Tax Asecs of Domestic Resource Mobilisation – a.ppt

Tax Aspects of Domestic Resource Mobilisation – a Discussion of Enduring and Emerging IssuesLand Tax UN Financing for Development Office IFAD Rome, 4-5 September 2007 M Grote National Treasury, South Africa Forms of property taxation 3 basic form of property taxation: Tax based on annual or rental value of property – (estimated net rental value pa) Tax based on capital value of land improvements – tax based on assessed valueo of land improvements Tax based on site or land value: Kenya, Australia, New Zealand, (South Africa), Taiwan land value system is the site system, excluding improvements such as factory buildings or houses or crops – narrow tax base necessitating higher tax rates Ad valorem property taxes target ownership of fixed real estate: Based on assessed value or a closely related proxy Agricultural land tax (value of unimproved land in its agricultural use) Not to disincentivise productive investments Value does not include improvements such as fencing, drainage, dams Opportunity costs Hence, market value of the freehold without encumbrances improvements Urban property tax or ‘rates’ or site value tax is on market value: Flat rate tax would tax value of building land (total improved land) Value of land fixed investments/improvements In urban context market value readily observable, determined by valuers based on active property market – close comparables (recently traded properties) Economic theory rationale for land tax Arguments in favour of land tax (see H George, John Locke): To provide for own-source revenues for local governments land reform Beneficial land market effects: lower entry price, stop under-utilisation of prod. land Land taxes should not distort economic incentives (fixed supply of land) Equitable, as it targets unearned income: Value capture – rent caused by public investment or inherent potential of land without investment/activity of landowner (benefit received principle) Is progressive as owners of large properties mu