VAT
on houses to fight fraud
The government hopes to boost its stagnant
fiscal revenue by forcingbuilders to pay VAT on their
lucrative property 'swaps' with home buyers whileraising
'objective' land values
DIMITRIS YANNOPOULOS
DELAYED for nearly 20 years, the introduction of VAT
in the booming real estate market on November 25 promises
to strike at the heart of rampant tax evasion and
bolster the state's sagging fiscal revenues.
The long-overdue draft legislation tabled in parliament
for ratification in mid-December seeks to crack down
mainly on the tens of thousands of tax dodgers in
the housing construction business and, indirectly,
to attract large-scale investment in the sector that
will further boost tax receipts, said Finance Minister
George Alogoskoufis.
While first-time house buyers will be exempt from
the tax, the 19 percent surcharge will be paid by
property owners to construction firms which, in turn,
will pay the VAT to the state. This way, the government
believes that contractors will be forced to hold down
the final prices of property sold back to land-owners
in exchange for the land on which they will build
apartment blocks.
This property-swap (antiparochi) is the principal
method of real estate transactions in Greece, allowing
widespread tax evasion through fictitious property
price declarations from both parties in the swap.
Under the new rules, when a plot of land is exchanged
for one or more apartments in the apartment house
to be built on the block, the construction company
will pay VAT of 19 percent on the difference between
the objective value of the apartment(s) and the objective
value of the plot.
"Curbing tax fraud in real estate may cut the
black economy by a half over the next five years,
allowing large-scale town planning and investment
in a previously anarchic and chaotic market,"
said market analyst Chrysanthos Lazarides. "The
collective power of the housing engineers' lobby has
prevented the implementation of this measure for 18
years," he told the Athens News.
Capital gains tax
Transfers of properties acquired after 1 January 2006
will be subject to a graduated capital gains tax,
whose rate depends on the number of years the seller
owned the property before selling.
Thus, the tax rate is 20 percent for owners selling
a property after ownership of up to five years; 15
percent if the ownership period was from five to 15
years; 5 percent if it was from 15 to 25 years; and
0 percent if the seller owned the property for over
25 years.
Property buyers, who until now paid up to 11 percent
of the property's value as transfer tax, will henceforth
pay only a 1 percent tax called a transaction fee.
The new bill also increases the tax-free portion of
inheritances or parental transfers of property from
20,000 euros to 80,000 euros and extend the payment
time for inheritance taxes from 24 monthly instalments
to 24 bimonthly ones.
While the VAT is imposed on the contractors, there
is concern that the cost may be passed on to property
owners if the so-called "objective values"
- indicative property value set by law for taxation
purposes - which always lag actual market values,
increase over 15 percent in 2006. These values, which
differ according to location, are the ones on which
property taxation is based. The VAT will be based
on those values as well.
"If objective values rise by 50 percent next
year, we may see a real estate market crash as small
buyers will cancel their housing investment plans,"
Lazarides said. Alogoskoufis sought on November 25
to calm taxpayers, saying that the rise in objective
values will only be slight.
Tax eligible and exempt
The main provisions of the legislation are
the following:
* All professional construction firms pay VAT. Additionally,
individuals or companies whose main activity is not
building, but who engage in such an activity occasionally
(mainly building sub-contractors and intermediaries),
are also liable for VAT.
* New buildings whose permits are issued from 1 January
2006 onward, will be exempt from VAT, provided that
the application for the permit has been submitted
by 25 November 2005.
* The property transfer tax will be gradually abolished,
beginning January 1. Further transfers of a property
are subject to a transaction fee, equal to 1 percent
of the property's objective value, to be paid by a
buyer.
* The amounts exempted from income-tax for the acquisition
of a first house are raised to 75,000 euros for unmarried
individuals and to 115,000 euros for childless married
couples. For the latter, this amount is raised by
23,000 euros for each of their first two children
and by 35,000 for each child after that.
* The tax-exempt portion of property transfer from
parents to their children or from one spouse to another
is raised from 20,000 to 80,000 euros. In the case
of property transfer to children, the portion of the
property value ranging from 80,000 to 100,000 euros
is taxed at half the standard rate.
ATHENS
NEWS , 02/12/2005, page: A22
Article code: C13159A221
