Saturday, June 15, 2024

Draft property tax bill causes rumble


By Muluken Yewondwossen

The under developed property tax bill, one municipality levies is expected to be sent to the Council of Ministers very soon with valuation proclamation set to be  evaluated by the Ministry of Justice.

The public consultation meeting on proclamation which was held on Monday October 9 and called by the Ministry of Finance (MoF) surprisingly attracts only a handful of participants.

Even though the number of participants was very few, concrete comments and recommendation have been provided by those who are gurus on the sector and tax structures.

Some of the participants said that the newly coming tax would have impact on the general public and the economy. They claimed that it would not be timely in this inflationary situation and insisted the government to pause it.

On the flipside, some of them also argued that the tax would not have any effect on companies unlike regular property owners. “For companies it will be considered as an expense so it will only cost the public,” two of the participants said.

One of the participants, who identified as lecturer in a related field, argued that the taxable value motioned on the draft proclamation was huge and that it shall reach at full value of the property in four years.

The proclamation indicated that the taxable value was 25 percent of the property, and the levy will be from 0.2 percent to one percent of the land value and from 0.5 percent to one percent for the building.

“Taxable base is very big and should be reconsidered unless otherwise it will have an impact on the public,” the participant said.

Others have also expressed their concern regarding the affordability to pay. “Residential house should be considered as consumption goods unless otherwise the new law may have a general economic effect if it may see all properties as investment goods like companies properties,” one of the sector experts said.

Participants also expressed their concern that the capability to enforce and follow regions for the implementation of the law properly. They also raised some concerns on the implementation period that the tax imposed, and the variation from individual to individual or place to place and the vulnerability to misdemeanor acts.

The proclamation is said to give a right for regions to set the rate and identify those who shall be exempted from the payment. 

“In my view the law is open for corruption since the rate or exemption will be determine by individuals or committee,” one of the participants said.

The other point highlighted by various participants is that the government was supposed to test the system on other properties rather than real property, mainly on residential house, and gradually expand its on houses.

“Why don’t you see other properties rather than imposing such burden on the society on this time,” one of the participants asked.

Regarding the size of plots of land that will be exempted from the tax, participants opined that it was totally unacceptable. The proclamation drafted that a 15 meter square plots at the center and 30 other area of a city will be excluded from the tax. 

Tax distortion shall be a possible challenge that central government offices should have an instrument to monitor and regulate the rating on lower government bodies.

The valuation issue was heavily brought up at the meeting that participants expressed that the government should be equipped to come up with an acceptable valuation in a professional manner including the implantation of technologies that they claimed is less prepared at relevant government offices.

A system linkage between valuation and tax collector should be developed and similarly the availability of trained professionals on the valuation process has been raised by participants who are familiar for the case.

Some experts on the sector also argued that in the proclamation, various concepts have been packed in a single law, “That should be separated to make clear the possible outcome of the new tax.”

The other recommendation mentioned was piloting the issue in a single city and even in a single sector would be advisable to gauge lessons for the implementation of the law throughout the country and inclusively.

Experts from MoF and Ministry of Urban and Infrastructure (MoUI) on the other hand said that the concerns that were raised by participants have been reflected by relevant regional and central government officials and other stakeholders including on the discussion with higher education professors and different association.

It was said that the government was engaged on the issue for several years before it came up with the final draft of the proclamation. 

Zinet Ibrahim, General Manager of Urban Revenue Reform Project Office at MoUI, stated that cities have covered 24 percent of their development expenditure and the rest was a subsidy from regions and central government.

She said that there are several projects being undertaken to improve the revenue of municipalities on the aim to some extent to get some sort of fiscal independence.

“They have to cover their cost by themselves; property tax is one of the sources of income for municipals,” she added.

Massive studies and preparations for years have been carried out besides evaluate the experience of others to come up with this final draft, Zinetsays “we have also rigorously seen the experience of others.”

She indicated that there are several laws that will give life the proclamation, which are under preparation in parallel with the proclamation including the concern in related with valuation issue, “valuation is one of the key issues that will be input for the implementation of the upcoming proclamation.”.

“After taking several opinions and inputs we have developed the law that is already at Ministry of Justice for final evaluation,” she added regarding to the valuation proclamation.

The valuation proclamation that will cover wide scope, is the base for the property and have several issues including who will valuate, how the valuation will be carried and who will approve the valuation.

Regarding professionalism andvaluation experts Zinet said that experts areproduced and being trained on the consideration of the implementation of the new tax.

On her response to concerns on property information Zinet said that at the current stage the government is working on legal cadaster but MoUI is under preparation to commencethe recording of fiscal cadaster, which is vital for the implementation of the proclamation, “even we are developing a system.”

Regarding ability to payZinet said that the project office has carried out the assessment in pilot cities and reached at the conclusion that the society shall afford to be charged for the payment calculated from 25 percent of the property.

Wasihun Abate, tax law guru and former legal department head at MoF who currently serves as the independent legal advisor at the Ministry, said that Tax is not expenses according to income tax regulation for the claim raised by participants that companies will not be affected on the new law since the levy will be deducted as expense.

“As per the income tax, law taxes are not considered as expense,” he said.

He also expressed his hope that the law will be applied on other properties when the inflation calms down.

Regarding public consultation prior to levy the tax and rate, Wasihun said that MoF will draft a model law that regions will use as a bench mark to handle public consultation on the levy rate and annual expenditure of the municipality.

One of the participants from Total Energies said that the implementation of property tax on oil companies will have an impact on regulated oil price, which was accepted by the tax law guru to which he responded that it will be a responsibility for regulatory body to harmonize the possible effect.

There was a complaint from participants regarding the number of participants at the consultation meeting that they claimed the mode of communication to call for the meeting was not ample. MoF called the public consultation meeting via different social media platforms.

However organizers accepted the claim but said that the comments coming from participants were very constructive meanwhile most them have been raised on other several meetings.

Tewodaj Mohamed, Acting Legal Department Head at MoF told Capital that the main reason to call the public consultation was to get input on the draft law that will be sent to Ministry of Justice for final review.

“For that matter when the draft proclamation was sent to the parliament it will also carry out several consultation meetings including public hearing on the draft law,” he said, adding, “Our aim was to call the meeting to make the final draft clearer.”

“We have been conducting similar meetings with experts, universities, professional associations and regions and most of the points on Monday’s meeting have been raised in previous meetings,” he said.

Tewodaj added that the final draft shall be sent to the council of ministers in the coming month.

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