Wednesday, May 22, 2024
NewsControversial property tax proposes selective exemptions

Controversial property tax proposes selective exemptions

Small residential properties and certain government offices across the city will be exempted from the new property tax, according to a draft proclamation unveiled by the Ministry of Finance.

The draft proclamation, in works by the Ministry of Finance since last year, for a contentious property tax introduces several exemptions for specific types of properties. While the majority of residential houses and businesses will be required to comply with the tax, there are exceptions outlined in the draft document.

The controversial tax, aimed at generating revenue from property owners, introduces several carve-outs for religious facilities, urban farms, burial grounds and residences under a certain size.

Houses built on 15 square meters of land or less and located in high-priced areas, as well as those built on 30 square meters of land or smaller in less expensive neighborhoods, will not face the tax burden.

The Ministry is weighing several factors to determine which organizations may qualify for a property tax exemption. A key consideration is the types of services provided by federal government bodies and international groups.

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Regional authorities will take a closer look at whether an organization’s contributions to the community outweigh the tax revenue that could be generated. Based on this assessment, exemptions may be granted for certain properties, according to the draft guidelines.

The public got their first look at the proposed rules in late September, when the Ministry circulated the draft on the 21st. Stakeholders are coming together on the 25th at Ministry’s headquarters in Sidist Kilo to discuss the potential impacts.

The Ministry is taking the lead on developing the legal framework, even though the federal government won’t directly manage tax collection. This new property tax differs from the infamous “wall and roof tax” Addis Ababa city admin implemented a few months ago.

Facing a significant budget shortfall stemming from post-conflict rebuilding needs, the government has not only adjusted existing tax rates but introduced new ones as well.

At a joint parliamentary meeting earlier this year, it was decided that regional and municipal governments would take responsibility for collecting property taxes. The underlying goal, as discussed, is to empower cities to finance their own expenditures, reduce deficits, and reliably provide essential services to residents.

Only for the purpose of determining property tax rates for collection, the draft proclamation categorizes cities into two types: chartered cities and city administrations. A city qualifies for the status if it is established with an administration and has a population of 2,000 people or more, with at least half not primarily reliant on agriculture.

Regional authorities and city administrations will play a key role in determining property tax rates after considering each property’s unique function and attributes. Rates will undergo annual revisions based on routine property assessments to ensure fair and up-to-date evaluations of taxable worth.

During the drafting process, the Finance Ministry sought input from veteran legal scholar Tadesse Lencho (PhD), a managing partner at TBeST Law LLP with decades of experience, including teaching at Addis Ababa University.

Tadesse expressed reservations about the approach of exempting houses solely based on size, like those of 15 and 30 square meters. He suggests considering property owners’ economic circumstances instead.

“The exemption is really for the people living there, not the house itself,” Tadesse noted.

He questioned whether 15-square-meter private homes even exist in reality.

In discussions with the Ministry, Tadesse also raised concerns about the subjective nature of exemptions granted to governmental and intergovernmental bodies. He argued that embassies, consulates, foreign institutions and international organizations settled under bilateral treaties automatically enjoy tax immunity.

Therefore, they should have been overtly included in the proclamation, rather than leaving it open to interpretation, according to him.

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