Tax Relief
MVV182K Property-related Taxation: Issues and Trends
Masaryk University
Brno, Czech Republic
12-14 November 2019
Prof Riël Franzsen
South African Research Chair in Tax Policy and Governance
Director: African Tax Institute
University of Pretoria
South Africa
ATILogo2

Introduction (1)
•Tax base
•Property discovery
•Valuation
•Assessment
•Tax rates
•Tax relief
•Billing
•Collection
•Enforcement
•System Management
•

What is Tax Relief? (1)
•“Tax relief” implies that some taxpayers, or properties, or property categories receive
preferential treatment and should be justified in a rates policy as some are paying more if other
are paying less…
•
•Relief is an expenditure – and should ideally be quantified and reflected as such in the
(municipal) budget
–Example: South Africa’s property tax law
•

What is Tax Relief? (2)
•The relief could be granted –
–to persons
•E.g. pensioners, the aged) – usually “means tested”
•
–on the basis of use
•E.g. properties used for bona fide farming; sports facilities
•
–on the basis of location
•E.g. rural properties; conservation land
–
–
–
•Should property tax relief be –
–Mandatory (i.e. fixed in the law), or discretionary (a local, political choice)?
–Granted automatically or on application?
•

Revenue Mobilization Model: Tax Relief
•
•
•                      Policy variables    Administration variables
•
•  CR:     Coverage ratio
•  VR:     Valuation ratio
•  Col R: Collection ratio
•
•Source: Kelly (2000)
Revenue
=
Tax base
Tax rate
CR
VR
Col R
x
x
x
x

Typical Candidates for Relief
•Poor and indigent
•Pensioners
•Unemployed taxpayers
•Farmers
•Religious, charitable & educational institutions
•Sports clubs
•Foreign embassies
•Conservation land
•Monuments and national heritage sites
•Properties damaged by natural disasters (e.g. flooding)
•National and/or provincial/state government
•Residential properties
•Vacant/unoccupied properties

Purpose of Relief (i.e. “Why?”)
•To alleviate financial hardship
–Actual (e.g. unemployed)
–
–Perceived (e.g. pensioners or the aged)
–
•Social or political “merit”
–E.g. sports clubs, political parties
–
•Environmental protection
•
•Counter shifts in incidence
•
•Achieve “equity”

Tax Relief Mechanisms (“How”?)
•Base:
–Exclusions
–
•Assessment:
–Value reductions
–Preferential valuation (e.g. “current use” value)
•
•Tax rate:
–Rebate
–Partial exemption
–Full exemption
–Differential rates
–Rate capping
–Phase-in
–Tax holiday
–
•Payment:
–Deferral
–Income tax deductible
–Tax amnesty

Dangers
•Erosion of the tax base
•
•Temporary relief measures tend to become permanent
•
•Understatement of fiscal capacity
•
•Loss of transparency
•
•Loss of accountability (if granted by different levels)
•
•Pressures to extend relief to other “deserving” groups/entities
•
•Administrative complexity
•
•Administrative discretion and corruption
•
•Unintended consequences or missing the target

Exemptions
•Distinguish exemption (assessed, but not (fully) taxed) from exclusion (excluded from the base or
assessment)
•
•Based on ownership – e.g. government
•
•Based on ownership and use – e.g. religious, charitable, conservation purposes
•
•Based on use – e.g. bona fide farming
•
•Based on value – e.g. below a value threshold
•
•Problems:
–Unless accounted for, conceals fiscal capacity
–Political pressure by similar ‘pressure’ groupings

Rate Capping
•Protection of taxpayers
•
•Protection of national interests and national (fiscal) policies
•
•Prevents or limits (unhealthy) tax competition between municipalities
•
•Loss of local autonomy
•
•Statutory overrides

Relief regarding Payment
•Deferment
–Administration
–Interest rate
–On application
•E.g. British Columbia, Canada
–As long as existing use is maintained
•E.g. New Zealand
–
•Deductibility from income tax
–Tax exporting

Recommendations: Tax Relief
•Relief mechanisms should be restricted to an absolute minimum
•
•Preferably not be related to the tax base (i.e. an exclusion) or assessment (i.e. preferential
valuation)
•
•Must be quantifiable and justifiable
•
•Cost should ideally be reflected in annual budget

Conclusions
•Recommendations for tax relief policies
–Keep it simple - equity comes with a price tag
–
•Keep tax relief to the absolute minimum – as it erodes the tax base
•
•Review relief policies/programmes regularly
•
•