Deadline Passes of Property Tax Implementation

A deadline passed Tuesday for Finance Ministry subcommittees to create procedures to collect the new property tax which was scheduled to be implemented this year, though its unclear when property owners may start paying the tax.

A July 19 proclamation, signed by Finance Minister Keat Chhon, ordered one subcommittee to evaluate property values by Oct 31 and gave another subcommittee a Tuesday deadline to introduce the procedures that would allow people to pay the tax.

The 0.1 percent annual tax, promulgated in the Finance Act of 2010, affects property valued at more than $24,000 with several exemptions for properties such as agricultural land, foreign embassies and state property including pagodas. According to the law, the tax is supposed to be collected this year.

Seak Kunthear, administration bureau chief at the ministry’s general department of taxation, yesterday declined to comment, saying he was not authorized to talk to the media.

Other ministry officials could not be reached yesterday but real estate experts said the subcommittees had not completed the work.

“The problem is that regulations, the evaluations and the administration of the property tax has taken longer then originally expected and therefore there will not be any significant revenue for the property tax in 2010,” said Edwin Vanderbruggen, managing director of DFDL Mekong’s regional tax practice group.

It is unclear when the tax law will be implement and it will likely take years for the government to collect tax on many properties, he said.

And though many people will not pay their property taxes on time, if they decide to sell their property and transfer titles, they will eventually be forced to notify the government, which can then demand payment of back taxes, he said.

But Mr Vanderbruggen said that with a slow property market, many of those transactions would be years away.

“You can say that the success of the property tax will depend on the property market,” he said.

Sung Bonna, CEO of Bonna Realty, predicted the property tax might not be enforced aggressively in a similar way that the nearly-decade old tax on unused property has not been collected.

He also questioned how the government could determine property values in a slow real estate market with few sales on which to base valuations.

“I worry over valuations,” he said, adding that more transparency was needed and the government had first to explain its method of determining value before the law is implemented.

“It’s better to implement with a public announcement,” he said.

Tan Hong Kiat, country head of the property firm Knight Frank, said that the potential for revenue was clear, especially for Phnom Penh, but he also expressed concerns about the valuation process.

“There’s a lot of potential to dispute the tax imposed on a property, it could happen. And how is the government going to resolve those disputes?” he said.

 

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