Developers are calling for a change in the capital gains tax regime to kick-start the property market.
They are insisting that a 12 per cent withholding tax introduced several years ago as an incentive to encourage property sales has become counterproductive.
Property sold within seven years of being bought incurs a charge of 12 per cent tax on the sale price but the seller also has the option to declare the profit in his income tax and be charged at 35 per cent instead. After seven years, the seller has no choice but to pay the withholding tax.
Michael Falzon, president of the Malta Developers Association, said the seven-year timeframe and the choice of preferred taxation were introduced at a time when property prices were galloping ahead.
It made sense to pay a one-off withholding tax on the sale price even after the seven-year timeframe, he added. But in a stagnant market the withholding tax has boomeranged.
“Today, with property prices not appreciating as they used to, the withholding tax is preventing developers from selling property at a lower profit,” he added.
The lobby group wants the option to choose the tax regime best suited for the particular sale to extend beyond the seven-year time window. This will encourage developers to sell their stock of property at lower prices and be charged “a fair rate of taxation” on the profit instead.
“We believe this can be done by a simple legal notice and it will go a long way to encourage developers to sell their property,” Mr Falzon said. The proposal is one of 10 points the lobby group has been clamouring for and which will be unveiled tomorrow morning.
Mr Falzon said high quality apartments were selling well and this gave the wrong impression that property prices were rising.
He admitted the problem was one of oversupply and most were substandard units. “Developers have to be encouraged to rehabilitate them because it is not enough to say there are thousands of vacant dwellings. It also depends on their quality.”
Mr Falzon said a detailed study of the vacant property on the market should be carried out when the census results are out.
ksansone@timesofmalta.com