Cabinet approves new property tax law

Egypt’s Cabinet on Wednesday approved changes to the real estate tax law, which will see 25 percent of revenue directed to developing slum areas and 25 percent for local development in rural and other marginalized areas.

The new rules will also exempt private residences with a market value “in the range of LE2 million.” The proposed changes still require ratification from President Abdel-Fattah al-Sisi before they officially become law.

Egypt has been attempting to introduce a property tax since at least 2008, when parliament issued a law that was never implemented due to widespread opposition. In 2011, the Supreme Council of the Armed Forces, which was in power at the time, proposed their own law, which was scheduled to come into force in January 2013.

In December 2012, before the SCAF’s legislation could be put in place, President Mohamed Morsi announced a new property tax law, which would have come into effect in July 2013. Under that law, both residential and non-residential buildings would be taxed, with exemptions for primary residences with a market value under LE2 million, and for non-profit institutions like school, hospitals and orphanages.

Tax values were to be calculated at 10 percent of the properties’ annual rental value, a sum determined via a complex formula taking into account the net price of the land and building, minus a deduction for maintenance.

However, politics once again intervened, and Morsi was deposed before the law could come into effect.

In November 2013, under Prime Minister Hazem Beblawy, the interim cabinet introduced its own set of amendments to the original 2008 property tax law. That version of the law allowed each taxpayer exemptions on a total of LE2 million of residential property and LE100,000 commercial and industrial property, and also introduced the idea of directing 50 percent of receipts to development projects in poor areas.

In March, the interim cabinet, then under Prime Minister Ibrahim Mehleb, approved yet another draft property law. Under this version, each governorate would have a committee charged with determining property tax values based on the condition, location and amenities of each unit. Properties deemed to have a rental value of less than LE24,000 would be exempt from taxes, as would non-residential units with an annual rental value below LE1,200.

The law also exempted from taxation military owned properties, including hotels and clubs, as well as public buildings such as schools, hospitals, charities and property owned by political parties. At the time, Finance Minister Hany Qadry Demian, who remains in his post, said the law would come into effect in July.

Although property taxes are imposed in nearly every country worldwide, implementing such a tax will be challenging for Egypt. In addition to public opposition, lawmakers face a massive logistical challenge in determining property values, since Egypt lacks a central, computerized database recording property sales.

According to a 2004 study by economist Hernando de Soto, more than 90 percent of property transactions in urban areas are never formally recorded with authorities.

Determining a fair rental value could be equally difficult, since a hodgepodge of rental laws, along with a lack of transparency, mean that virtually identical apartments in the same building can have vastly different rental prices.

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