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The return of the land and building tax (with CNC3 video)
Is property tax a viable source of income?
Published:
Thursday, October 18, 2012
Deloitte partner Arun Seenath
A new regime of taxation on property is expected to be in effect by the 2014 fiscal year—in about 11 months’ time—as there is need to resolve logistical issues surrounding its implementation, says Finance Minister Larry Howai.
And he said a benchmark for revenue collection from property tax regimes is about two per cent, which in a local context would be about $1 billion, but that the Government planned to build up to that figure over time.
Howai, who was speaking to Guardian Media Ltd during the lunch break of the sitting of the Senate on Monday, had signalled in his budget presentation on October 1 the intention to bring back property taxes.
“Yes, it would probably be 2014. If I am fortunate enough to get it done before, I’ll try to do that. In any event, it is difficult to do retroactive tax legislation, so by the time we get everything done, it is probably unlikely that we would get it in place,” said Howai, adding that he did not include property tax revenues in his 2013 budget calculations.
Howai said the Government is in the process of structuring a land and building tax regime which is expected to be completed “during the course of next year.”
He said other issues needed to be straightened out first.
Howai said: “The thing is that we are now in the place of trying to complete the preparation of the legislation and we would have to have some consultations on that before we actually put it in place.
“There are lots of logistical issues to deal with, that we must pay some attention to. In fact, what my technicians tell me is even with the property tax, we would not have been in a position to implement it right away because the house rules needed to be updated and valuations need to be done on a consistent basis.”
The Minister of Finance said there were many issues around the introduction of a new regime of taxation on property that need to be properly put in place and he was in the process of trying to put a timetable in place for getting those things done.
“It is very unlikely that I would be able to get it done before September of next year, so we would run all of next year in effect, without the property tax or with a waiver on property tax and without the land and building tax revenue,” Howai said.
“We are just about completing putting together a policy decision which would then inform the legislation. There is some legislation that has been completed. I think prior to my coming into government, they did look at the old land and building taxes and made some amendments to that as a means of fast-tracking the piece of legislation. If we are going to put legislation in place, I would like to do it properly,” Howai said.
He anticipates that by 2014, the Government would begin to see the benefits of the revenue from property taxes.
On the issue of the amount of money, the Government expects to collect from property taxation, Howai said: “The commitment is to attempt to come as close as possible to what existed previously as a start, and then arrive at some agreed formula by which the payments can be adjusted to reflect more closely the cost of providing services to households and commercial establishments over time.”
“This process will also involve some degree of consultation with stakeholders. There is also the issue of developing the appropriate policy position when these consultations have taken place that would then inform the manner in which the legislation is crafted. Having said that, we shall examine all options for seeing to what extent we can get it done as soon as soon as possible.
Ministry of Planning
While admitting it would be difficult to disclose an exact date when the property tax system would be put in place, Planning Minister Dr Bhoe Tewarie said, “It would be in time for the next budget, if not before. It will be a system covering agricultural land, land and building, industrial land and building.”
Tewarie made his remarks in an e-mailed response to questions.
Given that no taxes on land and building have been collected since 2010, revenue lost range in the millions. “An average (of) about $90 million each year.”
Explaining the rationale behind property taxes for 2013, Tewarie said: “We thought the property tax of the PNM Government was too harsh. The land and building taxes do need updating. Since we have to review, we opted for a comprehensive review, to address revenue generation, as well as rationalise economic strategy in terms of the effective use of land.”
Former Minister in the Ministry of Finance
Karen Tesheira, who served as finance minister between 2007 and 2010, said the property tax legislation was aimed at levelling the playing field for people living in various parts of T&T to pay property taxes.
The Property Tax Act 2009 was assented to by the President on December 31, 2009, but never implemented.
In a telephone interview, Tesheira said some property owners were paying a few hundred dollars in taxes on “million-dollar properties” compared to others in San Fernando and Point Fortin who were paying a much higher tax. The inequity was because properties in San Fernando and Point Fortin were revalued at modern day rates.
“For similar-sized properties which persons were paying (property tax) in San Fernando - $2,000 - a person living in Port-of-Spain with a multi-million-dollar property would be paying $200,” she said. “That can’t be right, that can’t be fair.”
On the issue of property tax or land and building taxes returning, Tesheira said, “Call it any name you wish, people did not object to the name of the legislation. What people objected to was to paying more taxes on their property. If what Mr Howai is going to bring is going to effectively make people going to pay the same amount as we (the PNM) were proposing, then they (the People’s Partnwership) have effectively hoodwinked the national community,” she said.
Mariano Browne, former minister in the Ministry of Finance
Former Minister in the Ministry of Finance, Mariano Browne said about 200,000 people paid land and building taxes under the old ordinance. “We had an 80 per cent collection rate. The methodology that would have been used to improve collections would have assured a substantial uplift in terms of the number of people paying,” he said.
Browne said the new system for collecting taxes on property (if the property tax system proposed by the PNM were to be in effect it) would mean that a total of 400,000 people would be paying property taxes. “The property tax (that) was set out made allowances for old age pensioners and those who would not have been able to afford to pay the taxes.
“The tax (under the PNM administration) is a well-thought out, well-structured methodology and, in particular, the identity features which were computerised would have brought us much further,” Browne said. He said it would have brought T&T in the 21st century in defining or describing land.
Browne said T&T does not now collect property taxes.
Asked whether the then Opposition United National Congress played politics with the property taxes, he said: “But, of course, they took an irresponsible position in Opposition, fudged for two years in office and tried to reinvent the wheel and after two years of failure on this matter, will reintroduce the tax after a comprehensive review, same but different,” Browne said in a telephone interview.
Deloitte
Arun Seenath, partner, business process outsourcing and taxation services, at Deloitte, a professional services firm, said there is need to reintroduce property tax because it is “a viable source of revenue earnings - maybe not at the level that the previous administration proposed, but it needs to be relooked at,” Seenath said.
He said it is necessary for details to be given on the structure the taxes would take.
“Although the minister in his speech seems to allude that more measures are to come during the year, he did mention specifically, property taxes.
“There were no specific mention on the rates on a daily basis which would be used to calculate the taxes. Hopefully, in the coming year, those things could materialise.
“The problem is there is a lot of work that needs to be done by the minister. He is a new minister, only recently he has been coming into the fray, so there would be a lot of catching up for him in terms of understanding how things work, understanding the different processes,” Seenath said.
What the Finance Minister said in the budget on property tax:
“Notwithstanding this, it is clear that deep reforms are necessary to make our economy truly competitive; but these reforms need to be carefully thought through and what is clear from the experience with the Revenue Authority and the property tax is that there must be widespread consultation.
“The reform measures will be phased in over the next three years in order to facilitate this consultation process and to ensure that the most disadvantaged do not suffer disproportionately.
“Our strategy is to allow the multiplier effect of the growth initiatives in this budget to feed through to income levels. Over the next few years, we will develop our reforms in a thorough manner so that, with implementation, the impact on the most vulnerable within the society would be mitigated.”
Land and building tax
“First is the Land and Building Tax. During the course of the next fiscal year, I propose to put in place a regime which will cover residential, commercial, agricultural and industrial land, and this regime will be fairer and more equitable than that which was previously proposed.
“We shall continue the waiver of tax liabilities which commenced in 2010 until the complete framework for implementing this tax is put in place.”
Tax collection
“Third, is a comprehensive review of our tax system. This review will cover the entire tax system, including tax policy, administration, and enforcement.
“It will encompass all sources of government revenue and focus on tax revenue, including personal and corporate income tax, value added tax and excise duties as well as capital and property taxes. It will also examine the net benefits to the government for charging fees for the goods and services it provides.”
What was said in the 2009/2010 budget on property tax:
Reform of the property tax regime
“The Government is committed to making the tax administration system as efficient and user-friendly as possible. Part of the tax reform initiative is the reform of our property tax regime, which is antiquated, inefficient and lacking in equity.
“To date a project office has been operationalised and it is expected that the preferred consultant will begin work in October 2008.
“In the coming fiscal year, the consultants will engage in the preparation of a modern system of assessment of property values and collection of property taxes throughout T&T.
“Property valuations and assessment will be streamlined through a single assessment agency—the Valuation Division of the Ministry of Finance. Tax collection will also be streamlined through a single collection agency—the Board of Inland Revenue. This new system will be fair and equitable, transparent, user friendly, and easy to administer.
“It will use modern technology and be inter-operable with other national systems.
“The system will be able to reflect property usage and be integrated with digital mapping and real estate operations.
“The new property tax assessment and collection system will ensure that all taxable properties are registered and valued for taxation at today’s market prices.
“The system will use the international best practices in property valuation and will include an efficient methodology to address objections and appeals. Customer service at the District Revenue Offices will be greatly enhanced as information technology will be employed to streamline records and facilitate the payment processes.
“Access to records and payment of taxes will also be available online. Enabling legislation in the form of a new Property Tax Act will be forthcoming in the new fiscal year. The proposed new proposed property tax regime will take effect from January 1, 2010.”
Statistics: Property Tax Revenue extracted from The Ministry of Planning's Web site:
REVENUE FROM PROPERTY (TT$ million)
for the period 1970-2010
YEAR REVENUE
1970 4.9
1971 3.3
1972 3.1
1973 4.9
1974 5.8
From the first five-year trend - 1970-2010, $22 million was collected.
1975 4.9
1976 5.0
1977 5.0
1978 8.0
1979 8.5
From the second five-year trend - 1975 to 1979, $31.4 million was collected. In this same period, $9.4 million more was collected compared to the first five year period.
1980 8.7
1981 8.6
1982 9.5
1983 9.8
1984 12.30
From the third five-year trend - 1980-1984, $48.90 million was collected. In this same period, $26.90 million more was collected compared to the first five-year period.
1985 21.90
1986 25.90
1987 22.70
1988 24.90
1989 36.10
From the fourth five-year trend - 1985-1989, $131.50 million was collected. In this same period, $109.50 million more was collected compared to the first five-year period.
1990 39.20
1991 43.60
1992 39.0
1993 72.0
1994 109.40
From the fifth five-year trend - 1990-1994, $303.20 million was collected. In this same period, $281.20 million more was collected compared to the first five-year period.
1995 60.90
1996 58.70
1997 56.60
1998 62.90
1999 61.60
From the sixth five-year trend - 1995-1999, $300.70 million was collected. In this period, $278.70 million more was collected compared to the first five-year period
2000 63.90
2001 59.10
2002 94.10
2003 77.20
2004 85.50
From the seventh five-year trend - 2000-2004, -$379.80 million was collected. In this period, $357.80 million more was collected compared to the first five-year period
2005 62.70
2006 64.4
2007 83.70
2008 86.70
2009 72.80
From the eighth five-year trend - 2005-2009, $370.30 million was collected. In this period, $348.30 million more was collected compared to the first five-year period
2010 325.0
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