Property withholding tax

The amendments to the new withholding tax system do not go far enough to ensure that it does not penalise genuine low profit or loss making situations.

The amendments appear to presuppose that over a five-year period the value of property will increase sufficiently to make the withholding tax of 12 per cent a sensible alternative to the current 35 per cent tax on capital gain. Indeed, in cases where the value of property increases above 50 per cent of cost (during those five years costs will also increase and sometimes substantially, especially when bank loans are in play and therefore the 50 per cent mark could take much longer to materialise), a 12 per cent withholding tax is a real bonus to the investor. And the higher the increase the higher the bonus!

But what about those instances where the value does not reach the 50 per cent mark or, better still, what about those cases where the value increases nominally or goes down? These are real possibilities that cannot be discarded - an investment gone wrong is not something new. Taxing on the perception that anyone involved in the property market does not lose money is extremely dangerous. A property that does not sell within a five-year period (not because of an investment decision not to sell) would have to be dumped on the market before the expiry of five years to avoid the 12 per cent kiss of death.

The Income Tax Act (which has been in existence for years now) has as its main aim the taxing of chargeable income. The higher the chargeable income (chargeable income being the difference between income and costs) the higher the "value" of the tax!

The new 12 per cent withholding tax system cancels out the above principle, A higher chargeable income (defined exactly as above) makes no difference to the value of the tax payable (with disastrous consequences for genuine cases)! The only corrective action possible is to retain the option between the current system (35 per cent of chargeable income) and the new withholding tax (12 per cent of income) indefinitely and not limit it to a five-year period.