As things stand right now, at the end of August the tax exonerations change dramatically. There are many voices here in Panama calling for extensions or modifications in the tax codes because they believe, as we do, that the reduction of incentives will stifle the boom that we are experiencing. We have heard that there is an extension being considered to allow homes under construction until the end of the year to receive their occupancy permits which is the key to getting the exoneration. This is welcome news for those who have made thier investment but have experienced delays but it is of little comfort to us developers who know that this important incentive is helping to drive our sales in the countries interior.
Here is an excellent overview of the changes and their financial costs to the buyer.
Panama, Sunday, July 29, 2007
Good bye to the 20 years tax exemption
Osvaldo Lau negocios@prensa.com
OPINION
Real estate has entered intensive care, because of the 20 years tax exemption on new properties has one month of life left, thanks to new chart of exoneration product of article 81 of Law 6 of 2005, as it was modified with the article 1 of Law 34 of same year. The new chart, that reduces between 25% and 75% the exoneration according to the use and the value of the improvements, evidently brings negative effects.
To make matters worse, it coincide with the suspension-cancellation of the most important real estate boom projects, that came with its quota of malaise, uncertainty and many questions without answers. The reduction of this incentive, that apparently haven’t had the impact in the real estate market, already begins to worry some who move within that competitive business and begins to break the silence on both parties, state treasury and tax payers, have kept until now.
Case in point: a new residential property, with land valued in 75 thousand dollars and with improvements by 300 thousand dollars, whose construction permit was issued before September 1st of 2006 and whose improvements were registered in the Public Registry before August 31st,2007. The 20 years tax exemption is applicable to the improvements. That is to say, 126 thousand dollars. That same case, when not fulfilling one of terms both mentioned, will only enjoy an exoneration of 5 years, that represents the sum of 31 thousand 500 dollars.
A far from negligible difference of 94 thousand 500 dollars in favor of the treasury. The previous allows a forecast in the tendency of purchases in the real estate sector, when the new properties with diminished exonerations face the re-sale properties with greater exonerations. The market will be distorted when the supplies of houses or condominiums just built, with improvements and with a value of more of 250 thousand dollars or five years of exoneration, compete against similar products constructed with one or two years of difference and that just they begin to run 20 years of exoneration, regard less of its value.
We have to admit the tax property represents for the national state treasury an important cash flow and in ascending scale, because they have overcome the exonerations granted before first half of the decade of the 80, but also by the increase in the cadastral value (tax basis of the tax at issue) product of the recent private appraisals and by the tendency not to only sell the properties without the subterfuges of the past. But in spite of its fiscal importance, the property tax maintains a high social content because who do not have properties do not have to worry about the same one and because the first 30 thousand dollars of all real estate property are exonerated. On the other hand, its contribution to the National Treasure does not have to create conflicts with the obligation and the necessity of the Government to promote the private investment as an engine of all economy.
It is for that reason that the new chart of exoneration must be reconsidered to make it or so more attractive than before, so that it allows us to compete with other countries in the pick up of the foreign investments and to maintain our own. Is the right moment so that the unions are pronounced and address the issue before the competent authorities to promote a serious study that takes care of the interests of all the involved parties. Later on, we wont accept any crying or claims.
The author is a financial consultant-CPA
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