What’s Tajikistan’s minimal rent?

A new concept has appeared in the law on the state budget – the minimum rent for real estate. The innovation angered both landlords and tenants. What’s wrong with it?

We are talking about setting a lower mark for rent for private property (housing and other objects), all issues related to the lease of state property have long been regulated by the Law on Lease in the Republic of Tajikistan.

In simple terms, individuals can no longer lease their property below the level set by the state, however, there are no restrictions on the upper side.

The minimum rent for 1 square meter in the law on the state budget for 2023 is set as follows:

– for real estate objects used as residential buildings (premises), as well as their auxiliary buildings – 20% of the indicator for calculations;

– for real estate objects used for production purposes – 30% of the indicator for calculations;

– for real estate objects used for the purpose of trading activities, the creation of catering establishments, other types of services and the performance of work – 60% of the indicator for calculations;

– for real estate objects used for the purpose of carrying out other types of activities – 45% of the indicator for calculations.

Thus, the rent of each square meter of housing should not be lower than 13.6 somoni, production facilities – 20.4, trade and catering facilities – 40.8, and objects for other purposes of various types of activities – 30.6 somoni.

The final rent for cities and regions is set using regional coefficients, which are defined in the Tax Code.  

The minimum rent in Dushanbe (coefficient 1) remains unchanged, and in other areas of the country, depending on the coefficient, it decreases from 20% to 90%.

For example, the coefficient of the cities of Khujand, Bokhtar and Kulyab is set at 0.8. Accordingly, the minimum rent for each square meter of housing in these cities is 10.88 somoni, which is 20% lower than in Dushanbe.

To independently determine the lower bar of rent in a particular area, you just need to multiply the coefficient of this area by the established minimum nationwide rent for an object of a particular purpose.

Why do the authorities need it?

The innovation is valid from January 1 of the current year. Its expediency at a press conference at the Tax Committee was explained by the fact that landlords hide the true cost of the transaction in their contracts with tenants in order to pay less taxes.

In a directive letter from the tax department to its regional divisions, which was handed to “Asia-Plus” as a “more complete answer to the question”, it is said that the above-mentioned norms are established to prevent violation of the law, regulate the amount of rent and correct reporting, as well as transparency in tax payment from the lessors.

Similar justifications were voiced by Finance Minister Fayziddin Kakhhorzoda during his press conference last week.

He argues that landlords in official documents show grossly underreported incomes, as a result of which the country’s budget is deprived of large amounts of tax revenues.

The minister is confident that the adoption of measures will help improve the taxation of landlords, and, accordingly, replenish the country’s budget.

He added that the ministry is ready to consider and discuss any other alternative proposals to solve this problem.

Invalid decision?

Meanwhile, the innovations angered both tenants and landlords, who believe that the authorities often make unacceptable legislative amendments, hiding behind the “bad faith of taxpayers.”

Tenants do not doubt the existence of such among property owners, but consider it wrong to measure everyone with the same brush.

They fear that the decision taken by the authorities will provoke an increase in already high rents.

There is also dissatisfaction among them regarding a single bar for a particular city or region. 

“The rental value of objects in the central part of Dushanbe and its outskirts varies greatly. However, the legislator did not think through all the details to the end, setting a mandatory lower bar for the entire city at the same level, which will lead to higher rents on the outskirts of the city,” says one of the capital’s tenants.

Landlords are indignant at government intervention in pricing on the private property rental market, assuming that a rash decision by the authorities could lead to chaos in this market.

They cannot understand how the state or individual can afford to dictate the price of private property. 

Real estate owners advise the authorities not to interfere in pricing on the market, as these issues are resolved in a natural way – through supply and demand.

To solve problems with tax collection, they recommend finding other, more acceptable and painless solutions for the market.

“Otherwise, the landlords are sure, the natural balance between supply and demand in the market may be disturbed, as a result of which the number of taxpayers who are “in the shadows” may increase, which means a reduction in tax revenues to the budget.”

And is it a market economy?

Asia Plus could not find such a practice (setting by the state of a minimum rent for private property) in other countries, at least in those countries where, like in Tajikistan, a market economy operates.

One of the main principles of this economic model is free pricing. With this model, the state can set prices exclusively for its own property. 

State intervention in pricing is allowed only in those markets where monopolists exist. But even in such markets, the antitrust agency cannot afford to dictate specific prices, it can only require that the dominants justify the prices set.

Any mechanism will function well only when all its parts, even the smallest ones, work properly. Any improvisation with details can disable the entire mechanism. 

source: asiaplustj