rate to be reduced to as low as 2.5 per cent.
43% : And the main component of property tax revenue in many EU countries is receipts from the annual tax on the value of immovable properties.
43% : Accordingly, Cyprus should raise taxes and fees on the purchase of properties by foreigners.
42% : Both Spain and Portugal, which are experiencing housing crises, have announced their intention to raise taxes on the foreign purchases of properties in their countries.
42% : Thus, it can be concluded that in order to deal with key problems afflicting the Cyprus economy and society including the ongoing housing crisis, mounting wealth and intergenerational inequalities, deficient energy infrastructure, and the economy's lack of competitiveness, the Cyprus authorities should give serious consideration to adjusting the tax rates and incentives impacting on the property sector.

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