Ahern plays down tax loophole for property developers

breakingnews.ie/text/ireland/mhojgbidojsn/

I wonder where he saw the report? The CIF website?

Sure has’nt Eddie Hobbs ala ‘Brendan Investments’ fame being bleating on about this on any show that can be bothered to give him airtime for the last 2 weeks?

But Jaysus lads FF is the builders party, didnt they say so themselves FFS. I mean what do you expect from a pig but a grunt. :unamused:

I must admit I am baffled by the “outcry” over this, though perhaps not that Hobbs is leading it.

This wouldn’t be a tax on developers but just another layer of tax paid by new home buyers and potentially a further wedge on second hand houses.

I’m not sure Nobbs has too much credibility since his German investment push.

That said he is right to raise this issue. It’s a tax break and to assume that the consumer is benefiting as a result of developers pocketing this tax break is a major leap of faith. I for one would not put it past developers to raise this as a reason to try to increase prices but I’d be inclined to think they pocket any benefits of this at present and not the consumer.

Whether now is a wise time to bring it in is another issue.

It is only a tax break in the sense that firms pay VAT on net sales (i.e. value added), not gross sales get a “tax break”.

And it would go on prices (but don’t get confused with the super-normal profits that have been generated in recent times) because if it didn’t developers simply wouldn’t buy the land in the first place (because it is/would be a cost and if they can’t recover costs they won’t take part in the activity).

As I said, this is a classic case of layman’s misunderstandig of basic economics. I just don’t understand why nobody from the government has not come out and pointed this out. They must be getting advised of this by any one of the legions of “economists” employed in the civil service.

It should also be pointed out in the media by any one of the “leading economists”.

If I buy a house with the intention of doing it up and then selling it on I pay stamp duty on the purchase price. If I buy a site with the intention of building some houses on it and then selling them on I have to pay stamp duty on the site purchase price. The issue as raised in the media is that this is not applying to large developers in that they use a loophole to avoid this.

This to me is a tax break/tax loophole.

You are right though in that the Government could clarify this issue…
Using the media sound bites as a basis to determine if there is an issue is of little benefit.

But VAT isn’t a transaction tax, so this is by design.

Whatever about the fairness or unfairness of stamp duty in general, and in the case of buying land to develop it in particular, there’s no doubt that stamp duty was designed to apply in this particular scenario - and it’s only by legal fudges that it is avoided.

Seems quite similar to the CFD vs share purchase lark on the ISEQ - since there is an even more stupid stamp duty on buying irish shares.

That is the way it is applied. You pay 21% tax on the cost of purchase. Take the analgoy further. A builder can claim zer o rate VAT on the materials used to build your house. Then when you buy you pay an additional 21% that goes straight to “the government”. What would you pay for your house if the builder was required to pay 21% on all materials used and then you were obliged to pay 21% on the final purchase price. That is right, you would pay:

The VAT paid by the builder (built into the cost of the house)
VAT on the price of the house, and best of all…
VAT on the VAT paid by the builder!!!

My point being that people crying out for this loophole to be closed are like turkeys baying for Christmas. The incidence of this tax falls on you and me, not some faceless evil person.

The real issue here is whether the stamp duty exemption applying to new houses should be removed. If you make developer pay duty on the land (close the loophole), buyers will pay as it gets rolled into the price.

Closing the loophole would be no different than keeping the loophole open and removing the zero rate for new houses (applied at revenue neutral rate).

I agree though it is just another absurdity in the nonsense that is stamp duty. It is about the closest thing you will get to legal theft.

Another way of seeing it is that if it is applied it may actually force down land prices.
With the restricted borrowing power of the consumer there is a limit to how much property will sell for.
This may be wishful thinking of course.

You’re way off on that one.

VAT is paid only by the end consumer, i.e. the buyer of the gaff. The builder is only collecting it on behalf of the government. Any VAT he pays his suppliers is claimed against the VAT he collects from the consumer.

I believe there was an ‘if’ in geckko’s statement - he was pointing out if VAT worked like stamp duty, it would be paid twice.

Point taken.

Though it’d seem to me that the merits of Stamp Duty should be called into question rather than let the loophole fester.

Maybe a scenario when the Stamp Duty is included as an allowable cost in the purchase of development land would achieve the same effect as the loophole. (I’m presuming that isn’t the case at present.)

If a time limit was put in place between purchase and development commencement to qualify for this allowance, it might well be a disincentive to land hoarding.