Property tax fears

By Robert Vasquez

GSLP/Liberal Minister Nigel Feetham’s new projected property tax law is flawed in two primary ways. It gives some an unmerited tax break. It sends shivers through the finance centre and betting sector over the possible introduction of a capital gains tax.

Yet the main beneficiaries, property developers, are allowed huge tax and rates benefits through the Development Aid system.

One would hope and pray that those empowered to legislate, currently the GSLP/Liberal Government, will see the light of day and reflect carefully on exactly what it wants to achieve with Mr Feetham’s proposed tax changes before passing it into law as drafted currently.

Much of what the new tax law proposes to tax is already taxable under the existing Income Tax laws.

The tax handbook published by Mr Feetham’s law firm, Hassans, makes that clear. Grahame Jackson, tax partner at Hassans, confirmed as much also, on last Thursday’s GBC Viewpoint programme.

If anyone or any entity buys or sells a property by way of ‘trade’ income tax is payable, even if it is just one transaction. It is payable if it has a ‘badge of trade’. Buying and selling off plans without completing on a contracted purchase has such a badge, absent special circumstances: other such ‘badges’ exist.

Mr Feetham’s proposal gives away tax on the profit on the sale of two properties, and even one, that is taxable under the existing Income Tax Act. So, there are those who will be benefitted to the detriment of the potential tax take that would increase tax coffers.

What needs to be done is for the Income Tax Department to take steps to collect tax from those who are liable to pay it already and who are being allowed to evade payment. Those steps are not difficult.

For example, it should ask developers for the names of those contracting to buy a property and those completing the purchase. If they are different the likelihood is that there has been a taxable gain along the line, so uncover and tax it.

Mr Feetham argued on GBC’s Viewpoint that taxing in that manner was too difficult, complicated, and expensive due to needing court proceedings.

Wrong. The Income Tax authorities can assess the tax payable, it must then be paid, it is for the payer to take and argue the matter in court at risk of having to pay the costs of those proceedings.

Additionally, the proposed new Feetham property tax is unlikely to realise much public income for the benefit of people generally, but it will dampen economic activity to the detriment of Gibraltar’s overall economy and so total tax take.

In relation to properties held over long periods of time for rental purposes, it represents a capital gains tax, without any allowance for inflation over the period the properties have been held, or a fair starting point for taxable values to be assessed.

Introducing a capital gains tax by the back door, as Mr Feetham proposes, sends out a wrong message for the finance and betting sector of Gibraltar. What other capital gains might be taxed in future? The fear will grow as government finances remain weak.

If a property is held for many years for rental income, on which income tax is paid, and it is then realised for cash, the resultant gain is a capital one, made over many years, including of inflation, and cannot be classified as income. Mr Feetham’s property tax law will classify it as taxable income in the prescribed circumstances.

The last thing the finance sector wants is a government that is suspected by those outside Gibraltar, and finance and betting centres competing with Gibraltar, of changing fundamental goalposts on taxation.

It was difficult enough, back in 2005 and 2006, to conceive of a tax system that allowed Gibraltar’s attraction as a finance and betting centre to continue in the face of the attacks being levied on Gibraltar’s then concessionary tax provisions and system.

The new tax system that was devised delivered extremely well. It was accepted, subject to some minor amendments, by those authorities attacking the predecessor concessionary regime. Those changes did not defeat the overall concept or economic benefit of the new rax system.

The economic benefit is being and was enjoyed by all in Gibraltar due to increased economic activity (which delivers a bigger tax base), employment and public revenues. The GSLP/Liberal government should not undermine that by sending out the wrong message internationally, as Mr Feetham’s proposed property tax law does.

Despite Mr Feetham’s ‘socialist’ label he fails to tackle those who are really advantaged in the property world, namely developers. They build and sell freely without liability for tax or rates. Why should that be so?

The existing Development Aid system exempts them from payment of income tax on gains or profits from the sale or rental of property. To make matters worse it helps them sell or rent the developed property by giving exemptions and discounts on payment of rates for several years.

Go on, Mr Feetham, tackle the real capitalist problems supported by your socialist GSLP/Liberal government. Make sure due income tax is collected, oh, and whilst you are about it, do away with Development Aid.

Robert Vasquez, KC, is a retired barrister and political commentator. He stood as an independent candidate at the last general election on a platform of democratic reform.