Jamaica
News - Real Estate - Finance (February
13, 2005)
Realtors say tax reform plan good for home sales market
LONG claiming that real estate dealings were
over-taxed, president of the Realtors Association of Jamaica (RAJ) Gordon
Langford sees significant benefit to the sector from the proposals by the
Matalon committee to eliminate stamp duty and cut transfer tax by more than half.
"We are very pleased that Mr Matalon and
his group have seen some sense," said Langford, referring to businessman
Joseph M Matalon, chair of the Matalon tax committee established by Finance
Minister Omar Davies almost two years ago.
The tax reformists' report, titled Distribution
of Tax Burdens in Jamaica, was made public last week. The government is still to
decide whether to accept the recommendations. The committee recommends the
abolition of stamp duty and that property tax should be a flat one per cent,
with a threshold of $300,000.
They also suggest that the transfer tax real
estate deals be reduced from 7.5 per cent to five per cent. "That's what
we're looking for," said Langford. He noted that the real estate transfer
tax in other countries is 2.5 per cent and that for Jamaica five per cent is a
"fair amount".
Langford remained enthusiastic despite the
suggested increase in GCT from 15 per cent to 16 per cent to raise $2 billion in
new revenue.
This tax also affects the real estate sector,
as it applies to services offered by professionals, such as land surveying.
"That (rise in GCT) will be counteracted by
reducing taxes on overall transactions," he said.
Langford and his group have continually
lobbied for a reduction in taxes on real estate transactions that, they claim,
have had the effect of stifling the market and pushing deals underground to
escape taxes.
He said the combined real estate taxes and fees
in Jamaica - including lawyer and agent fees - take up anywhere between 20 and
23 per cent of the sale price of properties, much higher than other countries in
the region.
The tax reform plan effectively reduces the
taxes and fees to approximately eight or nine per cent and "brings us in
line with most of the Caribbean countries in terms of property laws."
He added that under the present tax regime, a
newly purchased house that was resold after two or three years would not be
financially viable because of high transfer taxes. Houses would have to be owned
for 10 to 15 years to build up significant capital equity gains.
According to Langford, with the new
recommendations houses can be purchased and sold within a year and significant
capital gains achieved. He said that the purchasing, remodelling and selling of
houses is a popular income gaining activity in other parts of the world.
"That's how many people abroad make
money," he said.
With the alterations, the seller of a house
will receive approximately 10 per cent more from tax reduction. Therefore the
sale of a 10 million house will yield approximately 1 million in cash flow
wealth instead of $500,000.
"That will go straight into your
pocket," said Langford.
He noted that the money received for the
resale of the house will depend on what alterations are made to the property and
other contributing factors. He said if the recommendation is approved it will
encourage real estate trading.
"Not only the small man, but everybody can
build up some equity in their home." Because all transfer records are held
by the Stamp Office and kept confidential, it is not possible to chart the
present economic value of the Jamaica real estate sector or estimate the
financial impact the reductions would have.
"Nobody knows that figure," said
Langford. He added that even if the records were made available, the figures
would be understated because of the high cases of under declaration of cost
values by individuals attempting to evade high taxes.
|
