Former Finance Minister John Dalli yesterday urged the government to revise the budget measures on property tax, expressing "serious concern" over both their concept and the administrative difficulties which he said they would create.

He said the measures were discriminatory; they would end the audit trail; they would not lead to more properties being put on the market, and the indications were that prices would continue to rise.

Mr Dalli was speaking in Parliament during the debate on the Budget Measures Implementation Bill.

He said his concern stemmed from the fact that the amendments would create discrimination among those who sold property, with different forms of taxation for those who inherited property and those who acquired it through other ways.

When, as finance minister in 1992, he had removed income tax on inherited property, the whole tax system had been revised, succession duty was removed and the concept of capital gains tax was overhauled.

Before that time, succession duty on anything which one inherited could go up by as much as 75 per cent. At the time officials from the Inland Revenue Department had told him they had major problems in the administration of the tax on properties and since revenue was low, he had decided to remove the tax.

But circumstances had later changed and property prices and profits had gone up strongly, justifying a reintroduction of the tax on property sales. Still, when the tax was reintroduced, it made no distinction over how property was acquired.

It was true that what people inherited was sometimes the sole property of their parents, but when a profit was made on a sale, tax on that profit should be charged.

The new law, as proposed, would give an advantage to those who inherited property and made no distinction between those who inherited one home and those who inherited half a village.

If one wanted to ease the lot of those who inherited property, the same should apply to all sections of the population.

Mr Dalli explained that when the tax review was made in 1992, it was decided that tax on the sale of property inherited before that date would be lower than that on properties inherited later because the former properties would already have been subject to succession duty. Those who sold property which they had inherited after 1992 were not given any advantage.

But now all this was being turned upside down. Those who inherited properties before 1992 were to pay tax at seven per cent on the total value of a sale, while those who inherited property after 1992 would pay tax at 12 per cent on the profit, which amounted to approximately four per cent of the price of the property.

He hoped that in the name of justice this would be reviewed. Mr Dalli said he was also very concerned over the technical workings of the 12 per cent property tax system.

What was being introduced was a sales tax, not income tax, and this would bring about many complications and erase the audit trail. The fact that 12 per cent tax was to be charged on the value of the sale meant that no one would need to keep receipts to prove to the tax department what expenses had been made since the property was acquired.

Although the budget itself said that the proposed system was meant to encourage the people to declare the true value of their sale price, he felt the opposite would happen. The seller would want to keep the price as low as possible, while the buyer would not care either way, because whatever value was declared would not be relevant when the property was re-sold. The tax department would be interested only in the value of the sale, not the profit made since the property was acquired. The system, therefore was encouraging the black economy and the under declaration of tax.

Moreover, when properties were transferred within companies of the same group, how was the distribution of profits by the companies to be calculated? Who would calculate the tax due by the shareholders?

Mr Dalli said he was even more worried by the fact that a choice was being given to taxpayers who could opt to be charged under either the 12 per cent system or 35 per cent. This would open a "whole garage door to tax evasion".

A developer having several properties may opt to list his expenses on a section of those properties and have them taxed at 35 per cent and the rest at 12 per cent.

Mr Dalli said that it was a misconception to think that tax on property was capital gains. Capital gains was a tax on profit made on capital sales.

He did now want anyone to think that he was against helping those who inherited property, but one should not discriminate in their favour to the detriment of others. If tax was to be charged at 12 per cent instead of 35 per cent, that should apply for everyone. However, since he could understand why the government could not do this, why not go back to the concepts of capital and trading gains? Why not lay down that those who inherited and re-sold a property would be charged capital gains at 12 per cent, while leaving gains on profits unchanged? In this way, those who inherited half a village and were therefore trading, would be charged the appropriate tax.

This was justice and common sense.

Mr Dalli said he feared that the law, as proposed, would not put new property on the market. And the indications were that property prices, as a result of these measures, were continuing to rise.

He was therefore calling for a revision of the proposed changed by experts in the sector.