A new property register for Malta would level the commercial playing field and close a tax loophole, according to supporters of the online database.
If it receives government approval the Mediterranean island should see its Property Market Value Index published early next year. The register — similar to one introduced in Ireland this November — would allow access to property prices and basic rental details. It’s this new transparency that business reformers hope will help stabilise the commercial rental market while substantially increasing government revenues.
For decades, owners of shops and offices have been obliged by law to subsidise the rent of their tenants. This commercial quirk was seen as an injustice to property owners and an unfair advantage of these tenants over their competitors, who were paying realistic rents. It also perpetuated a huge loss of income tax revenue which the government could have collected from realistic rents received by the owners.
Under 2009 legislation all commercial rents would be raised to a “realistic market level” by 1 January starting with a transitional four year period during which rents increased by 15 per cent each year. To protect existing businesses all sitting tenants would have security of tenure for 20 years.
Critics of the new law claim any rent rises will be totally insignificant, citing the case of two identical Valletta shops adjacent to each other. One was recently let and is earning €19,000 (£15,877) per annum. The other was let over 50 years ago and, until 2009, was subject to an annual rent, equivalent to just under £90. This rent has increased by 15 per cent for four years and is now €184 (£153).
“It is clear that a 15 per cent increase on practically nothing still leaves you with practically nothing.
This means that in 2013 the government chose to collect tax of €59 (£49) on income from rental of the old shop, rather than €6,080 (£5,080) that would have been due on a true market value rent at a tax rate of 32 per cent,” says property specialist Nicky Bianchi.
“The government should note that pepper-corn tenants are cheating all taxpayers, not only the owners of their premises,” he adds.
Initial data collection for Malta’s Property Market Value Index is already underway and, it is hoped, publication of the register will trigger an immediate readjustment of commercial rents. If not, many fear that rents will increase at the traditional five per cent a year, “and so perpetuating this daylight robbery,” says Bianchi.
He fears that publishing an index with unrealistically low values would have the same effect. Adding that:
“Some of these pampered tenants, who benefitted from a huge subsidy spread over tens of years, had the temerity to plead for a softening of the conditions established by the 2009 act.
“A business which closes due to the removal of a state-imposed rent subsidy should not be trading in the real commercial world. It would be a dinosaur which survived at the expense of its competitors in trade, Maltese taxpayers in general, and property owners in particular.”
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