Implementing Property Tax

Renewed interest in the property tax has led a number of countries to undertake major property tax reforms in recent years. Issues and challenges in implementation include determining what is included in the tax base, assessing properties, setting tax rates, and administering the property tax system.

No form of taxation is more dependent on administration than the property tax. How well property taxes are administered affects, not only their revenue, but also their equity and efficiency. Administrative issues include the capacity to administer the tax, manual rather than computerised functions; collection rates are low, and enforcement is almost non-existent. Even countries with relatively good property tax administration often have problems updating values on a regular basis.

The obvious question here is – are we equipped and ready – both on a resource and administrative level to implement property tax assessment and collection? Administration of the property tax can be sufficiently costly to be an obstacle to implementation. However, frequent valuations maintain the legitimacy of the tax and reduce the risk of sudden, dramatic shifts in tax burdens from large increases in assessed values. The costs associated with regular assessments and reassessments include computer software and support, training and availability of in-house staff, and training and availability of appraisers (Dornfest 2010). This high administrative cost has led to failure of implementation of the property tax in many countries.

Studies show that residents are more willing to pay property taxes when local services, such as roads and garbage collection, are adequate and efficient. Do we consider the fulfilment of local services adequate in Trinidad and Tobago? What about the fact that property tax does not reflect a real cash flow but rather an imputed one that may not necessarily reflect the owner’s current financial situation. What about the volatility of the debt which will be impacted by increases in the values of the property that is outside the control of the owner, such as those brought on by market forces? And possibly even by government policy itself? What if the government decides to build a school or hospital near to your home and therefore possibly raise your home’s market or rental value? In reality, “tax policy is the product of political decision making, with economic analysis playing only a minor supporting role” (Holcombe 1998). It seems generally essential to link the implementation of property tax to broader reforms in public sector management aimed at improving both public services and governance. This must be part of a wider policy that would gain some sort of economic benefit for the population.

The future of local property taxation in any country seems highly dependent on the role that governments are expected to play.

For example, implementation of local property tax, accompanied by changes in the transfer system to support and encourage accountability to citizens for the taxes they pay and the services they receive may be a more promising path. On the other hand, a simple attempt to implement property taxes with nothing else changing, pushed by a government trying to reduce its budget deficit by off-loading more fiscal responsibility on citizens, is unlikely to be received with much enthusiasm.