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approaches cannot simply be copied from successful developed
countries. It is also important to realize that successful reform
in this area, with promising revenue potential, requires an
up-front investment in training and creation (or upgrading) of the
necessary administrative infrastructure, first of all in the form
of a comprehensive and accurate cadastre or register for tax
purposes.
Common elements of a reform strategy would ideally involve the
following:67 68
An in-depth diagnostic analysis that carefully maps present
capabilities and identifies policy and administrative weaknesses,
combined with policy decisions on the future role of property
taxes, particularly as part of a broader decentralization
strategy.
Development of specific tax policy design, with particular focus
on the definition of the base, the rate structure, and exemption
policy; the key objective should be simplicity with a minimum of
exemptions and other reliefs, for ease of administration and
maximum fairness. Also, regular costing of reliefs in terms of
revenue forgone is essential.
Detailed planning of administrative reform, carefully adjusted
to individual country circumstances, involving in particular: (1)
improved coverage of cadastre or tax register; (2) better
valuation, including procedures for regular updating; (3) improved
record keeping based on close coordination between agencies
involved; (4) improved collection rates though strong enforcement
and low compliance costs; and (5) clear decisions on the allocation
of responsibilities between the central and local governments with
regard to how these core administrative tasks are carried out.
Property transfer taxes should be reduced or phased-out, and
possibly replaced by either the recurrent property tax under
reform, or (where administratively feasible) a capital gains tax on
property.
Finally, to prevent property tax systems from falling back into
disrepair, development of a monitoring device based on quantitative
performance indicators is essential. These would ideally include
regular assessments of coverage of the tax register, valuation
performance, and collection efficiency.
67 See Bahl (2009) for a discussion.
68 These elements are broadly applicable to both developed and
developing countries engaged in property tax reform.
