Property tax takes cake
Revenues from the property sector should be raised to the level in advanced economies which are more than 1 percent of GDP on average in OECD countries, and nearly 3 percent in some advanced economies.
Daily TribuneRevenues from the property sector should be raised to the level in advanced economies which are more than 1 percent of GDP on average in OECD countries, and nearly 3 percent in some advanced economies.
Sustaining the growth momentum of developing nations would need huge public capital primarily through infusions in the building of infrastructure.
According to the International Monetary Fund (IMF), the world’s governments must raise an additional $3 trillion to achieve sustainable and inclusive economic growth goals.
A report by the multilateral lender said the cost in emerging markets equals four percent of their gross domestic product (GDP) and 16 percent for low-income countries.
The quandary for most governments is where to source the money they need to generate such a huge cost without resorting entirely to borrowing.
Since property transactions have risen in developing Asia, the IMF indicated that such business deals should have a bigger share of the burden for providing the means for sustaining the growth momentum.
Large cities such as Delhi in India and Lagos in Nigeria were referred to as the way forward based on the report.
Taxing property more efficiently can play a meaningful role in raising revenues at the local level, allowing nations to invest more in their people, an IMF analysis showed.
The IMF indicated that a previous research it conducted showed that countries have the potential to raise more domestic tax revenue if they need it, up to 5 percentage points of GDP over two decades.
Of course, the political challenges of such reforms are far from trivial, as recent events in several countries suggest that raising taxes can create social unrest.
More efficient real estate tax collections have an advantage by being locally collected and spent as they may be politically less challenging than increases in broad-based national taxes.
Recurring taxes on fixed properties such as land could help governments capture the wealth generated through construction-intensive urbanization, according to the IMF.
Revenues from the property sector should be raised to the level in advanced economies which is more than 1 percent of GDP on average in OECD countries, and nearly 3 percent in some advanced economies.
In contrast, the level is only around 0.1 percent of GDP in emerging Asia and Africa.
Achieving fast growth requires improved property tax. With policy reforms and better technology, revenues in developing countries should be at least 10 times higher than current levels, according to the IMF.
Well-designed property tax schedules become a reliable and progressive form of municipal financing.
The IMF said these enhance the accountability of local governments since proceeds can be used to fund better local public services, and “taxes the increase in wealth of those who own real estate that has appreciated due to urbanization and associated public infrastructure development.”
The tight link between revenue and spending shields property taxes from national politics and imposes higher accountability standards on local councils for the effective use of the resources.
Modern mapping technologies, such as satellite imagery and aerial photography by drones, can be used to fast-track the expansion and coverage of property taxes.
Indian officials in Delhi and the greater Bangalore metropolitan area have started using satellite imagery to map properties in a geographic information system.
In Africa, municipalities have made impressive strides. Lagos increased tax collection fivefold to more than $1 billion in 2011 by broadening the base of its property tax, coupled with better enforcement.
The increased precision of satellite images enables the accurate measuring of surface areas and the development of fiscal register maps that depict buildings and their alterations.
This allows the fast roll-out of an area-based property tax until valuation capacity has advanced to migrate toward a market value-based property tax system that can raise more revenue, according to the research.
According to the study, property tax collections have the potential to augment fiscal needs and since real estate companies are among the biggest gainers from a vibrant economy, it follows that raising their share for development must also be considered.