Page 40

Land and Property Tax: A Policy Guide

5.1 Defining the base for the LPT

5.2 Setting the tax rate

The base of the LPT is the value that will ultimately be used to allocate the tax burden to individuals, households and businesses. The important policy questions in designing the base for the LPT (for which some answers are supplied in later sections of this report) include:

Should all property be taxed at the same rate? If some property or some property owners are exempted from the LPT, not all property will be taxed at the same rate. But beyond exemptions, should rural farm land and urban residences be taxed at the same rate? Should businesses and households be taxed the same? Should poor households and better off households face the same tax rate?

Which level of government and which agency should set the tax rate? Setting the rate at the national or regional level assures uniformity and avoids tax competition. Allowing local governments to set the rate empowers local officials and fosters local autonomy. In some cases the national or provincial government establishes a range for the rate, and the local governments are allowed to determine the final rate within that range.

What should be included in the base? It can include land only, land and immovable improvements, just the improvements, or different combinations of land and improvements for different types of land use.

How should value be determined, and how often should it be updated? As noted the LPT can be based on the market value of the real estate, proxies for market value or selected physical and locational attributes.

Who will owe the tax? Part of defining the base includes determining who will owe the LPT. Will it be assigned to the owners of land or those who actually use the land?

Should these decisions regarding general approach and incidence be uniform throughout a country or should they vary within a country depending on local conditions such as the quality of real estate markets or the nature of recognized property rights?

Which types of property or ownership classes should be exempted from the LPT, if any, and why? One of the issues confronting every jurisdiction implementing an LPT is exemptions. For example, it is common, though not necessary, to exempt government-owned property. Temporary exemptions have also been granted in some cases because of natural disasters.

Which level of government and which agency should determine which properties are exempt?

How property rights are defined and registered and the maturity of real estate markets will have a strong impact on how the base is defined for the LPT.

32

The policy questions around rate setting include:

Both the administrative capacity of different levels of government and broader policy objectives will influence LPT rate setting policies.

5.3 Coverage When the base has been defined in law it establishes a standard for which properties and which taxpayers should be included on the tax roll or fiscal cadastre. Coverage is the proportion of all such properties that actually appear on the cadastre and have tax bills generated for them. While it is most fundamentally a product of administrative quality, there are nonetheless important questions to consider in the design and initial implementation. •

How will information be shared between agencies controlling land ownership and occupancy records, construction records and tax records? In many instances, there is very poor communication and cooperation between these agencies. But each controls some of the information required to manage an accurate cadastre and other land records. Pooling of all information related

Profile for UN-Habitat

Land and Property Tax  

In the Guide, you will find answers to questions such as why land and property taxes are often an important source of local revenue, what th...

Land and Property Tax  

In the Guide, you will find answers to questions such as why land and property taxes are often an important source of local revenue, what th...

Profile for unhabitat