Ivo Lavrač Faculty of Economics, University of Ljubljana OPEN ISSUES OF INTRODUCTION OF PROPERTY TAX-SLOVENIAN EXPERIENCE

MAIN REASONS FOR INTRODUCTION OF PROPERTY TAX IN SLOVENIA Replacing present charge for the use of urban land, which is untransparent and poorly administered by municipalities. Increasing municipal tax revenues through more complete identification of taxpayers. A market value tax base also allows higher tax revenues as it is perceived as more just than an area based system. Improving own sources of municipalities. Tax capital more and labour less, as a burden of labour taxation in Slovenia is probably the highest in EU. Driving force for better real estate public databases and legal clarification of property and therefore for more transparent and investor frendly real estate market.

POLITICAL AND LEGISLATIVE BACKGROUND Both previus rightist (Jansa) and leftist (Pahor) governments planned introduction of value based property tax, drafts of the law were circulated for comments, but only law on mass valuation of properties was passed. Since this year, each peace of real property has a market value assigned to it by mass apprisal models. New government (Jansa again) started work this year and has as a priority restoring healthy public finances with severe cuts in public and social services. So far, labour unions are not accepting these proposals but negotiations are continuing. To sweeten the deal government also proposed some quick measures to tax the rich, including a partial property tax measure while postponing a decision on comprehensive property tax.

NEWLY PROPOSED PARTIAL PROPERTY TAX MEASURE Tax rate of 0,1% on property with a total value in excess of 1 mio euro owned by a physical or legal person. In some cases it could represent a third tax on the same property, but it is planned as en emergency measure, to be discontinued after two years.

AccountSlovenia mio eur, Source: Public finance Bulletin, MF2011 Tax on immovable property176 Taxes on movable property0 Estate, inheritance and gift taxes10 Taxes on sale of immovable property and on financial property Total property tax revenue215 Total tax revenue to central government *)6.575 Total tax revenue to local government1.416 Total tax revenue to central government *) and to local govrn. tax revenue7.991 All local revenue2.060 Consolidated central and local tax revenues including social contributions13.209

AccountSlovenia, % and mio eur2011 Property tax revenue as percentage of local tax revenue15,2 Property tax revenue as percentage of all local revenue10,5 Property tax revenue as percentage of total tax revenue to central and local2,7 Share of property taxes in consolidated tax revenue, %1,6 GDP billion eur35,6 7030Tax on immovable property (mio eur) Property tax on buildings - individuals Property tax on recreational facilities Penalty interest on real property taxes Land rent for use of building grounds - legal entities Land rent for use of building grounds - individuals44

PROPERTY TAX FEATURES AND CRITERIA FOR CHOOSING AMONG OPTIONS Tax base, taxpayers Shares of national and local government in in tax revenues and decision making Tax rates, tax exemptions and reliefs CRITERIA: International practice, recommendations in theoretical literature Acceptance in specific national circumstances Administrative and data feasibility Fiscal, economic growth and distribution consequences

TAX BASE Charge for the use of urban land: land area (surface in m2) for empty urban land and useful floor area for buildings Property tax: Mass appraised market value of unit of real estate: empty land, land with buildning or a dwelling in a mutidwelling building. All units have mass appraisal values (average market values for a particular type and location of property) available for the public on the Web. The mass appraisal project started with a census of properties and was complemented with feedback from property owners. Some data for almost 10% of properties needed corrections. Data on properties and owners are in the real estate register of the Surveying agency, but money for planned updating of the register was not approved.

TAXPAYERS For present charge on the use of urban land, taxpayers are occupiers of property, if nonexisting than owners of property, both physical and legal persons. Legal persons contribute much more to the total tax revenue than physical persons. Many potential taxpayers remain unidentified by their municipalities, as municipalities are not motivated to complete the records. For proposed property tax taxpayers will be the owners, both physical and legal persons. If possible, owners are identified in the land registry, run by the courts. If these data are incomplete, the real estate register, run by the Surveying agency, which is also in charge of mass valuation, takes as taxpayers probable, usually self declared owners.

ROLES OF NATIONAL AND LOCAL GOVERNMENTS In present charge on the use of urban land all revenue goes to municipalities. They are free to design many features of the tax to their needs, so there is high variation in systems and tax revenues between municipalities. Municipal charges and untransparent and uncomparable. Municipalities are to be 100% recipients also of the proposed property tax, although proposals were given to reserve a smaller share of tax for maintenance of data by the Surveying agency. They should be able to set their own tax rates or one referance tax rate, while ratios between tax rates for different types of property could be set centrally. I believe that municipalities should not be allowed to decide on their own tax reliefs and exemptions, as it would overwhelm decision making abilities of small municipalities and we would remain with untransparent and uncomparable system, just like the present one.

TAX RATES, TAX EXEMPTIONS AND RELIEFS Effects of all three features can be simulated by one unified modelling framework, as effects of exemptions and reliefs are reflected in effective tax rate as opposed to nominal or can be treated as differentiated tax rates. A case can be made for as few exemptions and differentiated tax rates as possible, in order to retain modest tax rates and still have sizable tax revenues, and to have tax effects more equitable and neutral. But the practice of countries often does not follow theoretical recommendations. For example in Slovenia with many poor owner occupiers, there is much more resistance for taxing first residencies than for taxing companies. There are many contested issues, ranging from church property to government property, but there is no opportunity here to go into details.

THE MODEL FOR INTEGRATED SIMULATION OF TAX OPTIONS Share of property tax in GDP = average property capital coefficient x share of tax base in aggregate market value of property x share of reduced tax base (because of exemptions) in tax base x nominal tax rate x share of collected tax in tax due Last four factors multiplied together represent effective tax rate as share of property tax revenue in assesed market value of property. The model can be developed in different directions. With other variables fixed we can explore relationship between any two variables. Model for municipalities does not have GDP. We can include concepts of differentiated tax rates or a reference tax rate.

EXAMPLES OF LITERATURE Bahl,R.&Martinez-Vazquez,J.& Youngman,J.(2008).The Property Tax in Practice.Objavljeno v: Bahl,R.&Martinez- Vazques,J&Youngman,J.(2008).Making the Property Tax Work:Experiences in Developing and Transitional Countries.Lincoln Institute of Land Policy. Bahl,R.&Martinez-Vazquez,J.(2008).The Determinants of Revenue Performance.Objavljeno v: Bahl,R.&Martinez- Vazques,J&Youngman,J.(2008).Making the Property Tax Work:Experiences in Developing and Transitional Countries.Lincoln Institute of Land Policy. Bell,M.E.&Bowman,J.H.(2008).Extending Property Taxation into Previously Untaxted Areas:South African Townships and Tribal Areas.Objavljeno v: Bahl,R.&Martinez-Vazques,J&Youngman,J.(2008).Making the Property Tax Work:Experiences in Developing and Transitio Berkovec,J.& Fullertone D.(1992).A general equilibrium model of housing, taxes and portfolio choices. Journal of Political Economy,vo.100,no 2.str Bevc,I.&McCluskey J.,W.(2007).Fiscal decentralization in the Republic of Slovenia:an opportunity for the property tax.Property management,št.4,vol.25. Bird M.,R.&Slack,E.(2004).International handbook of land and property taxation.USA:Edward Elgar publishing limited.