Chilling Taxies For The Property Market

Last night, I took my eyes off my Study Bible to read Ghana’s 2011 Budget. It was revealing. Some sections were interesting, others were like political grammar. But in this article, I would like to share with you how the 2011 Budget may affect the land and property market. It’s about the government’s proposed property taxes.

Property Rates

Just today, I have been hearing media speculations about possible hikes in rent as a result of government’s intention to strengthen administration of property rate. I have a different opinion. Strengthening property rate administration does not necessary mean increasing property rate to be paid by property owners. It may as well mean that property rates that are not been collected will be collected as a result of effective administration. Actually, this is what the budget says.

“…in many economies, property taxes contribute substantially to revenue mobilization. In Ghana, property taxes make up only 0.03 percent of Ghana’s GDP.” “…there is huge potential for the MMDAs to improve their revenue mobilization through property taxes and be less dependent on the Common Fund in providing local services and amenities.” “…payment of property tax is a civic duty. We need those taxes to improve basic local amenities such as sanitation, water, and street lights. Moreover, the government provides services like police protection and judicial services in order for all of us to enjoy our property peacefully. It is our intent to work with the Ministry of Local Government and Rural Development to strengthen capacity in the administration of property taxes in this country. An improved scheme will be put in place by the end of the first quarter of 2011 to take effect in the second quarter.” “…I wish to propose to this House that in the near future, government releases to the Assemblies may place more weight on their revenue mobilization efforts as reflected in the DACF formula.”

Does this sound like increasing taxes? In only refers to strengthening property rate administration. I think if revenue mobilized from property rates would be used to improve the standard of living of every living Ghanaian, then it must be paid.

No Tax Holidays for Real Estate Developers

Another hullabaloo that I expect but has not come yet is from real estate developers, like GREADA. Why are they not talking about government’s intention to take away the five years tax exemptions like they did with the STX deal? Or is it that they fear of been charged with “causing fear and panic”?

What am talking about is what the 2011 Budget provides at item 143 that, “…the five years exemption period granted to companies engaged in the construction for letting or sale of residential premises under Section 11(6) of Act 592 was mainly to create affordable accommodation for the middle to low income earners. Unfortunately, the real estate developers focused on building for the high and upper class of the society while abandoning the original purpose. The government proposes to abolish the general five year tax exemption for real estate developers. However, given government’s heavy involvement with the provision of affordable housing, real estate developers who partner the Ministry of Works and Housing to provide affordable houses will continue to benefit from the five year exemption.”

Why are real estate developers quiet? I should think that may be they are preparing their petition to parliament.

Taxing Land Professionals

Another group of people to receive a chill from the Budget are individual land professionals such as real estate consultants, valuers, land surveyors and quantity surveyors. According to the Budget, “Ghana has many self-employed professionals who are contributing to economic development through the provision of professional services. Indeed it is very satisfying to note that on several government projects we have had opportunity to use our own competent professionals working in consultancy capacities. Knowing the level of fees paid for such services in the private sector, we think that it is the responsibility of these professionals to also contribute their quota as required by law and discharge their civic responsibility with regard to the payment of taxes. We are aware that a small but significant group of such professionals have conscientiously discharged their responsibility to the state. We want to acknowledge and recognize them, and at the same time create a conducive administrative framework for others to follow suit.”

It continues that “…we want to encourage the voluntary compliance of professionals in their tax payments as a civic responsibility. Beginning 2011, Government will focus attention on the revenue contribution from the self-employed group with special emphasis on professionals. A special desk will be established in the Domestic Tax Division of the Ghana Revenue Authority to monitor compliance of professionals in their tax payments. The GRA will coordinate monitoring from the district level, reconcile data with the Registrar General‟s Department to develop the necessary databases to facilitate monitoring, seek data from the recognized professional bodies, and assess current enforcement procedures.”

The Ghana Institution of Surveyors, Ghana Institute of Planners, Ghana Institute of Architects must begin to assimilate the provisions of the budget and see how it may affect consultancy services of individual members. This is area worth discussing at conference of such professional bodies.

Gift Tax Increased

“…Gift Tax moves in tandem with general Income Tax including Capital Gains Tax. Since Capital Gains Tax has been increased from 5 percent to 15 percent [Internal Revenue (Amendment) Act, 2010 Act 797] it is only proper to do the same for Gift Tax. In this regard, an increase in gift tax to be in tandem with general income tax is being proposed. This will avoid shifting of Capital Gains to Gift Tax.”

These are just policies. It is their implementation that would matter. It is their implementation that would determine how deep these proposed properties taxes may prick the land and property market.