The Guardians Council–a watchdog that ensures laws are in line with the Iranian Constitution and Islamic law–has sent back the vacancy tax bill to the Iranian Parliament for reconsideration.
Abbasali Kadkhodaei, the council's spokesman, said in a tweet on Thursday that it had found ambiguities regarding the revision bill of Article 54 of Direct Tax Code (vacancy tax) and in order to better protect the rights of people, it was returned to the Majlis, IRNA reported.
Members of the Iranian Parliament recently approved revisions to Article 54 of Direct Tax Code. The legislation would make several changes to vacancy tax with the aim of returning empty properties to use as rental homes for people.
As per the new decision, homes in cities with a population of over 100,000 that are deemed empty will be taxed for each month they remain empty for more than four months based on their assessed rental income tax.
The owners of these properties will have to pay six times more than the rental income tax in the first year, 12 times more than the rental income tax in the second year and 18 times more than the rental income tax in the third year and the following years.
New homes will be subject to vacancy tax 12 months after the end of the construction project (as per the date printed in their construction permit). The proposal also pushes the deadline for vacancy tax of new homes built as part of mass construction projects; they will be taxed after 18 months since the end of their construction project, IRNA reported.
The parliament required the Iranian National Taxation Administration to notice property owners of empty homes one month before the deadline, in cooperation with the Ministry of Information and Communications Technologies of Iran.
Householders are required to register the principal residence of the family in the nationwide online database of all residential properties across the country, the so-called National Property and Housing Database within two months of the publication of guidelines of this legislation. Unregistered homes, owners of which have failed to log on their postal code and ID number at the database, will be accounted as empty homes.
Clause II of the new proposal says each household is allowed to name one more of their properties as the second home, provided it is located in a city other than their primary residence. Second homes will enjoy exemption from vacancy tax.
University students studying in cities other than their own hometowns are allowed to register another property besides their principal residence and second homes, and enjoy exemption from vacancy tax.
Residential properties used lawfully by businesses, institutes and companies would be exempt from vacancy tax, provided they have been registered in the National Property and Housing Database.
All persons subject to the code are required to update their new information in the National Property and Housing Database within one month, in the event of any change in their place of residence such as the sale of their homes.
Executive bodies are only required to provide services, including opening bank accounts, offering welfare programs, selling electricity, water, landline and natural gas subscriptions, school registration, etc. to residents based on their postal code and address uploaded on the National Property and Housing Database.
According to Mehdi Toghyani, the spokesperson of Majlis Economic Commission, the government and parliament are of the same opinion regarding the taxation of empty homes.
A motion to consider adoption of a vacancy tax was originally passed in the Iranian year ending March 2016. It stipulated that if a home remained vacant for more than one year, it would have been subject to Vacancy Tax. Homes with a floor area of 150-odd square meters would have been subject to tax at the rate of 20% of the property’s rent value.
The Ministry of Roads and Urban Development was then tasked with designing, in cooperation with a number of other affiliated organizations and entities inside and outside of the administration, a database containing information on all residential units and homeowners across the country and handed it to the tax administration.
Three months ago, Minister of Roads and Urban Development Mohammad Eslami said the nationwide online database of all residential properties across the country had finally been completed and submitted to the Iranian National Tax Administration; the tax authority would issue tax statements as of the beginning of summer. Summer began on June 21, 2020.
Implications Under Scrutiny
A prominent housing expert says vacancy tax would hardly push down rents or home prices in the short run.
Fardin Yazdani, who is the author of the Comprehensive Housing Plan of the Ministry of Roads and Urban Development, added that from the get-go, he approved of taxing empty homes in principle.
However, “it can’t be a powerful tool in the effort to curtail home prices and rent levels in the short term, given the fact that most empty residential properties are located in the luxurious, expensive northern districts of the capital city”, he said.
“These underused housing units have been built as spaces for investment as opposed to places of living," he said. “Therefore, they will have little effect in bringing the housing market back to equilibrium. The same is true about tenancy market. Demand for such homes is low among renters,” he was quoted as saying by Hibna.
Yazdani noted that it is important to set tax rates with an acceptable deterrence level that spurs property owners to use vacant homes either by renting them out or selling the properties off to someone else who actually plans to use it.
“In the long run, however, vacancy tax would lead to a shift in investment preferences in the housing sector. Investors will put their money into mainstream housing units rather than high-end homes with their high-maintenance costs,” he said.
“Policymakers also need to work out an appropriate mechanism of calculating and applying vacancy tax, if they wish to see meaningful results.”
