Money lost on property tax evasion

By Samuel Kutty — MUSCAT: MARCH 11 - Muscat Municipality plans to clamp down on those who evade tax on rents for residential and commercial properties. A civic official told Observer that several cases of non-compliance with payment of tax for tenancy agreements have been detected and, in some cases actions initiated against offenders. While many landlords even do not sign agreement in connivance with the tenants, several others undervalue the property to bunk off taxes fixed by the municipality.

“By doing so both the owner and tenant stand to profit from this kind of a deal, while it deprives the municipal coffer of thousands of rials every year”, said the official who did not want to be named.

Moreover, the municipality tax that has been mentioned in the provisions of the Royal Decree No (6/98) is a governmental debt to be paid by the landlords or tenants as per the agreement and can be collected by the administrative confiscation.

According to Salim Mohammed al Ghamary, a Muscat Municipality Council member, the civic body loses a large sum of amount every year by way of tax evasion.

“Many of the property owners in Muscat do not register rent lease agreements to evade taxes. The municipality should impose heftier penalties for those violating the rule, not just fines”, he said.

Unless the lease agreement is registered and the prescribed fees are paid, such agreement shall not be recognised by any official authority in the Sultanate.

“Landlords failing to register the lease agreement will incur a fine of three times the prescribed fees”, the law stipulates.

In the first quarter of last year, the municipality tax for all tenancy agreements, through a ministerial decision, was hiked from 3 per cent to 5 per cent. The decision also mentioned that either the landlord or tenant can pay the fee.

But like in the past, some property owners make under-the-table deals with tenants, so both the parties stand to save some money.

For example, if the monthly rent is RO 500 for any property, the tax per annum will amount to RO 300 at five per cent rate. But if the owner of the building and tenant reach a deal to show the rent at RO 400 in the agreement, the tax will be only RO 240.

Nasser al Wahaibi, who owns a number of properties in the capital, said all property owners or real estate companies do not resort to such tax evasions.

“In some cases, landlords try to insist that tenants pay the tax and failure to which results in non-registration of the agreement”, he said.

According to the law, it is mandatory for the landlord to register the lease agreement, unless the landlord and tenant agree that the registration will be carried out by the latter.

In order to avail the rights and privileges provided to the landlord and tenant, it is necessary to register the lease agreement as required under the Tenancy Law. In the event the landlord fails to register the lease agreement within a period of one month from the date of signing the lease agreement, the tenant may do so within the specified period.