Panama Property Tax Rebate, and Switch

According to a recent article in the daily, La Prensa, property owners have a great opportunity to pay a lower tax rate. All you have to do is voluntarily re-valuate your property and pay your lower rate on a higher tax base.Anyone who voluntarily re-valuates their property by June 30 will be taxed at 1% instead of 2%. Because land in Panama is not routinely reappraised many people are paying property taxes on very old, very low property values. Many are not paying any property taxes if their current appraisal is $30,000 or below.

This issue has risen in the city with condo developers taking advantage of the opportunity to re-value their property before sale, thus reducing the capital gains they will have to pay. The developer has been paying, or not paying, taxes on an old property valuation for years and now has a brand new high rise and condos to sell. What he or she will do is revalue at the last minute thereby avoiding paying taxes on valuable property and then paying less capital gains on the sale.

The same can apply to property in the interior but there is an interesting twist. A farm in the interior is only worth its agricultural value unless a foreigner can be persuaded to buy the cattle ranch, coffee plantation, or watermelon patch. To avoid a big capital gains tax on the sale the rancher, coffee grower, or farmer may choose to take advantage of the government’s offer. Then he had better sell his property. If not, he will be stuck with paying taxes on land that may just be useful for subsistence farming instead of a multimillion dollar housing development. Another problem for anyone with an old house in the interior is that if he re-values his home he may need to pay property taxes on his house for the first time, ever.

Why doesn’t the government just go out and appraise every piece of land and every building?  The government apparently wants to correct a situation where property is valued at prices of a generation ago. What one hears is that the current offer brings in revenue without political cost. If the tax assessor shows up at every house, farm and ranch in the interior to raise the assessed land value and taxes there will be protests. If only the developers and naïve foreigners sign up for the new deal then tax collection goes up without a political price. If they raise taxes on all property then the government’s “it’s the people’s turn-le toca a ti” will mean “it’s your turn to pay your taxes, guys.”

Doesn’t owning your land through a corporation provide you with a degree of privacy in these matters? It is now a crime for an attorney to knowingly help sell shares in a corporation with assets in Panama without notifying the government. Most foreigners use an attorney to make sure these transactions are done correctly. That now presents a problem. It is not necessarily illegal, yet, to change corporate share holders in order to effectively sell property held by a corporation but it makes getting competent legal advice difficult if not impossible.

The government has a number of projects on the drawing boards and seems to be trying to get everyone to pay their fair share. The current government was elected after a populist campaign implying that the big guys would now have to pay and the little guys would finally get their due. However, the tax situation is reminiscent of laws passed during the Thatcher years in Great Britain where taxes filtered down into every nook and cranny of society. The property tax issue aside, it will be interesting to see how the overall issue of taxation plays out in Panama.