Introduction to Property-related Taxes MVV182K Property-related Taxation: Issues and Trends Masaryk University Brno, Czech Republic 12-14 November 2019 Prof Riël Franzsen South African Research Chair in Tax Policy and Governance Director: African Tax Institute University of Pretoria South Africa ATILogo2 This course (1) –After this course you should – • •have a fair understanding of the key international policy, legal and administrative issues and trends in relation to real estate transfer taxes and recurrent property taxes; and •be able to evaluate how property-related taxes in the Czech Republic relate to international policy trends and practices. • –A detailed discussion of property-related taxes in the Czech Republic falls outside the scope of this course. • – • This course (2) –This course consists of the following sessions: • •Session 1: Property-related taxation and international overview •Session 2: Czech Republic property tax system •Session 3: Property tax bases – Issues and trends •Session 4: Valuation and assessment •Session 5: Property tax rates •Session 6: Tax relief •Session 7: Billing, collection and enforcement •Session 8: Other local taxes •Session 9: Workshop •Session 10: Overall conclusions • • • • – • This course (3) –Instructors: • •Prof Riël Franzsen, Director: African Tax Institute, University of Pretoria, South Africa • •Prof Michal Radvan, Faculty of Law, Masaryk University, Czech Republic • •Prof William McCluskey, Extraordinary Professor, African Tax Institute, University of Pretoria, Northern Ireland, UK • •Dr Peadar Davis, Belfast School of Architecture and the Built Environment, Ulster University, Northern Ireland, UK • • • • – • Introduction •An enabling tax environment –Constitutional and legal environment –Political environment –Institutional environment –Real-world environment • •Property-related taxation –History –Concepts and definitions –Key policy and administrative features –Revenue importance –Challenges – • Property tax and own source revenue •Implementation of (sub-national) taxes: – –Constitutional and legal framework –Political environment –Fiscal environment –Institutional environment –Specific legislation –Realities within which the law and administration function Constitutional & legal environment •What does the Constitution and/or other enabling legislation dictate or allow? –Does it provide mere principles or guidelines, or an actual framework? –Is a provision descriptive or is it prescriptive? –Fiscal capacity and/or tax effort? – •Does legislation allow for – –Tax (base) sharing? –Revenue sharing? –Options or alternatives (e.g. regarding tax base)? – •Which level or tier of government – –Determines the tax base? –Levies the tax? –Sets the tax rate or rates? –Grants exemptions and other tax relief? –Is responsible for collection and enforcement? –Is entitled to the revenue? • • Political environment •Decentralization versus centralization •National fiscal policy versus local fiscal policy •Local government reform •Land use policies versus fiscal policies •Equity versus revenue •Equity versus efficiency •Ministerial discretion •Vested interests •Election politics Institutional framework •Which level or tier of government – • –Decides on the tax base? –Is responsible for collecting relevant data? –Is responsible for valuation or assessment? –Is responsible for setting tax rates? –Is responsible for collecting the tax? –Has oversight functions regarding any of the above functions? – •Avoid duplication, overlapping or fragmentation of functions (e.g. in respect of property tax) Country realities •Policy Law Administration • •Availability of relevant data –Property-related data •E.g. a deeds registry, sales records –Fragmented data collection and maintenance responsibilities •E.g. different ministries or levels of government; private sector – •Availability of necessary capacity, skills and resources to administer the property tax •E.g. numbers of valuation professionals •E.g. budgeted funds to maintain system Property as a taxable object •Property-related taxes – • –Income produced (e.g. Ancient China) – –Ownership or occupation (e.g. property taxes) – –Acquisition and/or alienation (i.e. transfer) History of property taxation •Antiquity –China (2,697 BC) –Mesopotamia –Egypt –Macedonia –Rome – •England – “Poor Relief Act” (1601) • •Europe and her colonies • • • • • Property-related taxes and fees •Real Property Transfer Tax •Stamp Duty • •Estate Duty, Death Duty, Succession Tax •Donations Tax, Gift Tax • •Capital Gains Tax •Land-value Increment Tax • •Land Tax or Site Value Tax •Building Tax •Property Tax • •Development Charges, Betterment Levies, Land Value Capture Instruments • •Land rent • •Registration Fees or Publication Fees Relevant definitions •“Property-related tax” •A tax on the ownership, occupation, or transfer of “property” – •“Property transfer tax” •A tax on the acquisition or alienation (or both) of “property” – •“Property tax” •A recurrent tax imposed by government on the ownership or occupation of (immovable) property • •“Rates” •A term used in many countries (with a British colonial heritage) for a property tax levied at the local government level • • • • Revenue: The basics • • • • • • • Revenue = Tax base Tax rate x Important political challenges… Ultimate benefit… 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 R x x x x Further key challenges… • •Advantages • –Property is fixed in location – –Property is highly visible – –Land has an inherent value – –Taxpayers are (usually) readily identifiable – –Relationship between revenue and public services – –Low compliance cost – –If well administered, may yield significant revenues in a sustainable and predictable manner Why tax property? • •Disadvantages • –Highly political – –Taxes unrealised income – –Cumbersome to maintain – –High administration cost Why tax property? Revenue importance 1970s 1980s 1990s 2000s OECD countries (number of countries) 1.24 (16) 1.31 (18) 1.44 (16) 2.12 (18) Developing countries (number of countries) 0.42 (20) 0.36 (27) 0.42 (23) 0.60 (29) Transition countries (number of countries) 0.34 (1) 0.59 (4) 0.54 (20) 0.68 (18) All countries (number of countries) 0.77 (37) 0.73 (49) 0.75 (59) 1.04 (65) Levels of and Trends in Property Tax Revenues (Percent of GDP) Source: Bahl and Martinez-Vazquez (2008). Country 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Bulgaria 0.2 0.2 0.2 0.2 0.3 0.3 0.3 0.3 0.3 0.3 Croatia 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Czech Republic 0.1 0.1 0.1 0.2 0.2 0.2 0.2 0.2 0.2 0.2 Estonia 0.2 0.2 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 Hungary 0.2 0.2 0.3 0.3 0.3 0.3 0.4 0.5 0.6 0.5 Latvia 0.6 0.5 0.4 0.6 0.7 0.8 0.8 0.8 0.8 0.8 Lithuania 0.3 0.3 0.3 0.3 0.4 0.3 0.3 0.3 0.3 0.3 Poland 1.3 1.2 1.2 1.2 1.1 1.1 1.2 1.3 1.2 1.2 Romania 0.6 0.7 0.6 0.6 0.7 0.7 0.6 0.6 0.6 0.6 Slovakia 0.4 0;.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 Slovenia 0.4 0.4 0.4 0.5 0.5 0.5 0.5 0.6 0.5 0.5 Recurrent property taxes as percentage of GDP in CEE country member states of the EU - 2006 to 2015 Source: Eurostat 2017; Brzeski, Romanova & Franzsen 2019 Other property taxes as percentage of GDP in CESE country member states of the EU - 2006 to 2015 Source: Eurostat 2017 Country 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Bulgaria 0.4 0.5 0.5 0.3 0.2 0.2 0.2 0.2 0.3 0.3 Croatia 0.5 0.5 0.6 0.5 0.5 0.5 0.4 0.5 0.5 0.5 Czech Republic 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.4 Estonia 0.1 0.2 0.1 0.0 0.0 0.1 0.1 0.1 0.1 0.1 Hungary 0.6 0.5 0.6 0.5 0.8 0.8 0.8 0.7 0.7 0.7 Latvia 0.5 0.5 0.3 0.3 0.3 0.3 0.4 0.3 0.4 0.3 Lithuania 0.2 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.4 Poland 0.3 0.3 0.3 0.2 0.3 0.3 0.3 0.3 0.2 0.3 Romania 0.3 0.3 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 Slovakia 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Slovenia 0.2 0.2 0.2 0.1 0.1 0.1 0.1 0.1 0.2 0.1 European Union: Property taxes’ per capita revenue importance (2015) Sources: Brzeski, Romanova & Franzsen 2019; Eurostat 2017; United Nations Department of Economic & Social Affairs 2015. Country 2015 Population (‘000) Recurrent PT (‘000) PT in € per capita (est.) Other PT (‘000) Other PT in € per capita (est.) All PT (‘000) All PT in € per capita (est.) Austria 8 545 700 000 81.92 2 200 000 257.46 2 900 000 339.38 Belgium 11 299 5 400 000 477.92 9 500 000 840.78 14 900 000 1 318.70 Bulgaria 7 150 100 000 13.99 100 000 13.99 0 300 000 41.96 Croatia 4 240 0 0.00 200 000 47.17 0 200 000 47.17 Cyprus 1 165 200 000 171.67 0 0.00 0 200 000 171.67 Czech Republic 10 543 400 000 37.94 600 000 56.91 1 000 000 94.85 Denmark 5 669 5 600 000 987.83 1 500 000 264.60 7 100 000 1 252.43 Estonia 1 313 100 000 76.16 0 0.00 100 000 76.16 Finland 5 503 1 600 000 290.75 1 400 000 254.41 3 000 000 545.16 France 64 395 69 700 000 1 082.38 31 600 000 490.72 101 300 000 1 573.10 Germany 80 689 13 200 000 163.59 19 100 000 236.71 32 300 000 400.30 Greece 10 955 4 700 000 429.03 1 000 000 91.28 5 700 000 520.31 Hungary 9 855 600 000 60.88 800 000 81.18 1 400 000 142.06 Ireland 4 688 1 800 000 383.96 1 600 000 341.30 3 400 000 725.26 Italy 59 798 27 500 000 459.88 16 900 000 282.62 44 300 000 740.83 Latvia 1 971 200 000 101.47 100 000 50.74 300 000 152.21 Lithuania 2 878 100 000 34.75 100 000 34.75 300 000 104.24 Luxembourg 567 0 0.00 700 000 1 234.57 800 000 1 410.93 Malta 419 0 0.00 100 000 238.66 100 000 238.66 Netherlands 16 925 5 800 000 342.69 4 300 000 254.06 10 100 000 596.75 Poland 38 612 5 300 000 137.26 1 400 000 36.26 6 700 000 173.52 Portugal 10 350 1 500 000 144.93 2 000 000 193.24 3 500 000 338.16 Romania 19 511 1 000 000 51.25 400 000 20.50 1 400 000 71.75 Slovakia 5 426 300 000 55.29 0 0.00 300 000 55.29 Slovenia 2 068 200 000 96.71 0 0.00 200 000 96.71 Spain 46 122 13 600 000 294.87 16 900 000 366.42 30 500 000 661.29 Sweden 9 779 3 600 000 368.14 1 700 000 173.84 5 300 000 541.98 United Kingdom 64 716 79 300 000 1 225.35 29 700 000 458.93 109 000 000 1 684.28 CESE countries 103 567 8 300 000 80.14 3 700 000 35.73 12 200 000 117.80 Non CESE countries 401 584 234 300 000 583.44 140 300 000 349.37 374 400 000 932.31 European Union 505 151 242 600 000 480.25 144 000 000 285.06 386 600 000 765.32 What do property taxes typically fund? Municipal service Usual funding mechanism Water supply User charges and surcharges Electricity supply User charges and surcharges Sewage collection and disposal User charges and surcharges Refuse removal User charges and surcharges Municipal health services User charges, grants Municipal roads Property tax and other local taxes Storm water drainage Property tax and other local taxes Street lighting Property tax and other local taxes Municipal parks and recreation Property tax and other local taxes Parking User charge Municipal libraries User charge Cemeteries Property tax and other local taxes Infrastructure Grants, borrowing (i.e. loans) Maintenance of infrastructure Property tax and other local taxes Property tax - challenges •Property tax is a challenging tax to administer – –Data intensive (property discovery, assessment) •Important role for information & communication technology (ICT) – –High administration costs (unpopular with officials and administrators) – –High political costs (unpopular with politicians) – –Seldom properly understood (unpopular with taxpayers) – Conclusions •“Tax administration = tax policy” –Study: •Bahl, 2009; Norregaard, 2013 • •It must be possible and practicable to implement (local) tax policies in the short term and these must be sustainable in the long term • •The recurrent property tax is a difficult and costly tax to administer Recurrent Property Tax International Overview MVV182K Property-related Taxation: Issues and Trends Masaryk University Brno, Czech Republic 12-14 November 2019 Prof Riël Franzsen South African Research Chair in Tax Policy and Governance Director: African Tax Institute University of Pretoria South Africa ATILogo2 Introduction •Comparative reviews and terminology •Tax bases –Options and trends •Valuation –Options and trends •Tax rates –Options and trends •Tax administration •Reform Comparative reviews •International best practice •Lessons •Regional or international trends •Dangers –Terminology –Law versus reality –Historic development (e.g. colonial heritage) –Political, social, economic and institutional issues –Country/region-specific realities •Land tenure •Property markets •Reliable data Property tax base options •Simple per-unit “flat tax” systems • •Area-based systems –Simple area (unadjusted) –“Calibrated” area systems (e.g., adjusted for location and/or use) • •Capital value systems –Land only –Land and buildings collectively –Land and buildings separately –Buildings only –Value-banding – •Rental value systems –Land and buildings collectively –Buildings only File:BlankMap-World6.svg Land Value Only Improved Value Land & Buildings Buildings Only Banded Values Annual Value Area Calibrated Area No Property Tax Franzsen and McCluskey, 2005; UN-Habitat, 2011; Fjeldstad and Heggstad, 2012; Franzsen and McCluskey, 2013; McCluskey and Franzsen, 2013; Norregaard, 2013; Franzsen and McCluskey 2017. Map image: http://commons.wikimedia.org/wiki/File:BlankMap-World-v2.png Property tax systems File:BlankMap-World6.svg No property tax system File:BlankMap-World6.svg Per unit (‘flat’) tax system Advantages: •Simple to administer Disadvantages: •Inequitable •Lack of buoyancy •Regressive File:BlankMap-World6.svg Area-based tax system Calibrated Area Area Advantages: •Simple to administer •Some relationship between size and value •Self-assessment; no objections and appeals •Could be combined with locational factors – Disadvantages: •Lack of buoyancy •Regressive File:BlankMap-World6.svg Land value tax system Advantages: •Requires little data to set up •Cheap to administer •Easy to maintain •Does not deter improvement – Disadvantages: •Lack of buoyancy •Narrow base = high nominal tax rates File:BlankMap-World6.svg Capital improved value system Advantages: •Buoyancy •Buildings constitute visible wealth •Broad base = low nominal rates – Disadvantages: •Constantly changing •Costly to maintain •Could stifle development File:BlankMap-World6.svg Banded capital value system In Practice Statutory Option Advantages: •Few objections and appeals •Easy to administer – Disadvantages: •Regressive File:BlankMap-World6.svg Land and buildings separately Advantages: •Some buoyancy •Buildings constitute visible wealth •Broad base = low nominal rates – Disadvantages: •Development unlikely to be stifled •Constantly changing •Costly to maintain (require various values) • File:BlankMap-World6.svg Annual (i.e., rental) value system Advantages: •Buoyancy •Buildings constitute visible wealth •Broad base – Disadvantages: •High nominal rates •Costly to maintain File:BlankMap-World6.svg Building value systems Rental Value Capital Value Advantages: •More buoyant than land only •Provides a base where land cannot be taxed – e.g. Ghana and Tanzania – Disadvantages: •Costly to maintain •Could stifle development Western Europe •Austria •Belgium •Cyprus •Denmark •Finland •France •Germany •Greece •Iceland •Ireland •Italy •Luxembourg •Malta •Netherlands •Norway •Portugal •Spain •Sweden •Switzerland •United Kingdom BlankMap-Europe Land Value Improved Value; Cadastral Value Land & Buildings Annual Value http://f.tqn.com/y/goeasteurope/1/S/Z/L/-/-/EasternEuropeMap.jpg Land Value Improved Value Land & Buildings Buildings Only Area Albania Belarus Bosnia & Herzegovina Bulgaria Czech Republic Croatia Estonia Hungary Kosovo Latvia Lithuania Macedonia Moldova Montenegro Poland Romania Serbia Slovakia Slovenia Srpska (B&H) Turkey Ukraine Central, East & South-Eastern Europe Discernible trends: Tax base •Single, uniform tax base determined nationally (or at state/provincial level in federal countries) –Brazil, Canada, Egypt, South Africa, Uganda – •Multiple tax bases determined nationally (or at state/provincial level in federal countries), local government can choose preferred base –Australia: South Australia, Victoria –Malaysia, New Zealand, South Africa (before 2005), United Kingdom – •Move to capital (improved) value as preferred tax base –Anguila, Cameroon, Kosovo, Lithuania, Mauritius, Mozambique, Nigeria (Lagos State), Northern Ireland, Rwanda, Saint Lucia, Slovenia, South Africa – •Move to rental value as preferred tax base –Gabon, New Zealand, Sierra Leone Discernible trends: Valuation •Valuation service providers –Government or government agency: Australia, Botswana, Canada, Hong Kong, Latvia, Lithuania, Malawi, New Zealand, Slovenia, Uganda, United Kingdom, Zambia –In-house (i.e. municipality itself): Lesotho, Namibia, South Africa, Tanzania (?), Zambia –Private sector: Malawi, Namibia, New Zealand, South Africa, Tanzania (?) –Self-assessment: Cabo Verde; India (some cities), Liberia, Rwanda – •Recent changes in respect of valuation services –Government to private sector: Botswana, Malawi, Uganda – •Increased utilisation of computer-assisted mass appraisal (CAMA): Cameroon, Malaysia, Slovenia, South Africa – Trends: Tax rates •Uniform versus differential tax rates –Many countries allow for differential rates (mostly on basis of use): Armenia, Canada, South Africa, Zambia • •Setting of tax rates –Tax rates determined nationally: Armenia, Cameroon, Egypt, Jamaica, Rwanda –Limited scope to set rates locally within nationally-determined parameters: Romania, Uganda –Tax rates determined locally and usually annually: Australia, Botswana, Canada, New Zealand, South Africa, Zambia • •Oversight or control –Many countries provide for central/state approval or some oversight over locally-determined tax rates: Botswana, Namibia, Zambia –Possible rate-capping: South Africa Status: Tax administration •Billing –Problematic in many countries due to poor taxpayer data and/or poor postal services and lack of street addresses: Malawi, Philippines, Sierra Leone, South Africa, St Kitts & Nevis • •Collection –Low or declining compliance due to poor or complete lack of service delivery: Philippines, Nigeria, South Africa –Low due to poor enforcement: Tanzania, Uganda –Political interference: Gabon, Senegal, Tanzania – •Enforcement –Despite mechanisms in the law, generally weak due to lack of political and institutional support: Rwanda, Thailand, Uganda –Proper enforcement: Australia, Canada, Hong Kong, New Zealand, Singapore, South Africa…, United States File:BlankMap-World6.svg Recent or current property tax reforms Developed countries Developing/transition countries Map image: http://commons.wikimedia.org/wiki/File:BlankMap-World-v2.png Franzsen, 2014 Conclusions •“No one size fits all…” – diversity is the name of the game • • •The “best” system is the one that generates sufficient revenue in an as equitable manner as possible – – •Despite of (or because of) its political visibility, the property tax is an increasingly popular source of revenue at especially the local level of government