Don't be surprised if someone soon comes knocking on your door double-checking the name of the owner or asking details about your unit. That person could be a representative from the Real Estate Tax Authority (RTA) making an inventory of existing units used for housing or non-housing purposes in preparation for the implementation of the new real estate tax law (196/2008) that was recently ratified by president Abdel-Fattah al-Sisi after certain amendments were introduced. The tax goes all the way back to 2008 when it was first issued but not implemented for a variety of reasons including strong opposition and demands that the threshold and criteria for exemption from paying the tax were modified. Since then several amendments have been made to the law, but the political changes over the past four years and the reluctance of consecutive governments to impose additional burdens have kept these amendments from being ratified. Last week president al-Sisi ratified the law making it effective retroactively starting in July 2013. The approved amendments include the exemption of homes worth less than LE2 million from the tax, the exemption having previously been set at LE500,000 in the 2008 law. The move to raise the ceiling for exemptions was made to reassure lower-income and middle-income people that they would not be affected. Samia Hussein, head of the Real Estate Tax Authority, stated on television this week that homes valued at below LE2 million, or of an annual rentable value of LE24,000, would not be taxed. For those paying the tax, it can be paid in two instalments in January and July each year with owners being notified by mail of their liabilities. The amount payable is calculated through a complicated formula that takes into account maintenance spending and the capital value of the unit. It could also be calculated as 10 per cent of a unit's rental value. Some believe that the valuation of units will be a cause of controversy, but Hussein said that a committee of three representing the RTA, the governorate and a representative of tax-payers would carry out valuations and would need to reach unanimous agreement, ensuring the integrity of the process. If an owner is not satisfied with the valuation, an appeal can be submitted that will be examined by a committee headed by an independent expert. The recently approved amendments to the law also stipulate that upon the revaluation of a unit, which takes place every five years, the value should not increase by more than 30 per cent for homes and 45 per cent for units used for other purposes, higher values meaning higher tax bills. The tax is one of the ways the government is trying to increase its revenues and deal with the country's budget deficit, targeted at 10 per cent of GDP for 2014/15 compared to 14 per cent in the 2013/2014 fiscal year. Revenues in 2014/15 are expected to increase to LE548.6 billion, while spending is estimated at LE789.4 billion. Harshjit Oza, a property and banking analyst with Naeem Holding, agreed that the tax would be a source of revenue for the government and could help reduce the deficit. However, he said that it was too early to forecast an exact figure for how much revenue the tax would bring in. Estimates vary. Hussein of the RTA said she hoped revenues would exceed LE3.5 billion, and in 2008 Youssef Boutros Ghali, the then minister of finance, estimated that the tax would bring in LE1 billion in the first year and approximately LE5 to 6 billion in subsequent years. The government has said that 50 per cent of the revenues from the tax will be directed towards spending on health, education and social insurance, while the remaining 50 per cent will be split between the municipalities and developing informal areas. Oza also praised the law for being “one step closer towards regulating the real estate market because this sector is highly unregulated in Egypt.” At present, there is no accurate inventory of real estate units in Egypt, and according to Hussein only five per cent of units are registered. Hussein said that in 2008 there were 18 million units in Egypt, a number referring to units subject to the old 1954 law which only taxed units within city limits. This means that the luxurious housing developments outside city boundaries that have multiplied in recent years have not been subject to the old law. The new law taxes all units across the country, even floating homes. Oza said that while the law would have an impact on the real estate sector and would not be welcome at the outset, it was nevertheless a positive move for the real estate industry. “It will not impact the overall investment scenario in the property sector given the strong demand outpacing supply,” he said, adding that “real estate demand will continue to grow and will attract more investment as factors like urbanisation, population growth, and marriages continue to drive demand.”
He pointed out that many investors consider investment in real estate as providing protection against inflation and possible currency devaluation. Oza was confident that “the property tax will not affect the lower-income housing segment, and even if it does the amount of the tax is likely to be minimal.” Those likely to be subject to the new tax were those owning multiple properties who could afford to pay, he said. Ashraf Hanna, an accounting and tax expert, said that those most worried by the law were the well-off since it hardly affected low-income groups. “The law will reveal actual wealth, which is why the well-off are worried,” he said. Hanna said that there were concerns that the home-exemption clause might open the door to loopholes, but Hussein has said that this would not be the case. She stressed that homes in the names of underage children would not be exempt and homes in the names of wives would not be exempt either unless they were inhabited by the wife concerned. Hussein also said that the LE2 million exemption was not on the total value of what a person owned, but on the value of that person's home alone. If a person owned two units, each valued at less than LE2 million, only one would be exempt and the other would be subject to the tax, she said. For Hanna, the tax should have been introduced years ago, adding that in Germany, for example, the equivalent tax was much higher. He hoped that the money raised by the tax would be used to upgrade neighbourhoods and made available to municipalities, as was the case in Germany. “If people feel that what they are paying is making a difference, they will pay willingly,” he said. The law encompasses all real estate units, not just those used for residential purposes. Tourist facilities, airports, ports, petroleum facilities and others will all be subject to the tax. The criteria for taxing various activities will be set in an agreement between the ministry of finance and other ministries. The law exempts government and military property, as well as properties owned by foreign governments on condition of reciprocity. Hospitals, educational institutions and non-profit charities as well as religious buildings such as mosques and churches are also exempt.
