Vacancy Tax Set to Come Into Force in Summer

EghtesadOnline: The nationwide online database of all residential properties across the country will be completed and put at the Iranian National Tax Administration’s disposal by next week, Mahmoud Mahmoudazadeh, the head of Housing Economy Department at the Ministry of Roads and Urban Development, said on Sunday.

News ID: ۷۵۰۲۶۸

20 June 2020

“In so doing, INTA will be able to mine the database to track vacant homes subject to Vacancy Tax in less than two weeks,” he added.

In the Iranian year ending March 2016, the Ministry of Roads and Urban Development was tasked with designing, in cooperation with a number of other affiliated organizations and entities inside and outside the administration, a database containing information on all residential units and homeowners across the country and handed it to the tax administration.

The ministry did not provide an exact date on which the database would be put to use, because “it must be strengthened and completed step by step so that its result can become more accurate gradually,” Ali Chegini, a former deputy minister, said then.

The Iranian National Tax Administration will start the enforcement of vacancy tax as soon as the ministry finishes its assignment, Omid Ali Parsa, the head of INTA, told IRIB News.

“Empty homes will not be taxed in the first year but they will be taxed at the rate of 50% of the property’s assessed rent in the second year and in the third year, they will be levied tax at the rate of 100% of the assessed rent,” he said.

“A commission comprising officials of the Roads and Urban Development Ministry, INTA and Municipalities Organization will estimate the rent of these properties. However, I believe that these rates are not high enough to work as a powerful deterrent to ensure all available houses become available.”

Minister of Roads and Urban Development Mohammad Eslami said last Thursday that homes deemed empty will be subject to vacancy tax from the day of the direct tax reform bill’s approval and INTA will issue tax statements as of the beginning of summer (June 21).

“The turbulence in foreign currency exchange market and inflation levels, among other determinants, leave their impact on the housing market. Supply and demand are not the only force causing changes in home prices; all authorities in economic circles need to pay attention to the housing sector,” he added.

Eslami noted that 400,000 homes are needed annually.

“By giving inaccurate figures like one million, demand will go up and so do home prices. According to the Statistical Center of Iran, at least 300,000 new homes are added to the market annually,” Mehr News Agency quoted him as saying.

Mahmoud Alizadeh, another senior official with INTA, said Vacancy Tax Law, as part of Direct Tax Reform Law, was put on the agenda in the year ending March 2016 and was enforceable from the year ending March 2017, but there was little data on the number of vacant units then.

“As per Clause 54 of Direct Tax Law, if a home remains vacant for more than a year, it will be subject to Vacancy Tax. Homes with a floor area of 150-odd square meters will be subject to tax at the rate of 20% of the property’s rent value,” he added.

30% of Urban Households Live in Rented Homes

According to Mahmoudzadeh, a total of 6.6 million households or 30.7% of the country’s 18.1 million urban households in the country live in rented homes.

“In seven Iranian provinces, including Tehran, Kohgilouyeh-Boyerahmad, Lorestan, Qom and Kermanshah, renters account for more than 40% of the households. In other provinces, fewer than 30% of households live in rented homes. The lowest tenancy rate in the country has been registered for Ardabil, Yazd, Mazandaran and Golestan, and in other provinces, the tenancy rate hovers between 30% and 40%,” he was quoted as saying by Fars News Agency.

Noting that the objective of empty home tax is to return empty properties or second homes [under-used properties] as rental homes, the official said latest figures by SCI show more than 2.1 million homes in urban areas are empty while there are about two million second home-owners.

Mahmoudzadeh noted that homeowners who put their empty houses on the market by Sept. 21 will be entitled to exemption from vacancy tax.

He added that according to the findings of the Housing Comprehensive Plan (March 2017-27), close to 30% of renters need government financial support, as housing credit facilities account for only 3% of total financing facilities currently compared with 8% in the year ending March 2020 and 17% in the year ending March 2012.

“The ministry has put together a bylaw on a professional rental system that awaits the Cabinet’s approval. It has also reached agreements with national humanitarian aid organizations, including the Imam Khomeini Relief Committee and State Welfare Organization to provide dwellings for longtime renters. Given the economic hardship facing tenants, the government has set up a taskforce to weigh in on the proposals made by the ministry,” he said.

Demographic Projections

According to the Housing Comprehensive Plan (March 2017-27) drafted by the Ministry of Roads and Urban Development, the Iranian population will reach 88.2 million in the year ending March 2027.

Projections show that by March 2027, 68.2 million would be living in urban areas and 20 million in rural areas. The number of households will hit 28.7 million, of whom 22.1 million will inhabit cities and 6.15 million will live in villages.

Newly-formed families will need 4,076,000 homes over 10 years to March 2027 (including 3,997,000 urban households and 79,000 rural households). The country will be short of 1,370,000 homes (including 673,000 units in cities and 697,000 in villages). A total of 5,313,000 homes, including 3,003,000 in cities and 2,310,000 in villages, have to be repaired or rebuilt by then.

From the Iranian year extending from March 2007 to March 2017, close to 590,000 residential units were produced and supplied to the market. The highest and lowest number of homes constructed over these years were registered for the year ending March 2013 with 820,000 and the year ending March 2017 with 390,000, respectively.

The optimal ratio of vacant houses worldwide is 5% in urban areas and 2.5% in rural areas, whereas it is 10.3% in Iran’s urban areas and 8.5% in rural areas.

The Housing Comprehensive Plan estimates the number of vacant homes must decline to 1.4 million (1.1 million in urban areas and 300,000 in rural areas.)