The government issued a new law to allow people selling property to use the proceeds from the sale to settle outstanding tax arrears. As a reward they get exempted from paying any tax on the sale of the property.

The new law, published four days ago as a legal notice by order of the finance minister, allows people selling property to use proceeds from the sale to settle their outstanding bills on unpaid income or value added tax and outstanding national insurance. In return, the government strikes off any penalties and stops any legal action against the tax-payer and rewards the late payment by striking off the tax that is normally imposed on the sale of property.

The new law was introduced without fanfare and was not announced in the budget speech a few weeks ago.

The law appears to be an incentive designed for property developers who have a stock of properties they have developed precisely for the purpose of selling them for a profit. A developer who owns properties for sale but owes millions to the tax authorities in unpaid taxes and employee national insurance premia will be able to avoid paying tax on the sale of their property. At a stroke, the law increases the value of their assets by the value of the tax the government is foregoing and gives them an advantage over other economic operators who also owe money to the tax authorities.

A car repair business owner, for example, or, say, a self-employed journeyman, would need to sell their own home to enjoy the benefits of the scheme.

The new law, which still needs to be explained by the government, appears to dilute efforts to promote fiscal discipline and morality. Instead, developers who have re-invested money they owed in tax and employee insurance into their own profits will now be rewarded with tax breaks. The tax rewards are also regressive, providing incentives to a cash-rich economic activity at the expense of all others and at remarkable cost to the country’s environment.

The scheme also appears to be discriminatory and designed around the needs of developers to the disadvantage of other economic operators.

The inclusion of overdue employee national insurance premia in the scheme is particularly galling as late payments of NI employer contributions expose people working in a relatively hazardous economic activity to risks of missing out on the protection of social security.

The new scheme allows developers to benefit from the tax reward for late tax payments until the end of 2022, a general election year. It is reasonable to conclude that the government hopes for the scheme to drive property sales in an election year as developers use the window of opportunity to clear outstanding tax arrears without incurring the tax they would normally owe at the conclusion of their projects.

The sales drive can be expected to create an artificial atmosphere of economic dynamism which would strengthen the government’s case for its re-election.