A new draft law on real estate sales taxes raises various HLP-related problems, including lowering the cost of expropriation compensation and creating obstacles to the registration of real estate transactions.
In late January 2021, the Government transferred the new draft of the law to Parliament for discussion. The new law aims to create stability in the real estate market and make taxation fair, according to a statement released by the government. State media have deliberately leaked the terms of the new draft law, perhaps to test public reaction.
The new law regulates the mechanism for calculating taxes due for transfers of real estate ownership. It designates the authorities entrusted with calculating taxes, which are based on an estimation of the real estate prices circulating in the market, rather than on the existing contract between the seller and the buyer. In that sense, the new law cancels out Decree No. 52 of 2006, which in turn had amended Real Estate Sales Tax Law No. 41 of 2005. Under those previous laws, both the seller and the buyer could reduce the taxes they owed by recording the price of the sold property as lower than its actual price.
A correspondent for The Syria Report in Damascus spoke to local real estate office owners, who said they were apprehensive about the new draft law. If the law aims to increase tax revenues to the public treasury, it could have a further chilling effect on an already stagnant real estate market, as prices are expected to increase alongside the proposed new increase in taxes.
The new draft law determines real estate sales tax and registration fees based on the monetary value of real estate as calculated by specialised committees formed by the Minister of Finance. There are three different types of committee responsible for estimating the current value of real estate: sub-committees within local administrative units; a main committee under the ministry’s finance directorate for each governorate; and a central committee headed by the Minister of Finance.
The previous real estate tax law, Law No. 41 of 2005, as well as its amendments, set the real estate sales tax for residential properties at 15-20 percent of a property’s value, as listed in the relevant financial records. The prices within the financial records are outdated fixed values, most of which date back to the 1980s. In many cases, an area’s real estate values as listed in the financial records match the prices that were set for the state to potentially expropriate those properties.
The new draft law sets real estate sales taxes at one percent of the current value of land and constructed residential properties located outside zoning plans, and two percent for land located within zoning plans. In all of these cases, the new law imposes a 0.5 percent annual increase in the tax for any delay in officially registering the sale. Sales tax for properties given as gifts to family members is set at 25 percent of the current value, while inheritance tax is 10 percent for parents, descendants and spouses, 25 percent for siblings and their descendants, and 50 percent for all other heirs.
That said, the most dangerous aspect of the new draft law–in terms of housing, land and property rights–is Article 10. This section prohibits registration of sales in real estate departments or by any authority authorised to do so, including the notary, before the concerned parties obtain financial clearance from their governorate’s finance directorate. After the transaction (sale, donation or transfer of ownership) they have 30 days to pay all the dues and taxes they have accumulated to the finance directorate or else face additional fines. This could mean paying electrical or water bills for other properties that are unrelated to the one being sold, or unrelated taxes owed by one of the parties to the transaction.
The requirement that the concerned parties obtain financial clearance directly threatens residents of informal housing areas, many of whom do not have official documents proving their ownership of real estate, except for sales contracts with the notary, or court rulings and agricultural deeds, none of which are recorded in the real estate registry. In most informal housing areas, homes do not have electricity or water meters. That means anyone wishing to buy such a property must submit a request to install the meters, pay local administrative fees or pay a lump sum in order to obtain the necessary financial clearance. These issues may cause delays in selling informally built real estate, or even halt the process completely.
The new draft law, however, exempts public institutions from paying real estate sales taxes in accordance with the current value. This means that expropriations will not adhere to the current value, instead remaining subject to Expropriation Law No. 20 of 1983. This measure also means that owners of expropriated real estate will not receive the compensation they deserve for losing their properties. The new law also exempts real estate development projects licensed under Law No. 15 of 2008, meaning that private real estate companies will also be able to evade calculation of property prices in accordance with current value. They will, effectively, be able to buy or expropriate real estate from people at the old prices.