The Ministry of Finance has so far only offered full page spreads in the newspapers and a TV skit to explain its proposed revision of the property taxation system that is to come into effect on January 1 and I am sure readers will still be in the dark about several aspects of it.
Curiously the examples cited are of rental values of $2,000 and $3,000. Presumably this is meant to soften the blow when reality kicks in. It would certainly have helped owners of owner-occupied residences to plan their domestic budgets if some sort of tabulation had been published instead. The first example in the newspaper advertisement states, ’For example, if your property is valued at $800,000 and can be rented for $2,000 per month, your ATV will be $21,600. Your property tax will be $21,600 x 3% = $648’.
The advertisement however, emphasises that the basis of the tax is the expected annual rental and not the current market resale value. So will the Ministry tell us what the property value has to do with its example? This must be very confusing especially for owner-occupiers who either have no intention of ever renting their homes or simply could never afford to rent their properties.
What must however take the cake is the ambiguity surrounding the ’actual rental value expected to be earned on such a property’. First, the word ’actual’ confuses. In the English language it means simply ’existing in fact’, or ’current’. Applied to the word ’value expected’ one can only assume the latter meaning and it would have been much clearer to those to be taxed if the word ’actual’’ were simply eliminated. Indeed it would have been much clearer if the particular bullet point were completely rewritten ’For residential and commercial properties the ATV is the annual rental value estimated by the Ministry of Finance that the property could be rented for etc’. This nevertheless will be irrelevant to most owner-occupiers who will simply have to accept the new supposedly reduced and more equitable percentage rates that will however turn out to sharply higher in actual dollar terms in most cases.
But the greater ambiguity is to be found in the rental value. If the Ministry examines the classified advertisements in any of the newspapers it will see that residential properties are offered fully furnished, partly furnished and unfurnished.
Further, the terms of these offers of rental vary considerably with the properties while multiplex buildings often carry considerable service charges of one kind or another. So the main question to the Ministry is simply this-is the rental value used for calculation of the ’actual rental value expected’ before an unfurnished, partly furnished or fully furnished property?
Again if you examine the classified advertisements, especially on the weekends, readers will note that the bulk of the advertisements for rentals are furnished or semi-furnished properties. Depending on location, three/four bedroom unfurnished detached properties range from $5,000 to a high of $15,000. Unfurnished two/three bedroom apartments range from $3,000 to $7,000. Needless to say not all offers cite rentals. But the ranges should give owner-occupiers a feel for what to expect if the Ministry of Finance uses the unfurnished rental values currently obtaining in determining the ATV. If however it uses rental values of furnished properties as seen in the classified advertisements then owner-occupiers will be in for a proper shafting. Many furnished properties are offered at rentals quoted depending on location in a range of from US$ 2,000 to 3,500.
But serious problems arise both with using location and ignoring individual circumstances. One is the state of the particular property and its maintenance. A property in its first years demands comparatively little maintenance. A 50-year-old property on the other hand is always a challenge to its owners and we may very well have the possibility of two adjacent properties of the same general dimensions but different ages commanding the same ATV and paying the same tax.
The owner of the older property will have to face proportionately higher maintenance costs each year. But what will certainly stick in the craw for the majority -the owner-occupiers-will be the difference between themselves and the renters of properties. The latter group will simply raise their rents to recoup.
Using three examples of publicly advertised monthly rentals of unfurnished three/four bedroom houses in different localities of $5,000, $10,000 and $15,000 and the ministry’s formula for calculating the ATV the annual property taxes will be respectively $1,620, $3,240 and $4,860. Similarly, using examples of advertised monthly rentals of two/three unfurnished apartments in different localities of $3,000, $5,000 and $7,000, and the same formula the property taxes will be, respectively, $976, $1620 and $2268.
As I have suggested, landlords who actually rent comparable properties will simply make the upward adjustment of their rents.
On the other hand you, a member of that vast number of owner-occupiers, will simply have to adjust your domestic budgets accordingly. And Heaven help you if the ministry uses furnished rental values.
