By Stelios Orphanides
Disy chairman Averof Neofytou said that his party will submit to the plenary of the parliament on Friday four bills facilitating the reduction of non-performing loans with tax breaks concerning the sale of property.
The four bills will exempt property owners who sell their assets to third parties in order to repay part of their entire non-performing loans from income tax, capital gains tax, the extraordinary defence levy and stamp duties, Neofytou told reporters on Thursday according to an emailed transcript of his comments.
The new rules would allow the borrower to sell immovable property on the market and ensure that the sale price reflected its market value, he said.
“At the same time, the lender is not burdened with the ownership and management of immovable property resulting from loan restructurings,” the chairman of the ruling party said. “We are helping this way financial institutions to focus on banking and avoid becoming real estate management companies. The main concern of Disy and the government, as well as that of the other political parties, is to give the necessary incentives and tools to help borrowers restructure their loans in a sustainable manner.”
Neofytou, who also chairs parliament’s finance committee, said that a borrower owing the bank €5 million and owning immovable property worth €5m acquired for one fifth of the current market value might have to pay up to €800,000 in capital gains tax if he or she decided to sell the property. In the case of a debt-to-asset swap, the existing legislation would exempt the borrower from capital gains tax.
The Disy chairman added that the borrower could also in certain cases be asked to pay up to 35 per cent income tax from the income generated from the transaction and might therefore be reluctant to sell the property on the market or even accept an offer from the bank to buy it for €4m, which would leave the borrower with a remaining €1m debt.
Neofytou added that Disy discussed its proposals with the government which considers them as “an important additional tool” while “colleagues” of other parties had also raised the issue in discussions.
According to a December 2009 Supreme Court ruling, the parliament has the right to vote on its own proposals to reduce tax rates but does not have the right to do the same with proposals increasing taxation.
Delinquent loans in Cyprus, accounting for around €22 billion, or almost half of total loans, are a threat to financial stability.