fig congress 2018 - Barriers to the succesful implementation of property tax reforms
Richard Grover, Marek Walacik
Research undertaken by the World Bank has identified a number of pre-conditions necessary for the successful implementation of value-based recurrent property taxes. These are a comprehensive system of property registration that identifies taxable properties and their characteristics; an accurate record of transaction prices, both sales prices and rentals, that can be used to estimate the market values of comparable properties; a valuation infrastructure comprising valuation standards, methods of measuring properties in a consistent fashion, qualifications for valuers, and codes of ethics and professional practice so that properties are valued in an accurate and consistent fashion; and efficient systems for billing and collecting the taxes assessed. However, these conditions are not sufficient for successful implementation of property tax reforms. There are a number of examples of countries which have failed to implement technically sound reforms even though the necessary pre-conditions have been met. This paper explores some of the reasons for this using examples from Moldova, Poland, Slovenia, and the United Kingdom. There appear to be a number of governance and political obstacles to be overcome. Recurrent property taxes are local taxes yet reform typically requires the support of central government and significant investment of its resources. The benefits are not always perceived by central government which is not the primary beneficiary of reform. In particular ministries of finance have to be persuaded to lead a reform programme for a type of tax that is very different in its technical demands from those they are used to dealing with and which calls for a different administrative structure from other major taxes. There may be constitutional conflicts between central and local government. Recurrent property taxes are rarely popular. They are obvious and not hidden like taxes taken at source, such as income and sales taxes. The wealthy, who are the ones particularly, affected by change, have the resources to mount campaigns of opposition. Many households are asset-rich by cash-poor and can find it difficult to raise the cash to make tax payments. Reforms may result in many more taxpayers facing higher bills than see their tax burden reduced. Reforms to the way in which property taxes are assessed must therefore be seen as part of a wider campaign to make property taxes, local public services, and local governance fairer and more efficient rather than just being about technical valuation matters.
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