Why is the property tax so important for Latin America? Because it's a fair and reliable source of revenue for financing local public services in some of the fastest-growing urban areas of the developing world, according to a new report published by the Lincoln Institute of Land Policy.
Improving the Performance of the Property Tax in Latin America, by Claudia M. De Cesare, suggests several reforms that would enable municipalities to improve property tax collections, strengthen local governance, and also emphasize the shared responsibility of citizens and public authorities for urban development.
There are many challenges in establishing a successful and sustainable property tax in Latin American countries. Local public officials responsible for its administration often face intense political pressure because the property tax is universal and highly visible. Public dissatisfaction arises just as it does in the U.S., when homeowners are unhappy with property tax bills. Good assessment practices require technical expertise and administrative capacity.
In addition, wide disparities in income and wealth complicate the setting of equitable property tax rates. Limited access to data on property sales prices hampers accurate valuations, as does the great diversity in land tenure and occupation patterns in the region. An added difficulty is the distrust of public authorities by many taxpayers in view of weak governance and corruption.
Widespread informal land occupation also complicates matters. Excluding informal properties limits the universality of the tax, but including such properties requires significant efforts to update cadastral records. How residents of informal areas perceive the property tax is another concern. Using fees and charges tax might be viewed by many as less influenced by political factors, easier to administer, more efficient, and more capable of generating revenue.
Nevertheless, property taxation remains the best way to support local public expenditures for several reasons, including its familiarity to taxpayers, its progressivity relative to taxes on consumption, and the difficulty of tax avoidance, the report says. A growing number of municipalities demonstrate the feasibility of operating efficient property tax systems; the report makes these recommendations to overcome roadblocks:
-- Fiscal policy. Local jurisdictions should be able to collect property taxes autonomously, and guarantee the universality of the tax. These goals can be achieved by adopting policies that adhere to basic principles of equity, ability to pay, universality, legality and certainty, effective administration, and transparency.
-- Tax policies. A sustainable tax system avoids policies that enable tax delinquents, erode the universality of the property tax, and create inequities and inefficiencies. The same level of government should decide on public expenditures and set property tax rates.
-- Assessment practices and collection procedures. Some of the shortcomings in tax administration relate to property cadastre systems, which may be more sophisticated than local technical capacity can support, or be costly relative to the revenues produced by the property tax. Better tax administration requires increased efforts to design cadastres for sustainability and the application of more flexible approaches to improve the accuracy of valuations. In addition, consistently applying sanctions in cases of tax evasion can all help to improve collections. Effective public information campaigns on taxation procedures and on the use of tax revenues can strengthen fiscal culture and promote trust.
The report will be translated into Spanish and Portuguese. The related subcenter at the Lincoln Institute website, Property Tax in Latin America, includes extensive data and case studies, and is available in Spanish and Portuguese.
Property taxation is one of the core topics of the Lincoln Institute of Land Policy and is of central importance in Latin America. The Lincoln Institute’s Program in Latin America and the Caribbean, Martim O. Smolka, director, has for many years been engaged in research, urban planning strategies, and education and training in key topics related to land use in 19 countries throughout Latin America and the Caribbean.