Effective and Sustainable Systems for Valuing Property for Taxation: A Comparison Richard Almy Almy, Gloudemans, Jacobs & Denne, United States

Introduction Why value-based recurrent taxes on immovable property? – Effective local government – Growth-friendly Aim of presentation – Highlight interesting cases of value-based taxes – Explore patterns in utilization of value-based recurrent taxes on immovable property 2

Background Study of property tax systems Data on systems in 195 countries with taxes on property – 187 have one or more recurrent taxes on immovable property – 171 have one or more value-based recurrent tax 3

Selected Countries Australia Canada China, Hong Kong Denmark Finland Iceland Latvia Lithuania Netherlands New Zealand Russia Slovenia South Africa Spain Sweden United Kingdom United States 4

Why Australia? Federal country with state-level property tax systems Experience with land taxes & real property taxes Examples of technically sophisticated mass valuation systems 5

Why Canada? Federal country with provincial-level real property tax systems Widespread use of market value-based mass valuation models Innovative governmental corporations 6

Why Hong Kong? Longstanding annual value based real property tax Market research Publicity 7

Why Denmark? Pioneer in development of MRA-based mass valuation models Separate land, building, & real property taxes Exponent of rational (explainable) models— simplicity and consistency ahead of technical sophistication 8

Why Finland? Real property tax Research institute involvement in valuation Expertise 9

Why Iceland? Centrally assessed, locally taxed real property tax Registers Iceland institutional reforms Progressive reforms in mass valuation system – Residential models – Non-residential models 10

Why Latvia? Baltic reforms Technologically sophisticated cadastral and valuation system Real property tax (although residential properties are not yet taxes) 11

Why Lithuania? Reforms generally State enterprise Use of multi-variate models developed by regional valuation staff (with central support) Country’s reluctance to tax residential properties Experience with appeals 12

Why Netherlands? A unitary country that has delegated administration of the real property tax to municipalities Use of valuation companies Supervision Sophisticated models Communication of valuation results 13

Why New Zealand? A unitary country that has delegated property tax system design to municipalities Municipalities can choose to tax land only or to tax real property Municipalities can choose between annual value and capital value Companies involved in valuation Supervision 14

Why Russia? A huge country with commensurate challenges Land and “property” taxes produce considerable revenue Successful project to value land on the basis of market evidence Projects to estimate market values of real estate 15

Why Slovenia? Example of a successful World Bank-funded modernization project Development of a noteworthy mass valuation system Legal obstacles to reforming land and building taxes 16

Why South Africa? A unitary government that has delegate real property tax administration to local governments Local governments required to articulate local tax policies Examples of sophisticated mass valuation system, use of contractors Challenges of tribal land tenure 17

Why Spain? A unitary government with a centralized valuation system for its real property tax A sophisticated mass valuation system Decentralized collection (sometimes via governmental corporations, such as SUMA) 18

Why Sweden? A pioneer in the development of computer- assisted mass valuation system An example of a country with many reforms (currently it has only a real property tax) A noteworthy residential declaration system A country with considerable international development experience 19

Why United Kingdom? It makes heavy use of recurrent taxes on immovable property A unitary government with decentralization The reform of residential property taxes in Northern Ireland is a prime example of a well- planned and executed reform The Uniform Business Tax (Rates) in England and Wale is an example of a well-administered, annual value based tax The Council Tax “banding” is a noteworthy concept (but the failure to revalue is lamentable) 20

Why United States? It makes heavy use of recurrent taxes on immovable property A federal country, in which each state (and territory) defines its property tax system— there are more than 50 systems Administration is extremely decentralized (more than 10,000 local authorities) Technologically innovative (albeit unevenly) 21

Revenue Recipients & Property Taxation 22

Valuation Basis & Property Taxation 23

Responsibility for Valuation & Property Taxation 24

Political Freedom & Property Taxation 25

Perceived Corruption & Property Taxation 26

Real Estate Market Transparency & Property Taxation 27

Conclusions Valuable lessons can be drawn from every system Lessons that I have drawn include: – Greater use of recurrent taxes on immovable property is technically feasible – Inadequate supervision and lack of information about system potential and importance undercuts potential political support – Procedural & data transparency are important to taxpayer acceptance 28

Conclusions, continued High real property transfer taxes are detrimental to – Market transparency & honest government – Effective recurrent taxation Unexplored issues could be significant – Scope and assignment of governmental services – Intergovernmental transfers Guidance by international organizations on a system diagnostic would be beneficial Everywhere, enlightened managers/ administrators are vital to long-term success. 29