James Debono
A €4.2 million drop in tax revenue from Gozo has been attributed to a decrease in property sales, the finance ministry has confirmed.
The drop in sales led to a corresponding decrease in capital gains revenue, leading to a total 26% drop in collected income taxes in Gozo, from €16.2 million in 2007 to €12 million in 2008.
In fact income from capital gains taxes alone – which is paid on profits from property sales – in Gozo decreased from an all time high of €8.1 million in 2007, to €5.2 million in 2008.
Between January and March 2009, capital gains taxes from Gozo contributed a mere €1.3 million to the government coffers, an indication that the number of property transfers remains low on the sister island.
But this apparent slump does not come as a surprise to Malta’s leading estate agents. “Property sales have reached rock bottom, while a gradual decrease in market prices has been the trend since 2007,” property magnate Sarah Grech told MaltaToday. “Gozo is no exception, as the decrease in sales has been registered across the board, while the same applies to property prices.”
Grech however insisted that prices are “not inflated at all” by the real estate agents. “We really do not have a strong role in it,” she said, explaining that property owners have inflated the asking prices to then eventually maximise from the negotiating price.
Another contributor to the high price phenomenon would come from the valuer, who would be calculating on the imaginary market price.
Grech said the property market should be reformed by government reducing the 5% stamp duty, and to see to the burden the 1% promise of sale obligation is putting on new couples buying their first property.
Similarly, Frank Salt concurs that the market has seen a slow but visible reduction towards a “sensible level” in property prices.
“Although we have registered an increase in sales over last year, there has been a decrease in price volume,” Salt said. “The demand is purely local, from first and second buyers. There seems to be a stall in sales for the upmarket properties, while demand from foreign buyers is almost at a standstill. Gozo is a perfect example. Property is being sold to locals and not to foreigners.”
Frank Salt is also of the opinion that, at 12%, Malta’s capital gains tax is on the high side.
On his part, Chris Grech of Dhalia argues that perceptions of a slump are exaggerated.
“Property is still selling. People are still investing. Remember that the rental market is now becoming very healthy. Our culture is one of property ownership. Demand has not decreased. Definitely, the foreign market has been hit – but foreigners are still buying – we just have to make more of an effort now.”
With regard to Gozo, Grech admits the property market is more complicated than Malta. There have been segments in the market that have been hit harder than others. Quality areas have remained stable – and asking prices have not even gone down there. But people who buy property in Gozo normally do so because they want a second home – making this area more challenging for us.
Like Frank Salt, Grech also has reservations on the capital gains tax.
“I want to make a very strong appeal to the ministry of finance to remove the 12% capital gains tax on property. People now want to sell and because they’re becoming more flexible on prices, they’re not making anywhere near what is reflected in the capital gains tax. This 12% tax was introduced on the premise that property prices keep going up. Government should open its eyes and get in touch with reality and charge tax in relation to the market.
Statistics show that in the past decade, government revenue from income and wealth taxes from Gozo quadrupled between 1999 and 2008. The largest increase was registered between 2003 and 2004 when income shot up by €4 million. The finance ministry said this massive increase was, again, due to an increase amount of property sales.
In 2007, Gozo’s €8.1 million in capital gains taxes constituted half all wealth tax generated there – representing 11.5% of Malta’s total capital gains tax revenues (€70.5m).
And yet Gozo, with just 8% of the islands’ population, only contributes 2.2% of total income tax in Malta and 2.1% of total social security contributions. The finance ministry spokesperson was not in a position to reply whether the tax revenue collected from Gozo represents the level of economic activity – legitimate or not – on the sister island. “We have never conducted a study on the tax gap between Malta and Gozo and therefore we cannot comment on this matter,” the spokesperson said.
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