A dispute has reportedly arisen between the government and the International Monetary Fund (IMF) over a proposal to introduce a ‘Secondary Property Tax’ in the 2027 budget proposals.
The International Monetary Fund proposes to levy a tax on additional or second homes owned by any individual, and the IMF has proposed to include it in this year’s budget proposals. However, the government is of the opinion that such a tax is not necessary since other state revenue targets have already been met.
According to the initial agreement reached in 2023, a general property tax was to be imposed islandwide by 2025. However, the imposition of the tax has been delayed as the central government cannot impose taxes directly since the tax revenue related to properties goes to the provincial councils according to the 13th Amendment to the Constitution.
To circumvent this constitutional problem, the IMF proposed in August 2024 to implement an ‘Imputed Rental Income Tax’ (Taxing the estimated rental value of a person’s house as income) as an alternative from April 2025.
However, the current government that came to power after the November 2024 elections decided that it was not practical and abandoned the proposal.