Property Taxation, Instruments, Models, Administration, and Potential Effects

There are several alternative design issues related to property taxation, problems with administration and rent-seeking, and diverse international experiences. A taxonomy distinguishes between recurrent and non-recurrent taxes, on households and businesses. The predominant value and ownership-based approach relies on recording of ownership and timely integration of current market prices. Cadasters are the bedrock for this model. However, recording of ownership, and updating values is a very lengthy and costly activity, particularly in developing and transition countries where property rights are hard to define, with huge informality and areas with collective ownership. Collections show a dismal performance, especially with the old colonial model relying on tax collectors that interface directly with taxpayers. An alternative is based in area/location-based taxes using easily verifiable parameters. Together with basing taxation on occupancy rather than ownership, the alternative simplifies recurrent taxation on households. But the political economy problem of taxing fixed-income households according to variations in prices is a significant constraint. This can be addressed by an explicit linkage with local benefits—and leads to better accountability and better access to public services, including for the informal sector. International experiences and revenue potential are also addressed in this chapter.