Maltese Government Reconsidering Aspects Of New Property Tax

by Robert Lee, Tax-News.com, London

15 November 2005

Maltese Parliamentary Secretary Tonio Fenech indicated last week that the government is considering some minor amendments to the new system of property taxation which has received widespread criticism from the island's property developers and estate agents.

In his budget speech earlier in the month, Prime Minister and Minister of Finance Dr Lawrence Gonzi announced that the 35% capital gains tax on profits from the sale of property is being replaced by a 12% withholding tax on the entire proceeds from a property sale. The new tax does not affect those selling their primary residence, who were exempt from capital gains tax.

The government's rationale for switching to a withholding tax was to reduce under-declarations of selling prices and to boost the housing supply by encouraging those who have held on to property for long periods to sell. However, the move has been condemned by many in the property industry, who fear that sellers will recoup the tax by inflating final sale prices, and encourage owners to hang on to property for longer periods to allow their value to appreciate.

The new tax was also attacked by the Opposition leader Dr Charles Mangion, who observed that it would inflate property prices to "levels that were unsustainable".

In the light of this criticism, Mr Fenech told a business breakfast last week that: “We will be introducing minor amendments to the measure announced in the budget to address genuine concerns."

According to a report in the Malta Independent, the Chamber for Small and Medium Enterprises (GRTU), which recently held talks with the Parliamentary Secretary, was said to be satisfied that a solution will be found that will safeguard the interests of all parties regarding the tax.

The GRTU has proposed that those who buy, develop and sell property within a stipulated period be given the option of using a 7% provisional tax and 35% tax on capital gains according to the developer’s expenses.

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