Property sales tax controversy

The implications of the final withholding tax on property is now sinking in, a few days after it was announced in the budget, as people realise it is not a reduction in capital gains tax but a tax based on the full selling price.

The 35 per cent capital gains tax is now being replaced with a final withholding tax of 12 per cent. (Those who were exempt from capital gains, such as those who live in the property being sold, will not be liable to the tax.)

The new tax will benefit those who make a large profit on the sale of property but will be a slap in the face for those who only make a meagre gain, operators in the industry said.

In a nutshell, the new tax will be more advantageous if you are making more than 52 per cent on the original price but will hit hard if your profit is under a third of the final price. For example, someone who sells a Lm50,000 maisonette for Lm55,000 would be hit with a Lm6,600 bill, compared to Lm1,750 in capital gains tax.

However, someone who sells a Lm150,000 property for Lm250,000 will now be paying Lm30,000 instead of Lm35,000.

Parliamentary Secretary Tonio Fenech said data showed that most people made more than a third of the value of the property as profit.

"We believe there are a number of people who were hoarding property because the value would have gone up considerably over the years. They would have been reluctant to sell because they would have had to pay so much under the capital gains regime," he said. He hopes that encouraging these people to sell would boost supply and stabilise the property market. However, he admitted that those with lower profits would be negatively affected.