What Is the Municipal Duties Tariff?
2024-07-18
Editorial note: This article includes specific statutory percentage rates, a worked tax-calculation example, and citations to particular statutes and Administrative Justice Court rulings. Municipal duty rates and the underlying figures are subject to periodic change; this article should be reviewed by a member of our legal team and the figures verified against current regulations before publication.
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The municipal duties tariff is a specific directive prepared and issued by the Ministry of Interior pursuant to Article 30 of the Municipalities' Financial Bylaw.
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Failure to pay building municipal duties subjects your building to a penalty for non-payment of duties.
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Building municipal duties are presented under the heading of annual municipal duties, and all buildings are subject to the law requiring payment of duties.
Which Body Records and Issues the Laws Related to Municipalities and Building Municipal Duties?
Two organizations directly influence the municipal organization and enact laws for it, and the municipality is required to issue and implement these laws. These two important and influential bodies regarding the municipality are the Islamic Consultative Assembly (Parliament) and the Expediency Discernment Council.
The Islamic Consultative Assembly: Parliament is one of the most important and primary bodies that enacts the laws applicable to municipalities. Under the applicable mechanism, Parliament enacts specific laws for the municipal organization.
The Expediency Discernment Council: the Expediency Discernment Council, under a particular set of regulations, takes the steps necessary to enact specific laws for the municipal organization. With respect to the municipality's acts and conduct, implementation of the Expediency Discernment Council's resolutions is binding and mandatory.
How Building Municipal Duties Are Calculated
Under Article 2 of the Urban Renewal and Development Act, adopted in 1968 (1347 SH) and implemented from the beginning of 1969 (1348 SH), all land, structures, and buildings located within a city's legal boundaries must pay their property's renewal duty in full within the period set by law.
Example: calculate the renewal duty for a plot of land measuring 20 x 10, with an area of 200 square meters.
Step One:
To calculate a property's renewal duty, you must first determine several variables. Since this plot of land consists only of bare land ('arseh) with no structure on it ('eyani), you only need to determine the value of the land itself. To do this, you must determine its zonal value (P), as described above. Zonal value: the most recently announced price for land and structures, determined under the property valuation booklet referenced in the note to Article 64 of the Direct Taxes Act. Note that, naturally, different valuation booklets exist for different years. Assume that the zonal value, P, for the plot of land mentioned above, according to the valuation booklet, is 150,000 rials (P = 150,000).
Step Two:
To determine and calculate the renewal duty, you must obtain the property's value, which consists of the land value, the building value, and the facilities value; and, since this property has no structure, you only calculate its land value.
Land value = property area x zonal value (P)
30,000,000 = 200 x 150,000
450,000 = 1.5% x 30,000,000
The renewal duty calculated for this property for one prior year is subject to a 10% good-payer discount.
In the equation above, what does the figure 1.5% mean, and how is it derived?
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Under Article 2 of the Renewal Act, the renewal duty rate from the beginning of 1969 (1348 SH) through 2002 (1381 SH) was calculated annually at 5 per 1,000.
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From the beginning of 2003 (1382 SH) through 2009 (1388 SH), under the duty-consolidation laws (Note 2 to Article 5) and the value-added tax law (Note 2 to Article 50), the rate of 5 per 1,000 was converted to 1 percent.
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From the beginning of 2010 (1389 SH), under item "d" of Table No. 25 of the 2010 (1389 SH) Budget Act, the rate of 1 percent was changed to 1.5 percent.
Step Three:
Under Note 1 to Article 10 of the Urban Renewal and Development Act, for taxpayers who pay the duty owed on their property within the period set by law, 10% of that year's duty will be credited and deducted as a reward. (Note: this reward does not apply to your property's debts from prior years, and if taxpayers fail to pay their overdue duties by the end of each year, then, under Article 14 of the Renewal Act, beginning the following year, they will be required to pay a late-payment penalty of 9% per year for the period of delay.)
Good-payer reward amount = 10% x renewal duty before deduction of the good-payer reward
45,000 = 10% x 450,000
Renewal duty payable for one year, after applying the 10% good-payer reward = renewal duty before deduction of the good-payer reward -- good-payer reward
405,000 = 450,000 -- 45,000
Important Points About Municipal Duties
When determining building municipal duties, a number of important points must be observed. Among the points to be attentive to in the building municipal duties tariff are the following:
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If a property has frontage on more than one street, then, under the law, in calculating your building's municipal duties, the criterion to apply is the highest zonal price among the streets the property faces.
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If your property is located around a square or a roundabout, payment of your property's building municipal duties must be calculated based on the highest zonal price of the street frontage branching off from that roundabout or square.
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Pursuant to Judgment No. 587 dated 2005-02-14 (25/11/1383), and, following it, Judgment No. 48 dated 2006-04-23 (3/2/1385) of the General Assembly of the Administrative Justice Court, after building-violation fines are collected at the rate applicable at the time the violation occurred, the related duties will be calculated at the current (day-of-payment) rate.
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The duties under this tariff are collectible within the city limits and the city's surrounding zone (harim).
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Any building violation is, under the building municipal duties payment tariff, ineligible for any discount, waiver, or exemption.
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Building municipal duties are announced at the start of Farvardin (late March/early April) each year and must, under the law requiring payment of duties, be paid in full by the end of that same year.
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Buildings constructed to replace old, dilapidated buildings, as part of a renewal project, are legally exempt from paying the property duty for three years from the date construction of the building is fully completed.