Property Tax Base Issues and Trends MVV182K Property-related Taxation: Issues and International Trends Masaryk University Brno, Czech Republic 2-3 May 2023 Prof William McCluskey African Tax Institute University of Pretoria South Africa ATILogo2 What will be covered •Issues impacting on property tax base –Real estate Markets/Data/Transactions –Land tenure –Culture and historical context –Politics – •Property tax base options –Key policy decisions –Trends –Some Examples Land tenure •Ownership •Co-ownership •Communal ownership •Long-term leasehold •Short-term lease/rental •Usufruct •Others? • Real Estate Markets – •Insecure tenure •Formal vs. land/property markets •Cadastres v land registration/land titling •Political interference (e.g. ‘land grabs’) •Capital vs. rental markets • Valuation Basis VALUE NON-VALUE CV ARV AREA LOCATION LV IMP TOTAL MV Tax base options •Simple per-unit “flat tax” systems • •Area-based systems –Simple area (unadjusted) –“Calibrated” area systems (e.g., adjusted for location and/or use) • •Capital value systems –Land only –Land and buildings collectively –Land and buildings separately –Buildings only –Value-banding – •Rental value systems –Land and buildings collectively –Buildings only Nature and scope of tax base •First important policy decision: • •Choice: •Single base vs. multiple tax bases •National/Provincial vs. local choice (Australia, New Zealand) – •Extent: •Broad versus narrow? •Urban versus rural? • • Tax base assessment •Second important policy decision: • •How should the tax base be “weighted” (i.e. how should the property tax burden be allocated to taxpayers)? • –Property unit (i.e., each property, regardless of size or location, pay an equal amount of tax) – –Property size (i.e., each property regardless of location would pay an equal per sq. m. rate) – –Property value (i.e., each property would pay the tax based on their relative property value) – •Decision to be informed by the property market and other country-specific realities (i.e. available skills and capacity) Tax base assessment •Area-based systems –Assessment done on basis of size of property –Location, use, age, quality could be included as factors –Self-assessment possible – •Value-based systems –Requires credible data –Responsibility for valuation –Resource intensive –Requires continuous maintenance and regular, comprehensive revaluations –Requires at least some minimum valuation skills and capacity (even if only to audit self-declared values) Discernible trends: Tax base •Single, uniform tax base determined nationally (or at state/provincial level in federal countries) –Brazil, Canada, Egypt, South Africa, Uganda – •Multiple tax bases determined nationally (or at state/provincial level in federal countries), local government can choose preferred base –Australia: South Australia, Victoria, Western Australia –Malaysia, New Zealand, United Kingdom – •Move to capital (improved) value as preferred tax base –Anguila, Cameroon, Kosovo, Latvia, Lithuania, Macedonia, Mauritius, Montenegro, Northern Ireland, Rwanda, Serbia, Slovenia, South Africa, Srpska – •Move to rental value as preferred tax base –Gabon, New Zealand, Sierra Leone Possible alternatives? •Multiple tax bases –Urban v rural: Western Australia, Barbados –Residential v non-residential: United Kingdom –Undeveloped v developed: Côte d’Ivoire • •Value banding –Great Britain, Republic of Ireland –References in law – St Vincent & the Grenadines, South Africa and Uganda –Research by Plimmer, Connellan and McCluskey • •Calibrated area –Israel and India –Research by Davis (PhD, University of Ulster, UK) Changes in the Basis: Examples •Northern Ireland/GB –Rental Value to Capital Value – – •Cameroon and Rwanda –Area Capital value – •South Africa –Had 3 value-based options “Capital value” – •Slovenia •- Area Capital Value (possibly??) •St Lucia –Residential: capital value Environmental Levy Example 1: Urban v rural systems •Western Australia – –Gross rental value (GRV) system used in urban jurisdictions as well as urban properties in rural jurisdictions •GRV determined by the Valuer General Office – –3-yearly in the Perth Metropolitan Area –4-yearly or 5-yearly in non-metropolitan council areas – –Unimproved (site) value system used in respect of rural properties in rural jurisdictions •Unimproved (site) values determined annually (for the state’s land tax) by the Valuer General Office Flag of Australia Flag of Western Australia Example 2: Value banding •United Kingdom • •Residential properties –22 million properties had to be ‘valued’ in 9 months for the council tax – –Highly developed capital market and predominantly owner-occupied – thus capital values chosen • –Concept of value banding was devised •8 appropriately designed value bands and 1:3 tax rate ratio across these 8 value bands • –No discrete values required, fewer objections and appeals – •Commercial and industrial properties: –Taxed on an annual rental value basis – sufficient rental evidence – Flag of United Kingdom Banded System The Variables Tax Rate Structure Number of Bands Width of Bands RANGE OF VALUES Valuation Band Scotland England Wales Proportion of Band D bill payable A Up to 27,000 Up to 40,000 Up to 30,000 6/9 B 27,001 — 35,000 40,001 — 52,000 30,001 — 39,000 7/9 C 35,001 — 45,000 52,001 — 68,000 39,001 — 51,000 8/9 D 45,001 — 58,000 68,001 — 88,000 51,001 — 66,000 9/9 E 58,001 — 80,000 88,001 — 120,000 66,001 — 90,000 11/9 F 80,001 — 106,000 120,001 — 160,000 90,001 — 120,000 13/9 G 106,001 — 212,000 160,001 — 320,000 120,001 — 240,000 15/9 H Over 212,000 Over 320,000 Over 240,000 18/9 Valuation band € Mid-point of valuation band € LPT in 2013 0 to 100,000 50,000 €90 100,001 to 150,000 125,000 €224 150,001 to 200,000 175,000 €314 200,001 to 250,000 225,000 €404 250,001 to 300,000 275,000 €494 300,001 to 350,000 325,000 €584 350,001 to 400,000 375,000 €674 400,001 to 450,000 425,000 €764 450,001 to 500,000 475,000 €854 500,001 to 550,000 525,000 €944 550,001 to 600,000 575,000 €1034 600,001 to 650,000 625,000 €1124 650,001 to 700,000 675,000 €1214 700,001 to 750,000 725,000 €1304 750,001 to 800,000 775,000 €1394 800,001 to 850,000 825,000 €1484 850,001 to 900,000 875,000 €1574 900,001 to 950,000 925,000 €1664 950,001 to 1,000,000 975,000 €1754 Republic of Ireland: Actual Residential Property Tax: July 2013 National central tax rate will be 0.18% up to €1 million and 0.25% on excess value over €1 million Example 3: Calibrated area •India – –ARV system under increasing pressure •Rent control •Valuation capacity and skills •Corruption • –Introduced a simplified area-based system with less reliance on the valuation profession – –Area x tax rate x location factor x building age x building type x building use x occupancy factor – Flag of India Tax base coverage •Administration –Aim: Comprehensive coverage – –Property discovery •Deeds office, title office, cadastral office •Municipality (Macedonia, Romania) •Revenue authority? •Manual systems •Aerial and satellite photography •Geographic Information Systems (GIS)(Bangalore, India; Bogotá, Colombia; Cape Town, South Africa) •Data owned by utilities (e.g. electricity and/or water companies)(Georgia) • –Use computers for data gathering & data management Property discovery •Problematic in many developing countries –Urbanization –Informal development –Weak property markets –Title or deeds registration lacking •High transfer taxes? –Unclear tenure rights •High transfer taxes? – •Fiscal cadastre v legal cadastre –Collect only information/data needed! – Information sharing Land Ministry Local Government Transfer Tax Office Deeds Registry Change in Property Data Conclusions •Choice of base should be informed by sound policy and country-specific realities • •The choices are limited • • •Remember: Property tax is a difficult and costly tax to administer because of its data requirements