Expenses do count

I do apologise for writing again on the subject of the new property capital withholding tax, but when I know that something is wrong, I cannot just stand by and let it pass without fair and accurate comment.

Contrary to what the Parliamentary Secretary Tonio Fenech said (November 5), there are people who have to sell because of unforeseen circumstances, and not only because of death or separation. People make mistakes and people sometimes need or want to change their minds.

In the future, if this law passes, changing your mind will be a very expensive process. This new law will also make people very apprehensive to commit to purchasing property, knowing just how expensive it would be, if they did have to sell quickly.

It will also be very interesting to see how banks go about lending money for property purchase, in case the purchaser wishes to resell before making substantial profits. I also wonder how contractors who are paying high prices for land, will come out of this new tax when they sell their properties in the future.

Our company recently sold an apartment belonging to a foreigner, in one of the superior developments, for Lm300,000. The sale was made at cost price to the vendor. I am sure that he would be very pleased to receive a capital withholding bill of Lm36,000, before he could repatriate his money. This is most unfair and this situation could occur with Maltese as well as foreigners. The property market is not as Mr Fenech thinks, full of people who wish to cheat on taxes. There are many ordinary people in the market who just want a fair deal. The new Bill is excellent for those who have made substantial profits over a long period of time. This is good. It is also very beneficial for those who have inherited property, but not enough thought has been given on how to protect the average property purchaser, who was or is, purchasing property now, or in the recent past.

I do not know where the Parliamentary Secretary got his property example from, but when looking at them, it seems that everybody is making incredible profits. From my experience, this is not so. Going by his examples:

Property bought in July for Lm155, 000 and sold in January 2004 (six months) for Lm235,000, a profit of Lm80,000, is not normal.

Property bought in October 2003 for Lm80,000 and sold in February 2004 (four months) for Lm134,000, a profit of Lm54,000, is not normal.

Property bought in February 2004 for Lm170,000 and sold in May 2005 (15 months) for Lm250,000, a profit of Lm70,000, is not normal.

Property bought in May 2004 for Lm40, 000 and sold in February 2005 (11 months) for Lm55,000, a profit of Lm15,000, could be possible.

Property bought in June 2004 for Lm60,000 and sold in May 2005 (11 months) for Lm125,000, a profit of Lm65,000, is not normal.

These examples are exceptions and cannot be used as fair examples. And where are the expenses? Or do these not exist? The bank interest, stamp duty, legal and registration fees, selling fees and property improvements, are made by practically every purchaser.

I will now provide some much more realistic examples that will show readers the true picture. We will use the base price of a property at Lm100,000.

These figures reflect much more the real situation in the Maltese property market, and as can be seen, the capital withholding taxes are totally unrealistic, unacceptable and most unfair. Mr Fenech compared the 15 per cent withholding tax on savings, with this new property capital transfer tax of 12 per cent. This is not entirely correct, because with the 15 per cent withholding tax, the individual has the right to choose which system is beneficial to him. The 12 per cent property capital transfer tax is a final tax to everyone, regardless of whether it is in the interest of the property seller or not.

As always, there is a solution to any problem.

Give the person selling the property the right to choose whether he wants to pay a final withholding tax of 12 per cent or whether he wants to utilise the old system of a seven per cent provisional capital gains tax, with the right to claim expenses. It will only be the genuine person who feels that he is paying a tax that is greater than 35 per cent and can prove it with the necessary documentation, who will opt for the old system. But I feel that it is only fair that he should have that right to do so.