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Analysis: New tax on condominium houses ignites controversy, concerns arise over legal implications, potential social crisis

Jemo condominium in Ethiopia’s capital Addis Ababa (Photo:REUTERS/Tiksa Negeri)

By Molla Mitiku @MollaAyenew

Addis Abeba – The recent implementation of a revised tax rate on condominium house roofs and walls by the Addis Ababa City Administration Revenue Office has sparked a heated debate and raised significant concerns among various stakeholders. Legal experts, financial analysts, and homeowners alike are voicing apprehensions about the potential implications of this tax adjustment, emphasizing the financial capacity of homeowners, the legality of the implementation, and the possible resultant social upheaval.

Residents of the Kilinto condominium in the Akaki Kaliti subcity, who spoke to Addis Standard, suggest that the city administration should have considered the challenging living conditions faced by many residents prior to imposing the taxes. The sudden imposition of this tax, without prior notice and the expectation of immediate payment, they say, is unduly burdensome.

One anonymous resident from the Sayat Darfur area of Kilinto condominium, a single-bedroom condominium owner, relayed her financial difficulties in light of the new tax policy. As a widow and sole provider for her two children, she voiced concerns about her ability to meet this fresh financial demand. Following her monthly bank mortgage payments, she finds herself left with a net income of 2000 birr—barely enough to provide for her family’s needs.

“Since the passing of my husband, I have shouldered the responsibility of raising our two children alone. This sudden tax imposition has shaken me to the core,” the homeowner expressed. “This new property tax is beyond my financial capability. The abrupt and distressing circumstances have placed me in an exceedingly challenging position.”

“It’s devastating that this burden is imposed before we’ve even finished paying off our bank loans.”

Additionally, she indicated that many homeowners are navigating even more precarious circumstances. Struggling with the surprise tax, some find themselves unable to afford even daily sustenance, oscillating between periods of plenty and scarcity.

Another anonymous homeowner vocalized their disapproval by stating, “The 10/90 and 20/80 condominiums were initially registered to make homeownership more accessible to low-income individuals through long-term loans. It’s devastating that this burden is imposed before we’ve even finished paying off our bank loans.”

This homeowner emphasized the ill-timed nature of the tax policy, arguing that while taxes are generally a societal obligation, the timing is inopportune. “Compelling us to pay property taxes for a house purchased with a bank loan isn’t fair; a government that purports to prioritize its citizens shouldn’t take such measures against them.”

This individual further divulged their personal struggle, “I reside in Akaki, but I am also renting another property. This was a necessary move due to my inability to pay off the bank loan. I rent out my house for 8000 Birr, while I live in a rented mud house that costs me 6000 Birr.”

These homeowners’ stories resonate with the sentiment shared by others who voiced their concerns to the Addis Standard. A common grievance is the perception that the city administration’s revised property tax for condominiums are not only inflated but also implemented without appropriate income assessment.

Reflecting on the broader socio-economic repercussions, one resident wonders, “how can we strive for development when we’re struggling to put food on the table?” Adding to this, he notes, “It’s like ‘putting the cart before the horse.’ There are numerous elderly without caregivers and other societal groups who, despite acquiring homes through a government lottery, are incapable of meeting these costs. The government must have taken these realities into account.”

In response to these rising concerns, Adem Nur, head of the city administration’s revenue office, defended the new tax policy during a conference held by the Addis Ababa Chamber of Commerce and Sectoral Associations. He clarified that this type of tax collection has historical roots dating back to 1937 EC, based on the Land Lease and Property Tax Proclamation No. 80/1968. The notable change now, he added, is the incorporation of condominium houses into this system.

According to Adem, the income presently derived from annual land leases and property tax is critically inadequate. It fails to cover the costs associated with collection, and has remained stagnant for an extended period, not adapting to inflation rates. Consequently, he underscored the urgent need for periodic updates in line with current rental market trends.

The city administration official also highlighted an investigation that discovered cases of landlords increasing rental prices for tenants in response to the change in tax system. As a countermeasure, the city administration issued a directive at a meeting on March 9,2023, banning further increases in house rent until July 7, 2023.

“The context during which the decree was issued significantly differs from the present day. By adhering to it, the city administration is committing a legal misstep.”

Despite the administration’s reasoning, not all parties are convinced. Ato Yohannes Woldegebriel, Director at the arbitration institute of the Addis Ababa Chamber of commerce, posits that the current policy could exert excessive pressure on residents. He argues that revising estimates based on Land Lease and Property Tax Proclamation No. 80/1968 could have substantial implications. “The context during which the decree was issued significantly differs from the present day. By adhering to it, the city administration is committing a legal misstep,” Yohannes contends.

He also recalls that the decree was issued during the Derg regime when the government was the sole landlord, and private individuals were barred from leasing properties beyond their personal residences. Consequently, there were no social crises within the tenant community. Today, the landscape has altered dramatically, with most landlords being private individuals who might pass on the increased financial burden to their tenants, potentially triggering social unrest.

“Enforcing such a rate without considering legislative amendments and insisting on immediate compliance could plunge the city administration into a legal predicament,” adds Yohannes.

“A single individual is already burdened with a 35 percent income tax, business tax, and property tax, and now the house tax is added. This situation disrupts peace and causes frustration.”

Adding to the dissent, Ato Yared Hailemeskel, founder and manager of YHM Investment Consulting Private Limited, criticizes the policy as “ill-conceived, punitive, perplexing, and potentially socially destabilizing.”

Elaborating on his concerns, Yared connected the current issues to a fiscal shortfall, implicating flawed policy decisions. He hypothesized that the government’s agreement with the World Bank might be leading the country towards unneeded complications.

Moreover, Yared argues that the imposition of an additional tax amidst a significant housing shortage, one that appears to overlook the law and incite fear among the populace, is inappropriate. He pointed out that condominium residents often include retired teachers, soldiers, government employees, and citizens with limited income. In his view, the present tax system does not take into account the capacity of the people to meet these obligations.

Highlighting the compounded effect of various taxes, Yared explained, “A single individual is already burdened with a 35 percent income tax, business tax, and property tax, and now the house tax is added. This situation disrupts peace and causes frustration.” While he admitted there might be no inherent issue with a house tax in principle, he cautioned against disregarding the realities of the country, where homeownership often results from a lifetime’s work. He warned that inability to meet tax obligations could spark significant social upheaval.

Although the Addis Ababa city administration holds the authority to collect various forms of revenue, including land rent and house tax, Yared expressed apprehension over the recent decision to impose taxes on condominium co-owners. He contended that this decision seems to stem from the government’s urgent need for funds to fulfill its agreement with the World Bank.” AS

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