A new proposal to charge 5 per cent on sale or free transfer of immovable property such as houses and land has ignited debate as lawmakers seek more explanations on why such a tax should be imposed and what would be the right modalities to introduce it.
Under a proposed law governing income tax, that is being debated by the parliamentary Standing Committee on National Budget and Patrimony, Government has proposed to levy 5 per cent on the sale or free transfer of immovable property.
The Income Tax Bill, if enacted into law, will replace Law no16/2005 of 18/08/2005 on direct income taxes and all prior legal provisions in the country that will be contrary to its provisions.
But its proposal to charge taxes on individual sale of homes and land has ignited debate, with some lawmakers wondering whether the Government won’t encroach on people’s rights to own property for welfare purposes while the latter argues that some people are making good money off home sales and should be paying income taxes.
Both the Minister for Finance and Economic Planning, Amb. Claver Gatete, and the RRA Commissioner-General, Richard Tusabe, appeared before the committee on Thursday to provide further details on the rationale behind the proposed tax.
Under the current income tax law, the sale or free transfer of immovable properties owned by companies is taxed but the levies are not applied when the property is owned by an individual.
But Minister Gatete said that has to change because some people have been selling homes and making money out of it without paying any taxes.
“It’s a matter of principle that we must pay taxes on capital gains. There is no country in the world that doesn’t collect capital gain taxes,” he said.
Now the proposed income tax law seeks to impose a tax on the sale or free transfer of immovable property if it’s of value above the threshold set by the Ministry of Infrastructure.
Gatete said the threshold has already been decided based on studies conducted by the Government and it was decided that the new tax on the sale or free transfer of homes will concern homes that are worth more than Rwf30 million.
That is the price considered to be for an affordable house whose sale or purchase wouldn’t be made for the purpose of making money but for dwelling.
MP Theobald Mporanyi said the threshold is still low for affordable housing, explaining that some people spend Rwf50 million to build a family house and its transfer shouldn’t necessarily mean that they are making money.
“It looks like the cost of an affordable house is between Rwf30 million and Rwf50 million depending on whether the house’s construction was subsidised by the government or not. To be on the safe side, an affordable house costs Rwf50 million to build if you consider the cost of installing water and electricity, as well as other forms of infrastructure on top of construction works and buying land,” he said.
Mporanyi also wondered whether it will be fair to tax people who sell their homes for social purposes such as relocation, a public auction, or simply the transfer of property to relatives.
“Isn’t 5 per cent a lot of money? Why should people be taxed on the sale of a house for the purpose of relocation or building another home?” he wondered.
The Bill proposes that tax on sale or transfer of an immovable property will not apply in four cases.
These include; the sale of an affordable residential house whose value is determined by an order of the minister in charge of infrastructure, the sale of a residential house constructed and sold by a recognised real estate developer, the transfer for free of immovable property to the child of the deceased aged below 21 years, and the transfer for free of immovable property to the surviving spouse under the regime of community of property.
But MPs want the Government to broaden the nature of exemptions and want to include immovable properties sold during a public auction to sort owners’ outstanding debts, a sale made as a result of an expropriation process for public interest, as well as the transfer of property to relatives no matter what age they are.
RRA’s Tusabe said that the MPs’ concerns made sense and promised that their proposals will be included in the Bill before it is passed into law.
“The provisions of the law on this tax should provide for flexibility. In case of a public auction it wouldn’t be fair to apply this tax because there is often no money to make for those who sell their property during an auction,” Tusabe said.
The committee and the Government side represented by Gatete and Tusabe agreed to work together to put all the needed details into the draft law so it can be tabled in Parliament for approval before the end of the month.