Delays in real estate tax estimation leads to budget deficit increase: Farag

Shaimaa Al-Aees
5 Min Read
The delay in estimating the real estate tax value of special enterprises would increase the budget deficit, according to the Minister of Finance’s real estate tax advisor Tarek Farag. (AFP File Photo)
The delay in estimating the real estate tax value of special enterprises would increase the budget deficit, according to the Minister of Finance’s real estate tax advisor Tarek Farag.
(AFP File Photo)

The delay in estimating the real estate tax value of special enterprises would increase the budget deficit, according to the Minister of Finance’s real estate tax advisor Tarek Farag.

Speaking to Daily News Egypt, Farag added that the budget deficit for the fiscal year (FY) 2014/2015 is worth approximately EGP 240bn. Farag’s comments came on the sidelines of a seminar on “Problems of real estate tax application and its impact on the investment”, which took place on Wednesday.

Farag attributed the delay in the real estate taxes payment on special enterprises, including hotels, schools, hospitals, airports and ports, to the evaluation of the rental value of those units and the delay in forming appeal committees.

He added that, contrary to some rumours, there will be no fines imposed on taxpayers whose cases have yet to be decided, even after delays.

Farag admitted there are no experts in Egypt who can evaluate these special enterprises included in the new real estate law. There is also a lack of accurate databases calculating the number of targeted residential units from the tax, especially as there are a large number of slums.

“The most prominent problems of Law 196/2008 is valuing and calculating the amount of tax, but we seek to evaluate these enterprises according to level of construction, geographical location and services provided,” said Farag.

In response to allegations that the tax will lead to a decrease in investment and load on the investors and taxpayers, Farag said the evaluation for real estate tax will be every five years. This will come in addition to an annual evaluation of the residential units in terms of low or high prices.

Farag revealed that the Real Estate Tax Authority (RTA) has begun sending out notifications from the beginning of July 2013 for taxpayers.

He added that the old law exempted owners of residential units less than EGP 500,000, but according to the new law residential units with a value of less than EGP 2m will be exempted.

Farag added that the buildings constructed before 1996 are exempt from real estate tax, instead being subjected to the old act “Returns Act 56/1954”.

Anwar Farg, from the RTA’s Technical Office, said that the estimated amount of the tax in the budget for FY 2014/2015 is approximately EGP 3.5bn.

Farg revealed that this estimated amount includes residential, administrative and business units and does not include special enterprises, adding that the authority gathered so far only EGP 600m.

The head of the technical office of the head of RTA Nagi Sergani said the number of appeals does not exceed the rate of 1% of the total notifications sent to the taxpayers.

Sergani added that the RTA has yet to finish outlining the standards for evaluating the tourist facilities.

The chairman of directors of Egyptian chamber of hotels Nagi El-Erian said the real estate tax is an unjust law, especially in light of the current tourism situation in Egypt.

El-Erian denounced the tax on the value of buildings hotels calculated in addition to the value of the hotel land.

Citing an example, El-Erian said a renowned hotel was paying EGP 700,000 returns according to the old law, but under the new law, the estimated tax is EGP 7.6m due to the value of the hotels’ land.

“This tax represents a significant burden on hotels taxpayers by calculating the price of land and buildings together, which makes hoteliers increase accommodation prices that makes the tourism situation worse,” added El-Erian.

El-Erian claimed that according to a study conducted by the World Tourism Organization on countries that impose taxes on hotels, France is one of the few countries that imposes a 1% tax on hotels.

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