1. Workable Solutions for Property Tax Reform
Richard Almy * almy, gloudemans, Jacobs & denne
Margie Cusack * Research Manager International Association of assessment officers

2. Focus
On administration of technical matters not differential tax rates or exemptions
Policy influences administration
Policies that clash with efficiency and perceptions of equity
Actual administration not consistent with legislated policy is de facto policy
Willful disregard of law
Resource constraints

3. What Are We Talking About?
Reform—any improvement in policy or administration that makes an immovable property tax system
fairer and more acceptable or
more productive or efficient in revenue terms
Workable solution—a policy or practice that has
made a reform effort possible and that
led to a sustained improvement

4. The Situation Property tax reform is recommended
To improve governance & strengthen local government
To make the overall tax system more growth friendly
To contribute to knowledge about immovable property use and value
Property tax reform is recommended
Reform goals seldom fully realized
Annual taxes on immovable property often seem underutilized
Why?

5. Reform Recommendations
Bahl
Norregaard
1) Do a thorough diagnostic of the existing system of property taxation, examining specifically what is working and what is not.
1) Make an in-depth diagnostic.
2) Adopt a “policy first” stance (administrative reform comes second).
2) Have a specific tax policy design
3) Choose the tax base that is best for the country.
4) Restrict exemptions
5) Question how best to provide property tax relief for the poor.
6) Include identification of properties, valuation, recordkeeping, and collections in any administrative reform program.
3) Plan administrative reforms in detail

6. Reform Recommendations
Bahl
Norregaard
7) Bring all properties on to the tax roll.
8) Concentrate administrative resources on improving the ratio of assessed to market value of property.
10) Adopt any reasonable measures to raise collection rates.
9) Remove or reduce the incentive to under declare the value of property transactions which results from the imposition of a property transfer tax.
4) Reduce or phase out property transfer taxes and replace them with a recurrent tax on property or with a capital gains tax
11) Monitor performance.
5) Develop a monitoring device

7. Sequence & Relationship of Reform Elements
Situation Analysis
Policy Reforms
Agency
Reforms
Monitoring

8. Analyzing the Situation
Holistic or systemic approach
Structure of situation analysis (pro-forma, SWOT)
Issues: Autonomy & Accountability
Culture (paying taxes, corruption) & Government Structure
Land tenure & land institutions (professions)

9. Perceived Corruption & Property Taxation

10. Real Estate Market Transparency

11. Rate Determination Considerations
Rate Needed to Generate Desired Revenue
Revenue needed divided by tax base (less than 2%)
Acceptable Rate
Administrative & compliance costs divided by revenues
(1 – 5%)
Affordable Rate
Administer Viable Rate
Taxes divided by income
(1-2%)

12. Underemphasized in literature on setting tax rates
Affordability
Underemphasized in literature on setting tax rates
Judgment
Possible measures
Per-capita tax vs. per-capita income
Per-household tax vs. per-household income
Compare amounts with fiscal measures

13. Fiscal Measures Global benchmarks Needs (budget-based rate setting)
Percentage of GDP
Percentage of revenues, all taxes, or both (generally and locally)
Global benchmarks
Needs (budget-based rate setting)
Fixed rates vs. floating rates
Revenue capacity—base times rate
Effort—actual performance

14. Administrative Measures
Cost (administrative + compliance)
As a percentage of revenue-goal is to be efficient-to minimize the ratio (Adam Smith)
Per unit (property)
Effectiveness ratios (per Roy Kelly)
Coverage
maximize
Valuation
minimize dispersion or maximize concentration
Collection

15. Administrative Cost Benchmarks
Lithuania
Madrid 2001 revaluation
Netherlands
U.S.

17. Principles & Standards
FAO voluntary guidelines
Professional standards & guidance
IAAO
Other professional valuation standards (IVS, TEGoVA)
Expert opinion: literature, APSEG
When do standards apply? USPAP Jurisdictional Exception Rule

18. Where to Start?

19. Case Study: Northern Ireland
Research
Reforms: annual value to capital value
Consultation
Planning
Reassessment of domestic (residential) properties by 2006
Execution
Communication

20. Potential Policy Reform Areas
Property market openness and efficiency
Legal framework for value-based property taxation
A clear definition of the value standard and a statement of valuation assumptions
Access to market data
Guidance on valuation methods
A revaluation requirement
Publicity and appeals
Measures to mitigate excessive annual increases in property tax obligations
Management and organization of the property tax administration and valuation agency

21. Policy Strategies to Consider
Ensuring affordability & cost-effectiveness
Lowering transfer taxes while increasing recurrent taxes
Focus on negative aspects of the current situation rather than on putative benefits of reform proposals
Stability. Revenue neutrality. Anticipate opposition (winners & losers)
Draw on pronouncements IAAO, and other standards
Institutional reforms

22. Administrative Reforms to Consider
Rational: cost-effectiveness & sustainability
Roles of administrative bodies, professionals, & taxpayers
Cadastral system improvements
Valuation system improvements
Collection system improvements
Communications

23. South Africa Central & provincial legislation & regulation
Local administration
Requirement to state policies
Basis options
Valuer registration & use of firms

24. Cadastral System Improvements
Property (object) register, not taxpayer (subject) register
Fiscal cadastre must reflect land tenure realities; can be distinct from juridical cadastre
Valuation success begins with data
Attribute data collection options

25. Parcel Information Mapping Application

26. Valuation System Improvements
Market-centered
Tailor to market and fiscal realities
Valuation approaches
Stratified per-unit models
Extrapolation from benchmark (beacon) properties
Banding
Multivariate models
Keeping valuations current

27. Collection System Improvements
Do not maintain obstacles to establishing tax liability
Focus on taxing property rather than legal ownership
Deemed delivery of tax bill rather than personal service of bill
Focus on making payment easy
Make enforcement routine

28. Communications & Data Access
Have a public information program
Make as much data public as possible
Use the Internet if possible

29. Monitoring Performance
Need to focus on variability (dispersion) as well as overall level of achievement
Fiscal capacity & effort
Revenue efficiency
The (theoretical) coverage, valuation, and collection ratio metrics
coverage ratio not easily measured
Ratio studies
Performance reviews
Netherlands & New Zealand
External: Cape Town & Lithuania

30. Action ideas for Reform
Strategic vision. Phased approach to build on successes (Lithuania, Iceland)
Pilot projects (Turkey)
Explore and try new technologies
Need to think about reform processes and institutions internationally as well as reform projects—where do you fit? What lessons can you draw?
Consider the need for outside interventions—is financial assistance desirable? Can meaningful technical assistance be obtained? Can an external review validate plans and progress?
Buttress reform proposals by referring to international standards (such as those of IAAO) and rankings (such as Doing Business, JLL, and others) to harness competitive spirits.
YouTube

31. A Lack of Political Will?
Often the blame for failure or disappointment
Is that fair? What if:
The case for reform is not strong
Abstract, theoretical rationales
Unclear path forward
Externally generated reforms too easily ignored
Perceived burden increases/shifts are too great
Capacity limitations (financial, institutional & technological) are too great

32. Information on systems in 195 countries with taxes on property
Appendix: Dataset
Information 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