Nothing has proved more controversial than Law 196/2008, or the Property Tax Law, since last summer. It has outlived all other hot topics that have made the headlines in the past six months. It has even outshone the infamous Egypt-Algeria encounters in the FIFA World Cup qualifiers last November. The new law has created much debate at all levels – among economists and tax experts, as well as the man in the street. Rumours have been emerging in everyday conversations due to a lack of information and misunderstandings. Many Egyptians think the new property law to be ‘one of the Minister of Finance's ploys to pump money into the State treasury by cleaning out their already empty pockets'. Tax experts argue that the property tax has been in the North African country since the 1950s. Meanwhile, the Real Estate Tax Authority will start collecting the property tax as of 2011. The first phase will involve the valuation of all properties nationwide, whether for residential or commercial use. All owners of housing or commercial units are required to fill in property tax applications at the real estate tax departments nationwide. Defaulters will incur fines ranging from LE200 to LE2,000. Despite pledges by Egypt's Minister of Finance Youssef Boutros Ghali that only about 2 per cent of the country's residential units will be taxable, as their market value is over the LE500,000 exemption set by the law, people's doubts haven't taken a break. "The property tax isn't new in Egypt. It came into effect over half a century ago with Law 56/1954. It ranged between 10 to 40 per cent of the unit's rental value, according to a category system," Nawal Kelany, an official in 6 October Real Estate Tax Department, told the Egyptian Mail in an interview. "The new tax is 10 per cent of the unit's rental value accrued every January. It could be paid in two instalments: by the end of July and the end of December," she said, pointing out that "only homeowners, and not tenants" are required to submit property statements by the end of March. Places of worship, farmland and governmental buildings are not taxable or even required to submit statements. Hospitals, educational facilities, orphanages, societies registered with the Social Security Ministry and buildings of political parties and syndicates are all exempted. Meanwhile, cinemas, theatres and hotels are taxable. What about foreigners who own properties in Egypt? Are they obliged to submit statements as well? "Foreign homeowners should also submit statements. The Ministry of Finance has prepared applications in English. These applications may be filled in by proxy," Nawal stressed. Would the law apply to foreign embassies and other world governmental buildings? "No, but on the condition that Egyptian embassies in these countries are treated equally. If Egyptian embassies pay property tax in these countries, their embassies here would be required to submit statements too," she explained. Buildings under construction aren't taxable according to the law. But there's a legal conception of unfinished units to counter any possible attempts to ‘dodge the tax'. "Units which are under construction aren't required to submit statements as long as they aren't used for residential purposes," Nawal added. "If the unit is unfinished, but used for residence, the owner must submit a statement. This is a precaution against tax evasion. From a legal point of view, if the unit has windows and doors, it means it could be used for residence or commercial benefit," she explained. What if someone has bought a flat by signing a contract, but he hasn't yet received his property? What's the legal position in case of a primary contract? "If there's an official contract of ownership, but the unit hasn't been handed to the owner, there would be no statement to submit in this case," she said. "If a buyer of a home has only a primary contract not officially registered with the notary, they must submit a statement once they have taken hold of the unit," the official stressed. As for calculating the tax on each property, the market value is set first by a five-member committee from the Tax Department, according to Mahmoud Suweilem, a Cairo-based tax consultant. This assessment process will take place every five years. "If a unit is valued at LE1 million, the capital value would be LE600,000 [60 per cent of the market value] and the rental value LE18,000 [3 per cent of the capital value] per annum," Suweilem explained. "According to the law, 30 per cent will be deducted for administrative, repair and other expenses. The owner is granted LE6,000 exemption to be subtracted from the remainder [LE12,600], which means that the tax base will be LE6,600. "The property tax rate is 10 per cent of the tax base. The unit's owner would be required to pay LE660 in property tax annually," he added.
