Even though the government has made numerous changes to the 12 per cent withholding tax on property sales announced in the budget last November, not everyone agrees that the tax is fair and that it will resolve the problem of hoarded property.

The 12 per cent tax was the subject of a debate yesterday afternoon between the parliamentary secretary in the finance ministry Tonio Fenech, the opposition spokesman on finance and economic affairs, Dr Charles Mangion, and estate agents.

In his opening speech, Mr Fenech outlined the government’s rationale for introducing changes to the way profits on the sale of property should be taxed.

“We wanted to encourage long-hoarded property to re-enter into the market, to correct a number of anomalies that where caused when changes had been made in the way inherited property was being taxed, and to simplify the mechanism for assessment and payment of the tax for those who are not in the business of buying and selling property,” Mr Fenech said.

Going into the details of the changes, Mr Fenech insisted that the final tax system “provides advantages to property owners without creating disadvantages to property dealers and developers. We are confident that the measures that we have introduced will produce positive trends in the property market, and this should, in turn, prove beneficial to the economy as a whole.”

However, not everyone agreed with the parliamentary secretary’s assessment of the new provisions or that the objectives would be reached.

Labour spokesman Dr Charles Mangion said the matter had been debated at length in parliament but there were still issues that did not make sense.

He said the 12 per cent withholding tax was advantageous for those who bought the property 20, 30 years ago, when the withholding tax would make more sense than when the previous system of 35 per cent capital gains tax was applied.

However, people selling property that was bought a few years ago may find that the capital gains made are not sufficient to make the 12 per cent regime worthwhile.

“The system also creates two categories of taxpayers and the five year window creates more problems than it resolves. There are also indications that the black economy will increase,” Dr Mangion said.

He also suggested that property inspections should be made before the publication of the deed and not as the system is today.

Replying to Dr Mangion, the parliament secretary said the new system did not create two categories of taxpayers but simply differentiated between those who are regular sellers and those not in the property market. He insisted that the five-year window was introduced following talks with the stakeholders.

“I don’t think that the new system encourages the black economy. On the contrary, what we have done will strengthen the audit trail and cut down on abuse,” Mr Fenech said.

With regard to inspections before or after the publication of the deed, Mr Fenech said that he would willingly accept the suggestion made by Dr Mangion but only when he has the proper infrastructure in place.

During question time, estate agents said the 12 per cent withholding tax did go someway towards the release of hoarded property but it would lead to many scenarios where some people would end up paying more than the maximum 35 per cent tax.

They said that they agreed with the seller having the option to choose between the 12 per cent withholding tax or the seven per cent provisional capital gains tax, but disagreed that this should only apply within the first years of ownership.

“Not everybody makes the kind of profits that will justify a 12 per cent withholding tax,” one estate agency said.

Frank Salt said he disagreed from day one with the revisions to the property sales tax and insisted that it was unfair.

“This tax does not stimulate the market. Within the five-year window, you are fine, but after that you end up paying more than the original 35 per cent capital gains. People have different reasons for selling their property and price increases do not increase to counter the effect of the 12 per cent withholding tax,” Mr Salt said.