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Land and Property Tax: A Policy Guide

Table 7.3: An example applying estimated values to individual properties Location of property

Zone 1

Zone 2

Zone 3

Property Identifier

AAA

BBB

CCC

Property description

Single-family residence

One flat in a building of 40 flats

Single-family residence

Land area (square meters) 700

7,000

500

Building floor area (square meters)

100

50

50

Property

15 X 700 = 10,500

30 X 7000/40 = 5,250

10 X 500 = 5,000

Building

40 X 100 = 4,000

75 X 50 = 3,750

20 X 50 = 1,000

Total cadastral value

14,500

9,000

6,000

Cadastral value

Continuing the example to demonstrate how typical values such as those shown in Table 7.2 can be used to value individual properties, consider the three properties shown in table 7.3. Property AAA is a single-family residence in a comfortable neighborhood of similar homes. Property BBB is a flat or apartment in a building that includes a total of 40 such flats. Property CCC is also a single-family residence but in a much poorer zone of the city. In each case, the typical values specific to each zone are applied to the particular characteristics of the individual property to arrive at a cadastral taxable value. Note that in the case of the flat, the land value is divided between all the dwelling units that share the land. There is no assumption that the resulting cadastral values reflect the actual market value of properties valued under this approach. But if implemented with care, the cadastral values will result in an equitable distribution of the tax burden and will roughly correlate with market values. The advantage of this approach is that as a country’s data systems become more sophisticated over time, the system can readily be converted to a capital market approach. And the system can be adapted to the amount of detailed property information available to tax administrators. Initially, there may be little more than land area and gross building area data which

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can be obtained from physical inspections or aerial photos. As additional information is added to the cadastral system, it can be incorporated into the valuation system. Implementation of a cadastral value approach does imply both the capacity and the commitment to computerize property records or it is unlikely the system will be sustainable. But such computerization will facilitate both property registration and the ability to update taxable values quickly as market conditions change. 7.1.5 Area and location

The final approach to valuation to be discussed here is perhaps the least demanding in terms of data and expertise, and it makes the fewest assumptions about the maturity of local real estate markets. There are several variations, but all involve defining the base for the LPT in terms of the physical attributes of the property. If only land is to be taxed, then some combination of land area (m2), location and land use will define the base. If improvements are to be included as well, the building area or volume is added to the list of defining characteristics. Connolly and Bell (2009) report that 38 countries tax property using this approach, as shown in Table 7.4.

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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...

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