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The Urban Property Tax (IPTU) in Brazil

An Analysis of the Use of the Property Tax as a Revenue Source by Brazilian Municipalities

José Roberto Rodrigues Afonso, Erika Amorim Araujo, and Marcos Antonio Rios da Nóbrega

Julio 2013, inglés

This paper analyzes the relative importance of the property tax as a revenue source for Brazilian municipalities. The paper, which was originally written in Portuguese in 2010, provides a diagnostic of property tax revenues in 2007 based a sample of 5,295 Brazilian municipalities (95% of the total). The paper describes the legal and administrative factors that affect property tax collections and concludes with an assessment of the potential to improve the performance of the tax. A case study of the municipality of Recife illustrates the analysis. The data show that countrywide the property tax in 2007 averaged US$46.50 per capita, although most municipalities report revenues below the national average. To a large extent, the national average reflects the property tax performance of the major cities. There are significant variations across municipality associated with city size; socioeconomic characteristics, local capacity to administer the tax; and regional attributes. Inter-government transfers also affect property tax revenues and the extent of the impact depends on the specific conditions of the municipality and on the mix of own-revenue sources at local level. Notwithstanding large differences across jurisdictions, the main sources of local tax revenues are the tax on services (ISS) and the property tax (IPTU) accounting respectively for 46 and 28 percent of total own-tax revenues. In most municipalities, an increase in property tax revenues would require better and more updated territorial cadastres and more reliable property valuations. The lack of political will to introduce tax reforms is one of the main obstacles improve the performance of the tax.

Key words: Determinants of property tax collections, public finances, municipal finances, Brazil