CAIRO - Last week Egyptian homeowners and real estate experts were shocked when the Government announced the activation of a controversial property tax bill. The bill, which was introduced in June 2008, is forecast to pump annually around LE5 billion ($840 million) into the State's coffers, experts say. All properties, including mansions, factories, shopping malls and flats will be taxed at a 10-per-cent rate, according to Law 196/2008, known as the Property Tax Law. The exemption level was raised from LE600,000 to LE1 million per unit, or LE2 million for people who own more than one unit, Minister of Finance Samir Radwan said last week. "Evaluation committees are preparing a national database for the country's real estate wealth. The Property Tax Authority will form a committee representing the Ministry of Industry, the Ministry of Tourism and property tax experts, to lay out the accounting rules of the tax for business use," said Tareq Farrag, the head of the Property Tax Authority. Three years ago, Law 196/2008, devised by ex-Minister of Finance Youssef Boutros-Ghali, who fled the country after the January 25 revolution, was seen by the man in the street as a scheme to clean his already empty pockets! While economists argue that the property tax will raise public receipts and narrow the gap in the State budget deficit, which is forecast to reach 10.7 per cent of the gross domestic product (GDP), others believe the timing is "inappropriate". "Activating the property tax law is inappropriate, due to the slump hitting the real estate sector after the January 25 revolution. The decree should have been postponed by at least two years," Adel Saleh, a Cairo-based real estate broker, told the Egyptian Mail in an interview. "When the law got frozen, real estate experts were optimistic. Many thought it was a step in the right direction to refresh the market. But everybody was disappointed by the Government's announcement," Saleh said. Earlier this month, Prime Minister Essam Sharaf said the Government had frozen the property tax. But in less than a fortnight, Radwan made the shocking announcement! Production rates have taken a blow after the 18-day popular revolt and the country's sovereign tax revenues are expected to fall by at least 50 per cent, analysts say. Taxes account for 65 per cent of Egypt's public finances, according to official data. Proponents of the move say that many countries all over the world tax properties and inject the levy into municipal funds to improve services. Many countries like the United Kingdom, India, Canada, the Netherlands and the United States levy property taxes at different rates. "Yes, the tax may be applied in other countries. But the conditions here are tough. The real estate sector needs a boost and not a blow that undermines its recovery," Saleh said, admitting that the tax may balance the real estate market and reduce the possibility of a "price bubble" in the future. The Government has endorsed the biggest State budget in the country's history, forecast to total LE559 billion with revenues expected to hit LE350 billion and expenses estimated at LE514 billion, according to the Ministry of Finance. Tax revenues are expected to total LE232 billion in the fiscal year 2011/2012, according to the Ministry of Finance. Egypt's fiscal year begins on July 1. "Raising the exemption level to LE1 million is of course good for homeowners. But the Government should have chosen a better timing," he added. As construction adds hundreds of thousands of units every year in the most populous Arab country of 85 million, the property tax will be more like a goose that lays golden eggs. Properties are on the increase in view of population growth and demographic expansion.
