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Land and Property Tax: A Policy Guide

be the result of more sophisticated statistical analysis that incorporates market trends and detailed location information (if the data support such analysis). The key concept is to automate the rules to assure they are uniformly and consistently applied in generating what will likely be thousands of taxable values with limited human resources. It should be stressed that information technology (IT) will not solve all valuation problems. IT will not improve the quality of the final product, though it can reduce clerical errors. More or better IT is not a substitute for valuation or organizational skills, and will not necessarily yield better valuation results. (Keith, 2002) However, well-planned use of IT is likely to reduce overall costs, increase accuracy and consistency of the data used, and will certainly save time, especially when it becomes necessary to update values. Revaluation or the updating of property valuations is an essential part of valuation administration. The law establishing the annual LPT should specify how frequently such revaluations should occur. The international consensus is that such updates should occur at least every five years, but more frequently in dynamic urban areas with rapidly changing market conditions. The rationale for such revaluations is clear. Urban conditions change frequently and sometimes quite rapidly. Cities grow in population and land use patterns change with the result that the demand for land changes. The LPT system needs to reflect these changes in a timely manner to the extent possible. Failure to keep values up-to-date often results in two failures of the overall LPT system. First, revenue buoyancy is lost. It is generally considered desirable by public finance experts to have a tax system which yields revenue increases that keep pace with growth in the community. Dated property values make it practically much more difficult to increase LPT revenues fairly as any increase in tax rates will not reflect the changing property dynamics within the community as some areas appreciate in value more rapidly than others. Second, when property is eventually revalued, the result is often a major shift in taxable value 82

which leads to taxpayer shock and anger. For example, a recent review of land values in Jamaica carried out by the Land Valuation Division of the National Land Agency indicated that between 2002 and 2010, residential land values had increased by between 100 and 300 percent depending on the parish, while commercial land values had increased by as much as 1,500 percent in some areas. Such increases put community leaders in a very difficult position. Either they must reduce the overall effectiveness of the LPT by substantially reducing tax rates, or they will likely incur the wrath of stunned taxpayers who face a doubling or tripling of their tax bill in a single year. By far the better strategy is to revalue property regularly and thus incorporate changing values into the LPT system on a more incremental basis. There is no question, however, that revaluations take resources. One of the reasons many countries fail to follow their legal requirements for periodic revaluations is that they are expensive. The other reason of course is that any increase in value can be difficult for political leaders. One response that has been employed in a number of countries is to adjust taxable values between formal revaluations using an index. Colombia and Mexico, for example, annually adjust taxable values using an index tied to the consumer price index in those countries. Indexing values is a reasonable and effective strategy but it cannot substitute for periodic formal revaluations. Adjusting all property values by the same index fails to capture changing relative values within a community as land prices in some areas rise more rapidly than in others. Thus the strongest strategy is clearly to revalue property on an annual basis as is done in some advanced economies though not many. Short of annual revaluations, formal revaluations should be undertaken about every five years or less, and values should be indexed each year in between revaluations. Ideally, the adjustment index used should be based on changing real estate values rather than a broader index such as the consumer price index. Of course, revaluation is not as critical with nonmarket approaches to value. Even in such cases periodic land surveys should be undertaken to assure that accurate and up-to-date property

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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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