Essays in Honor of Roy Bahl
Studies in Fiscal Federalism and State–local Finance series
Edited by Richard M. Bird and Jorge Martinez-Vazquez
Chapter 10: Implementing sustainable property tax reform in developing countries
Property taxation has tremendous potential for mobilizing improved revenue and equity, especially in developing countries. Currently the property tax generates 0.3–0.6 percent of GDP for developing and up to 2–3 percent of GDP for OECD countries (Bahl and Martinez-Vasquez, 2008; Bird and Slack, 2004). This international benchmarking suggests a high potential for significant increases in property tax revenues, along with improvements in equity and efficiency, especially in developing countries. To realize these potential property tax revenue improvements, countries must undertake strategic reform, combining policy and administrative interactions to improve tax base coverage, property valuations, collection, enforcement and taxpayer services. The tax policy reforms must adjust tax base definitions and tax rate structures, along with making appropriate policy decisions linked to valuation standards, appeals, collection and enforcement. The tax administrative reforms must focus on improving tax base coverage, valuation, and collection, along with taxpayer services. A major constraint to improving the property tax in developing countries is weak administration, often a result of political, institutional and capacity constraints. Property tax reforms must be designed cognizant of these constraints, the existing reform environment, legal and institutional structures, government administration capacities, and political will, as all tax reforms must be country-specific, adapting international best practice to each unique reform environment. Major administrative reforms, undertaken within a proper property tax policy framework, are crucial to ensure sustainable implementation of a more equitable and efficient property tax system.
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