Module A Rationales for Property Tax and the Implementation Challenges

Transcription

1 Module A Rationales for Property Tax and the Implementation Challenges Presentation by: Brian McAuley & Sissie Fung ADB Consultants Bangkok, 8-9 November 2018

2 Global Tax Agendas and ADB operations Sustainable Development Goal 17.1 Strengthen Domestic Resource Mobilization Weak Tax Administration % of GDP 1990s 2000s Poor Tax System Design 14 7 Developing Asia Latin America & Caribbean OECD World 2 ADB support (Loans, Grants, Technical Assistance (incl. Knowledge sharing))

3 3 key components for our DRM initiative Better Revenue Policy Improved Effectiveness, Efficiency and Transparency in Tax Administration Improved International Co-operation Regional / Country Projects Knowledge sharing workshops Benchmark / Good practice (Research) 3

4 Main objective: Raising domestic revenue Addis Ababa Action Agenda: Mobilization and effective use of domestic resources, underscored by the principle of national ownership, are central to sustainable development (incl. achieving the SDGs). countries Property tax has great revenue potential and represents one of the largest sources of untapped revenue for developing countries 4

5 Property Tax: revenue performance Property Tax Revenue as a share of GDP % 4.00% 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% Indonesia Kazakhstan Malaysia Philippines LAC average Singapore OECD average Japan Korea United Kingdom Source: OECD, Revenue Statistics in Asian Countries, 2017; OECD, Revenue Statistics 2017, OECD, Revenue Statistics in Latin America and the Caribbean , 2017.

6 Why Property Taxation? Significant revenue raising capacity Fair: imposed on property owners whose properties increase in value due to improvements in local infrastructure Transparent and visible due to immobile tax base (relatively difficult to evade) Efficient and stable revenue source; provides meaningful revenue autonomy to local governments in fiscal decentralized systems Progressive: burden predominantly borne by middle- and highincome earners Less distortive effects on long-term economic growth than other taxes 6

7 Rationale for property taxation Raising DRM Fiscal decentrali zation Property Tax Capturing land value Stabilizing house prices Efficient land-use 7

8 Property Tax as a tool to capture land value Urbanization More tax revenue Higher public demand Increase property value Urban development 8

9 Property Tax as a tool to promote efficient land-use Property taxes increase the costs of holding land or keeping property vacant/underutilized. Ø Incentive to put immovable asset to its most valuable use Ø Property development becomes more attractive Ø Contribute of economic growth Property tax exemptions policies, however, reduce the tax base and tax revenues, and can have undesired consequences. 9

10 Property Tax as a tool to stabilize house prices Property taxes can dampen house price volatility and curb speculation in the real estate market OECD study: Property tax revenues that evolve in line with rising property prices can act as an automatic counter-cyclical stabilizer on the housing market; An increase of the property tax-to-gdp ratio from 0.5% to 1% would curb house price volatility between 1%-4%, whilst slowing the growth of house prices; Countries with low property taxation and less frequent property value updates have steeper house price fluctuation. 10

11 Property Tax as a tool to promote fiscal decentralization and state building Fiscal decentralization produced mixed results in developing countries: Weak administration is the most important obstacle for property tax revenue mobilization; Local decision-making process can also be captured by the local elite; Fiscal decentralization has made policy coordination among levels of government more difficult; Produced greater regional inequality and macroeconomic instability Intergovernmental transfer system has undermined the revenue mobilization potential of the property tax 11

12 Common challenges Policy design Administration Institutional Political Lack of appropriate evidence-based analysis Narrow tax base, many exemptions, wasteful incentives, low tax rates Capacity constraints and lack of technical expertise Undervaluation & lack of regular re-evaluation Poor taxpayer service Lack of coordination among levels of government Fragmented data keeping and management Intergovernmental transfer system Weak oversight Lack of internal and external political support Tactical: poor timing and sequencing of property tax reform 12