1 Property Taxation Reform in Macedonia - Towards 2005 Presentation to the World Bank Workshop on “ “ Innovations in Local Revenue Mobilization” June 22, 2002 Andy Anstett Institut International de la fiscalité immobilière International Property Tax Institute

2 Local Government Reform Macedonia decentralizing government in interests of better governance and under Ohrid Framework Agreement that ended hostilities in August 2001 Macedonia decentralizing government in interests of better governance and under Ohrid Framework Agreement that ended hostilities in August 2001 New Law on Local Self Government came into force Jan. 1, 2002 New Law on Local Self Government came into force Jan. 1, 2002 Drafting new laws on local government finance, property tax and other local taxes & fees for 2005 Drafting new laws on local government finance, property tax and other local taxes & fees for 2005 New local gov’t territorial division in fall 2003 New local gov’t territorial division in fall 2003

3 Existing Property Tax System Responsibility for administration of all “local taxes” to municipalities in 2005 Responsibility for administration of all “local taxes” to municipalities in 2005 Currently national public revenue office (PRO) administers property tax, but local government receives revenue under complex formulae Currently national public revenue office (PRO) administers property tax, but local government receives revenue under complex formulae Existing law has some good features but, property tax administration is a mess. Existing law has some good features but, property tax administration is a mess.

4 Existing Property Tax System Disparities in the capacities and performance of PRO regional offices Disparities in the capacities and performance of PRO regional offices Tax base is poorly defined and poorly registered in land and fiscal cadastres Tax base is poorly defined and poorly registered in land and fiscal cadastres World Bank funding to MK cadastre authority for new real estate cadastre World Bank funding to MK cadastre authority for new real estate cadastre Valuation procedures differ dramatically from region to region and are poor Valuation procedures differ dramatically from region to region and are poor Tax billing and collection are very poor & no enforcement is done for property taxes Tax billing and collection are very poor & no enforcement is done for property taxes

5 Towards Initiatives Underway MoF and four cities have agreed to pilot projects in property tax administration 4 regions (25 of 124 municipalities) MoF and four cities have agreed to pilot projects in property tax administration 4 regions (25 of 124 municipalities) Brokered by ZELS (Association of Macedonian Units of Local Self-Government) Brokered by ZELS (Association of Macedonian Units of Local Self-Government) Intensive work with the Tax Department of the Ministry of Finance in developing and passing a new property tax law by Oct Intensive work with the Tax Department of the Ministry of Finance in developing and passing a new property tax law by Oct  In 2004, rolling out the models of property tax administration developed in the pilots, in line with the new law, effective January 2005, to all other jurisdictions for 2005 taxation

6 Towards The Property Tax Pilots Municipalities have desire but not the staff resources or infrastructure to take over local taxes – property, transfer, inheritance & gift Municipalities have desire but not the staff resources or infrastructure to take over local taxes – property, transfer, inheritance & gift Bureaucratic delays in getting started - MOU signed May 30, but contained surprise expansion of scope to include all communal (utility) fees and charges Bureaucratic delays in getting started - MOU signed May 30, but contained surprise expansion of scope to include all communal (utility) fees and charges Delegation agreements under article 23 of law on Local Self-Government between mayors and PRO delayed - week of June 23? Delegation agreements under article 23 of law on Local Self-Government between mayors and PRO delayed - week of June 23? Delays in getting access to records at cadastre and Ministry of Interior Delays in getting access to records at cadastre and Ministry of Interior Delays in printing 2003 tax bills Delays in printing 2003 tax bills

7 Towards The Property Tax Pilots IMPLEMENTATION Governance issues - city / region steering committees of mayors Governance issues - city / region steering committees of mayors Database comparsions for updating real property records – new vs. old cadastre issues Database comparsions for updating real property records – new vs. old cadastre issues Updating movable property records from registration data – Ministry of Interior issues Updating movable property records from registration data – Ministry of Interior issues Improving real estate market research and analysis and expanding application of valuation commission data – formal vs informal real estate markets Improving real estate market research and analysis and expanding application of valuation commission data – formal vs informal real estate markets

8 Towards The Property Tax Pilots IMPLEMENTATION (continued) Tax bill printing and delivery, including supplementary tax bills for “found” assessment Tax bill printing and delivery, including supplementary tax bills for “found” assessment Ending dual claims for residential deduction Ending dual claims for residential deduction Public information campaign about municipal role and municipal benefits Public information campaign about municipal role and municipal benefits Collection and enforcement issues - including reminder notices for unpaid taxes Collection and enforcement issues - including reminder notices for unpaid taxes

9 Towards Proposed Legislative Changes Ministry of Finance created working group in early June with broad representation Workshop - June 11 to 14, 2003 proposed:   removal of the property tax exemption for real property owned or used by businesses   removal of the property tax exemption for construction land - both vacant land and improved with buildings   abolition of the movable property tax   municipal rate setting power within statutory ranges for all local taxes   capping the 50% residential deduction

10 Towards Proposed Legislative Changes (continued)   a new first degree and second degree appeal process to be developed by Ministry of Local Self Government   abolition of self-assessment   Valuation Commissions responsible for assessment   inclusion of enforcement provisions for local taxes in LLSG or LLGF   taxing all state property in private use   ZELS to be consulted on appropriate ranges for communal fees and charges.

11 Towards The Challenges & Risks   Political momentum behind decentralization is hugely dependent on the success of the pilots   Work in pilots presents great logistical, analytical and political challenges   Legislative changes increase complexity of transition to 2005   For example, end of business exemption creates need for sophisticated valuation capacity

12 IPTI IPTI is an international non-profit organization of property tax professionals representing government, taxpayers, academia and taxation & assessment professionals. IPTI’s Mission: To internationally promote and foster property taxation and assessment ideals founded upon the general principles of fairness and equity within the partnership of practitioners, governments and taxpayers

13 IPTI’ s Main Goals: foster equity and exchange of ideas within the property tax profession foster equity and exchange of ideas within the property tax profession promote dialogue with various professional organizations relevant to the tax industry promote dialogue with various professional organizations relevant to the tax industry facilitate provision of timely and innovative solutions to internal and external industry needs through networking and co-operation among key international experts facilitate provision of timely and innovative solutions to internal and external industry needs through networking and co-operation among key international experts

14 IPTI’ s Main Goals: assist "global" companies in promoting fairness and equity of assessment assist "global" companies in promoting fairness and equity of assessment serve as a voice in assessment and tax policy; serve as a voice in assessment and tax policy; educate the tax professionals, government, and private industry educate the tax professionals, government, and private industry promote and facilitate contacts among our members promote and facilitate contacts among our members