Malta Developers Association president Michael Falzon.
The president of the Malta Developers Association has claimed government-appointed architects are being "guided" by the Inland Revenue Department on the 'discerned' market value of properties, resulting in higher tax claims on purchased property.
Michael Falzon, a former Nationalist minister, has suggested that buyers and vendors who find bargain properties in the current dampened market are being taxed on the difference between the bargain price and the discerned market price.
"Although government officially says the Inland Revenue does not instruct these architects about valuations, I know for a fact that the department unofficially gives them guidelines on how much the discerned market value of, say a garage or a flat, should be...
"It is as if one buys a suit from a sale, and the customer is expected to pay VAT on the original price of the suit and not the reduced price," Falzon said.
The valuation by government architects is carried out when Inland Revenue have reason to believe that the declared price on a contract does not reflect the market value. Falzon contends that market value is "a subjective matter" and accused government architects of not realistically lowering their bearings consonantly with the lowering of prices.
"It's no use saying the market value of something is x-amount of euros when there is nobody prepared to buy it at that price.
"If the market price is more than 15% over the declared price, the purchaser is asked to pay stamp duty on the difference, and a fine, and eventually the purchaser can also be asked to pay 12% on this difference."
The MDA is leading a public offensive on the high 12% final withholding tax on property sales, claiming the rate does not reflect the state of property values in Malta's current state of dampened prices.
Property in Malta is taxed either at 35% on profit, or 12% on the final value of the sale. The 12% system was introduced by government in a bid to appease vendors who were tempted to under-declare the sale price on contract due to the 35% tax on profits - but that was when the cost of land and property in Malta were appreciating heftily, practically every day.
"So the 12% tax was introduced. Vendors paid 12% on the selling price with not questions asked about the actual costs. The system included a time-window of five years - later increased to seven - during which one could either pay the 12% tax or opt for the old capital gains tax," Falzon said.
After seven years, property sales are taxed on 12%.
But now he says the problem is that property has not been appreciating at the sort of rate that led to the adoption of the system.
"Today 12% on the sale price could, in certain cases, represent more than the actual profit made in the deal. Developers hard-pressed by the banks to liquidate their assets cannot sell at a reduced price - at little or no profit - because that would mean severe losses."
Falzon says that developers should have the choice to opt for the old system, where only real profit is taxed.
"The situation would be different. In this case, the system is now becoming an obstacle for the lowering of prices."