Urban property taxation : lessons from Brazil

Efforts to increase the responsiveness and accountability of local governments -- as well as fiscal constraints at the central level -- have prompted an interest in reviving the urban property tax as a major source of municipal revenue. At present, the urban property tax is the most widely used municipal tax instrument in the developing world, but typically accounts for less than half of municipal recurrent revenues. Property tax yields can be increased by either increasing tax rates or reducing losses arising from evasion and maladministration. In the case of the property tax, there is a strong argument for beginning with the latter. Efforts to increase rates alone would exaggerate the inequities arising from existing maladministration, placing the burden of the increase on those who already pay their fair share, whereas improvements in administration place the burden on those who evade. A focus on administration achieves the objectives of increasing revenue while improving fairness. Brazil's experience with urban property taxation yields several generalizable lessons on both the practice of property tax administration and the process of implementing administrative reforms. Brazilian municipalities have found solutions -- wholly or partly successful -- to the following problems confronting property taxation: (a) rapid urban growth; (b) scarcity of skills; (c) inaccessible market data; (d) inflation; (e) disputed liability; and (f) slow judicial procedures.