Report suggests key reforms for property tax in Latin America

Miércoles, Junio 6, 2012

For Immediate Release
Contact: Anthony Flint 617-503-2116

CAMBRIDGE, Mass. (June 6, 2012) – The Lincoln Institute’s latest Policy Focus Report provides a comprehensive framework to help improve systems of property tax in Latin American countries – a critical component for financing local public services in fast-growing areas of the developing world.

Improving the Performance of the Property Tax in Latin America, by Claudia M. De Cesare, suggests several reforms that would enable municipalities to increase their local revenues for investment in local public services. Improvements in property tax collections strengthen local governance while underscoring the shared responsibility of citizens and public authorities for urban development, the report says.

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 because property tax payments are independent of a property transaction. Moreover, equitable property tax assessment requires operational efficiency, technical expertise, available data, administrative capacity, and political will.

Certain conditions in Latin America compound these challenges. Large disparities in income and wealth complicate the setting of equitable property tax rates, and as a result some municipalities are under-resourced to support efficient property tax collection. 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 and its ability to generate revenue, 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.

Reports on property tax revenues in Latin America are not consistent, the quality of the data is less than satisfactory, and collections vary greatly across jurisdictions and countries. The available evidence indicates that the property tax is currently of limited importance as a locally controlled source of revenue to support municipal expenditures.

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. Indeed, a growing number of municipalities demonstrate the feasibility of operating efficient property tax systems.

Based on their experiences, the report presents a comprehensive framework that could help overcome many of the traditional roadblocks to successful property taxation in Latin America. Recommended reforms focus on three areas:

-- Fiscal policy. The structure of own-source revenue and tax-sharing arrangements affect the need for and the willingness of local governments to collect property taxes. Fiscal policies should support local autonomy, avoid duplication of effort across levels of government and/or agencies, improve clarity of legislation, support under-resourced cities and towns, 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. Certain tax policies—such as those benefiting tax delinquents and limiting the universality of the tax—create inequities and inefficiencies in the system. Other policy choices can help create sustainable property tax systems, such as having the same level of government both 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 thus requires increased efforts to design cadastres for sustainability and the application of more flexible cadastral and valuation approaches to improve the accuracy and uniformity of valuations. Encouraging tax payments, negotiating tax debts, and 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.

About the author

Claudia M. De Cesare is a civil engineer and a graduate of the Pontifícia Universidade Católica in Rio Grande do Sul, Brazil. She has a masters degree from the Universidad Federal do Rio Grande do Sul and a Ph.D. from the University of Salford, England. She currently works in the Tax Management Division of the Office of the Municipal Secretary of the Treasury in the Prefecture of Porto Alegre, Brazil. A researcher with a long affiliation with the Lincoln Institute of Land Policy, she is a member of the Advisory Board of the International Property Tax Institute.

About this report and the Program on Latin America and the Caribbean

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.

This report reflects years of extensive research and practical insights gained from training and demonstration projects as part of the Lincoln Institute’s property tax programs in Latin America. One such initiative is Capacity Building for the Property Tax in Brazil, a program designed to assist more than 5,600 municipalities in their fiscal administration of the property tax and to provide training on issues associated with cadastres, property valuation, and tax assessment.

The report also draws on the results of an ongoing survey to compare property tax systems in Latin America. This survey provides financial, legal, and administrative data on a large number of jurisdictions, along with indicators on tax performance as a revenue source, efficiency in tax collections, assessment practices, and use of cadastres. The information is systematically recorded to allow comparative analyses across countries and is constantly updated at the site Property Tax in Latin America.

The Lincoln Institute of Land Policy is a leading resource for key issues concerning the use, regulation, and taxation of land. Providing high-quality education and research, the Institute strives to improve public dialogue and decisions about land policy.

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