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James Debono
A number of developers who bought land at a pittance as it lied outside the temporary development schemes have now struck gold as their lands have been included in the extended development boundaries proposed by cabinet.
Economist Edward Scicluna yesterday warned that in the absence of a windfall tax on the profits to be made by these land owners, the new measure will only serve to amplify the socially regressive nature of the property tax regime enunciated in the last budget.
Economists Lino Briguglio and Edward Scicluna in separate comments to this newspaper also expressed concern on the social and environmental consequences that will result from the extension of development zones.
According to Prof. Scicluna the economic impact of the proposed measure “pales in insignificance when compared to the political and social effects of this proposed scheme.”
According to Prof. Briguglio the inclusion of new land in the development zone could temporarily slow down ever increasing property prices but he also voiced widespread concern on the “possible environmental and social damage that the extension of boundaries could bring about.” People who have their land included in the new scheme, have been twice lucky. They will not only benefit from the extension of development zones but also from the change in property tax regime enunciated in the last budget.
Economist Edward Scicluna notes that the huge capital gains made by those benefiting from the new scheme would escape paying the old 35 per cent property tax, but instead would pay just 12 per cent on the turnover.
“Buying a tomna for Lm15,000 and selling it for Lm115,000 would now pay a property tax of Lm13,800 instead of Lm35,000 under the old property tax.”
Scicluna warned that unless the significant windfall profits made from the scheme are not taxed accordingly by a special windfall profit tax, “the newly concocted property tax would continue to show its stark regressive nature.”
Those who would be making the greatest profits will end up paying less tax than those who earn less income.
The end result of the new tax regime accompanied by the extension of development boundaries is “a very low tax rate to be paid by those who earn unproductive windfall profits,” Scicluna said.
Besides the implications on income distribution of a regressive tax regime, Scicluna also warns that these measures will be a setback to fiscal morality.
Scicluna expressed his concern on the negative social implications on a society, which is still being trained to become fiscally moral.
“In this respect this will be big set-back,” Scicluna said.
People who have their land included in the new scheme, have been twice lucky. They will not only benefit from the extension of development zones but also from the change in property tax regime enunciated in the last budget.
Economist Edward Scicluna notes that the huge capital gains made by those benefiting from the new scheme would escape paying the old 35 per cent property tax, but instead would pay just 12 per cent on the turnover.
“Buying a tomna for Lm15,000 and selling it for Lm115,000 would now pay a property tax of Lm13,800 instead of Lm35,000 under the old property tax.”
Scicluna warned that unless the significant windfall profits made from the scheme are not taxed accordingly by a special windfall profit tax, “the newly concocted property tax would continue to show its stark regressive nature.”
Those who would be making the greatest profits will end up paying less tax than those who earn less income.
The end result of the new tax regime accompanied by the extension of development boundaries is “a very low tax rate to be paid by those who earn unproductive windfall profits,” Scicluna said.
Besides the implications on income distribution of a regressive tax regime, Scicluna also warns that these measures will be a setback to fiscal morality.
Scicluna expressed his concern on the negative social implications on a society, which is still being trained to become fiscally moral.
“In this respect this will be big set-back,” Scicluna said.
Impact on property prices
According to economist Prof. Lino Briguglio Malta’s very limited territory has resulted in very high property prices.
But according to Briguglio this has been “aided and abetted by speculative investment that is taking place due to the current lack of productive investment opportunities.”
Prof. Briguglio warned that a lot of ‘money laundering’ is taking place in the sense that undeclared earnings are being diverted into speculative investment in property.
According to the economist, the increase in the boundaries could temporarily slow down the increase in property prices.
However he also voiced widespread concern on the possible environmental and social damage that the extension of boundaries could bring about.
Lino Briguglio insisted that maximum transparency is required so as “to avoid actual and perceived corruption.”
For Briguglio it is also of utmost importance that the interests of property speculators are not allowed to predominate.
“This requires that environmental NGOs and other stakeholders voice their concerns as effectively as possible,” Briguglio told Business Today.
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