Matthew Vella Government has earned almost €210 million in four years under the 12% property tax since it was introduced back in 2005.
Statistics presented in parliament show how under the new system, the government effectively earned four times as much as what it earned under the ‘old’ capital gains tax.
The 12% system is applicable on transfers of property acquired over five years from the date of sale. The figures show that on just over 20,000 property transfers taxed at 12% on the value of the property, the government reaped €209.9 million in revenue.
During the same period, since 2005 there were over 27,000 transfers of property that qualified under the ‘old’ capital gains tax, which is available only for transfers of properties acquired within five years from the sale. The government earned €66.4 million from this system.
Under this system, the profit made on the sale – after deducting notary’s fees, brokerage, and expenses related to it – becomes part of the seller’s taxable income for the year, usually taxed at 35%. A 7% provisional tax on the value of the property that would have been paid on deed is later refunded.
All in all, the 12% withholding tax enabled government to quadruple its taxation revenue from property sales. The system has now been extended for properties acquired over seven years from the sale, enabling such sellers to choose between the two systems.
But while capital gains tax was supposed to suppress speculation, the market responded by piling on the tax on house prices. Ultimately, sellers tend to hang on to a property until the price they expect for it is obtainable after payment of capital gains.
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