Valuation and Assessment
MVV182K
Property-related Taxation: Issues and Trends
Masaryk University
Brno, Czech Republic
29 September 2015
Prof Riël Franzsen
South African Research Chair in Tax Policy and Governance
Director: African Tax Institute
University of Pretoria
South Africa
Elements to Consider
• Tax base and property discovery
• Taxpayer
• Valuation and/or assessment
• Tax rates
• Tax relief
• Billing
• Collection
• Enforcement
• Taxpayer communication
• Overall system management
Revenue Mobilization Model
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 Rx x x x
Introduction
• Value-based systems
– Why use value as tax base?
– What property value must be used?
• Who is responsible for property valuations?
– Land only; buildings only; land and buildings (separately/collectively)?
– National government; municipalities; agency; private sector; taxpayer?
– Advantages and disadvantages regarding the above
• What methods/techniques are used to value property?
– Land? Buildings? ‘Banded’ values?
– CAMA and GIS?
• Valuation
– How often are properties valued? Prescribed cycles? During cycles?
– External quality control?
• Objection and appeal processes
Value
• Advantages:
– Relatively good proxy for ability to pay
– Relationship between value and public services
– Data sharing in respect of other property-related taxes
• Disadvantages:
– Requires skills and good market data
– Could be complex
– Requires credible objection and appeal processes
– Costly to implement and to maintain
• E.g. Australia, Singapore and Zambia
Capital Value v Annual Value?
• Capital value:
– Developed capital market
– E.g. Canada, Lithuania, New Zealand,
Northern Ireland, South Africa, United
States
• Annual (i.e. rental) value:
– Sufficient rental evidence
– E.g. Egypt, France, Singapore, Uganda,
United Kingdom
Valuation
• Responsibility
• Qualification of valuers
• Nature and scope – what has to be determined?
• Methodologies?
• Objection and appeal process
– Payment of tax while case is pending?
• External quality control
• Intellectual property of data
Valuation Basis
“Market value”
South Africa’s Local Government:
Municipal Property Rates Act, 2004:
“Section 46(1) Subject to any other applicable
provisions of this Act, the market value of a property
is the amount the property would have realised if sold
on the date of valuation in the open market by a
willing seller to a willing buyer.”
Valuation service providers
– Central or provincial/state government Antigua,
Australia, Botswana, Grenada, Hong Kong, Malawi,
Slovenia, Uganda, United Kingdom, United States,
Zambia
– Government agency or corporation: Canada (British
Columbia, Ontario), Moldova, New Zealand
– In-house (i.e. municipality itself): Lesotho, Macedonia,
Namibia, South Africa, Tanzania, Turkey, Zambia
– Private sector: Malawi, Namibia, New Zealand, South
Africa, Tanzania
– Self-assessment: Georgia, India (some cities), Liberia,
Romania, Rwanda
Valuation Service Providers
Qualifications of “municipal valuers”
(South Africa)
“A municipal valuer (a)
must be a person registered as a
professional valuer or professional
associated valuer in terms of relevant
legislation; and
(b) may not be a councillor a of the
designating municipality”
Valuation Methods
• Comparison method
– Direct method – comparing the actual sales
prices/rentals of comparable properties (e.g. residential)
• Income method
– Indirect method
– Estimating the potential revenue stream (UK)
• Cost method
– Replacement construction cost
– Depreciation to be considered
– Cumbersome to determine (Ghana, Tanzania)
Technologies and Methodologies
• Computer-assisted Mass Appraisal (CAMA)
• Indexation
• Geographic Information Systems (GIS)
• Property banding
Property Tax Valuation Concepts
• Date of valuation
– All properties are valued with reference to the same date - equity
• Effective date
– The date the valuation roll becomes operational
• Valuation cycle
– Annually; 3-yearly; 5-yearly; 10-yearly?
– Extensions of the roll?
– Indexation?
• Issues
– Capacity?
– Objection and appeal
Date of Valuation and Effective Date
Date of Valuation
1 July 2012
Effective Date
1 July 2013
Supplementary
Valuation
Effective Date
1 June 2014
Commence General
Valuation
1 March 2012
Complete General
Valuation Roll
1 November 2012
Commence with
Supplementary
Valuations
1 February 2014
Complete
Supplementary
Valuation Roll
15 April 2014
Appoint Municipal
Valuer
15 November 2011
Valuation Roll
• Valuation roll must list all properties in the municipality
• Following particulars must be reflected in respect of each
property at date of valuation –
– Unique description of the property (e.g. as in deeds register)
– The relevant municipal property category
– Name of the “owner” (as defined)
– Physical address of property
– Extent of the property (i.e. size)
– Market value (if valued)
– Any other prescribed particulars
Supplementary Valuations
• Incorrectly omitted from the valuation roll
• Included in a municipality after the last general
valuation
• New property – e.g. subdivided or consolidated
• Value has substantially increased or decreased
for any reason after the last general valuation
• Substantially incorrectly valued during the last
general valuation
• Revalued for any other exceptional reason (e.g.
change in category)
• Clerical error
General Valuation Process
• Process (for valuer)
– Inventory
– Data Collection
– Market research
– Modelling
– Quality control
Objections and Appeals
• Advertising of valuation roll – minimum # of days
– Official Gazette; local newspaper; web page
– Individual notices?
– Owners and other interested parties have right to inspect
• Objection – minimum # of days
– Formal legal process
– Possible changes to original value
– Reasons
– Costs?
• Appeal – minimum # of days
– Relevant tribunal
• Payment whilst objection/appeal is pending?
Valuation - Oversight
• To review the quality (accuracy, consistency,
comprehensiveness, etc.) of the total
valuation roll
• South Africa
“The Minister may monitor, and from time to time
investigate and issue a public report on, the
effectiveness, consistency, uniformity and
application of municipal valuations for rating
purposes.”
• Valuers General in Australia and New
Zealand
Valuation - Data
Valuation (ownership of data)
South Africa’s Local Government: Municipal
Property Rates Act, 2004:
Copyright of valuation rolls and other data
“Section 85 – Copyright of valuation rolls and other
documents produced by municipal valuers, assistant
municipal valuers or data-collectors in the performance
of their functions, and data collected by municipal
valuers, assistant municipal valuers or data-collectors for
the purpose of preparing valuation rolls, vests in the
municipality concerned.”
Discernible Trends?
Recent changes in respect of valuation services
• Central government to in-house: Lesotho
• Government to local government: Macedonia
• Government to private sector: Botswana,
Malawi, Uganda
• Increased utilisation of computer-assisted mass
appraisal (CAMA): Cameroon, Malaysia,
Slovenia, South Africa
• Increased consideration of self-assessment as an
option: Georgia, Liberia
Cost of 1st Valuation Roll in relation to Revenue
in Four Rural Municipalities in South Africa
Municipality
(Province)
Total Number
of Properties
Total Cost
(Excl VAT)
Cost per
Property
Revenue for
2009/2010
Aganang (Limpopo) 24,258 R1,650,000 R68 R190,082
Umzumbe (KZN) 1,232 R1,440,357 R1,169 R510,309
Blouberg (Limpopo) 5,795 R2,300,000 R397 R484,582
Mutale (Limpopo) 1,255 R3,671,124 R2,925 R763,922
Source: Franzsen & Welgemoed, 2011
“Governance” questions:
• Procurement of valuation services?
• Quality control?
• Education of local councillors and officials?
Policy questions:
• Who should be responsible for valuations and valuation quality control?
• Should small rural councils have a value-based system?
• Is a property tax an option at all?
Examples
• British Columbia, Canada
– Crown agency (BC Assessment)
– Annual valuations of all properties in the province
• United Kingdom
– Valuation Office Agency (VOA – Great Britain; Northern Ireland)
– Non-residential: annual value
– Residential: capital value (England, Wales, Scotland = banded values;
Northern Ireland = discrete capital values)
• Western Australia
– Valuer General Office and Landgate
– Urban property: 3 to 5 yearly valuation cycles (rental values)
– Rural property: annual determination of unimproved land values
• South Africa
– ‘Municipal valuers’
– ‘Market value’ – prescribed valuation cycles (4 + 1 and 5 + 2)
Conclusions
• Valuation is not an exact science
• Assessments are estimates of value and as
such elements of subjectivity are difficult to
remove completely
• Having sound and reliable assessments of value
can contribute positively to equity and fairness of
the property tax
• A credible objection and appeal process is an
integral part of a modern value-based system