Journal of European Real Estate Research

Achieving successful implementation of value-based property tax reforms in emerging European

economies
Richard John Grover Mika-Petteri Törhönen Paul Munro-Faure Aanchal Anand
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To cite this document:
Richard John Grover Mika-Petteri Törhönen Paul Munro-Faure Aanchal Anand , (2017)," Achieving successful
implementation of value-based property tax reforms in emerging European economies ", Journal of European Real Estate
Research , Vol. 10 Iss 1 pp. -
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 Achieving successful implementation of value-based property tax reforms in emerging
European economies

Abstract
Purpose – The article reports the findings of a study of nine countries in Europe and Central
Asia that have either recently introduced or are working towards the introduction of value-
based recurrent property taxes. Although many countries have recurrent property taxes, often
they are not value-based and raise relatively little revenue. The article examines the barriers
to the introduction of value-based property taxes and discusses how they can be overcome.
Design/ methodology/ approach – Case studies of recurrent property taxation were
undertaken for eight countries from the World Bank’s Europe and Central Asia (ECA)
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Region. The sample included countries at different stages in the development of value-based
property tax systems. A ninth country, the Netherlands, which has a well-developed mass
valuation system, was included as a comparison.
Findings – Barriers to the introduction of value-based recurrent property taxes are technical
and political or governance ones. The technical barriers include the comprehensiveness of
property registration, the quality of transaction price data, the extent to which the valuation
infrastructure meets internationally-recognised standards, and the quality of tax collection
systems. The principal political and governance problems are the unpopularity of property
taxes, the need to convince the public that they are fair, and the lack of champions of property
taxation in government.
Research limitations/ implications – The case studies are drawn from the ECA Region but
the issues raised apply in many other parts of the world. A case study approach produces rich
data for each example that enables key issues to be explored in depth.
Practical implications – The study has identified issues and ways of approaching them that
are relevant to countries seeking to introduce value-based recurrent property taxes so that
they can learn from the experience of others.
Originality/value – The approach has enabled a systematic comparison between countries so
that common experiences and issues are identified.
Keywords value-based recurrent property taxes, mass valuation, governance, property
registration, valuation infrastructure
Paper type Research paper

1
 1. The role of value-based recurrent property taxes in a fiscal system
Recurrent property taxes can play a number of important roles in a fiscal system. They are
widely used as local taxes because they fall on immobile assets so that it is clear that the tax
base lies within a defined jurisdiction (Norregaard, 2013). In this respect they have
significant advantages over many other forms of tax where revenues can leak across
jurisdictional boundaries. Owners and occupiers have a clear stake in the community and
benefit from local services. Ownership or occupancy of these assets indicates taxpayers’
ability to pay.

There are sound fiscal reasons for developing the potential of value-based recurrent property
taxes. Encouraging local governments to make full use of them can reduce their dependency
on inter-governmental fiscal transfers and the need for central government to increase its
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taxes or borrowing to facilitate higher local expenditures. This is important if national

governments are faced with problems of unsustainable budgetary deficits or high levels of
national debt. For instance, the budgetary deficit in Serbia in 2014 was 6.6 percent of the
Gross Domestic Product (G.D.P.) (Rašković et. al., 2016) whilst public debt in Albania is 71
percent of G.D.P. (Gjika, 2016) and the budget of the Government of Moldova has been
undermined by the need to support three state-owned banks. Revenue sharing arrangements
between central and local government over taxes like personal income tax can, as the IMF
(2013) has noted in relation to Serbia, disincentivise local governments from maximising
their “own” revenue streams or disciplining their expenditure. Local politicians have an
interest in not increasing the tax burden on their own electorates whilst blaming central
government for a lack of funding. Recurrent property taxes can help improve responsiveness
to local needs and the quality of governance by linking tax revenues to local service provision
and the resolution of local issues, thereby increasing local governments’ accountability to
their citizens (F.A.O., 2007). In countries with rapidly growing urban populations value-
based recurrent property taxes that are regularly revalued can enable local governments to
share in the increase in land values resulting from this growth.

As property taxes fall on immobile assets, this makes them a valuable counter to tax
avoidance of corporate and personal income taxes by multi-national companies and high net
wealth individuals. They are amongst the taxes least-affected by globalisation (Johansson et.
al., 2008). Property can be taxed even if the owners are domiciled in other countries. Much
“international” trade takes place within groups of companies, enabling them to use transfer
pricing to ensure that profits are booked to subsidiaries in low tax countries. Subsidiaries
located in higher tax economies, for instance, can be obliged to pay royalties on intellectual
property rights “owned” by ones in lower tax countries and interest charges on loans
“borrowed” from them.

Levying recurrent value-based property taxes reduces a tax system’s reliance on income and
profits taxes, which have potentially distorting effects on work, investment and enterprise
(Johansson et al, 2008; Slack and Bird, 2014). Recurrent property taxes are relatively neutral
in their impact; “the fact that the property tax, to the degree it is a tax on accumulated wealth,
does not alter future behaviour” (Norregaard, 2013, p.14). Sales taxes can be regressive by

2
 falling more heavily on those with lower incomes who tend to have a higher marginal
propensity to consume. Property taxes can help to produce a more progressive tax burden as
they tend to fall more on the wealthier sections of society. They can help secure greater
equity in taxation between those whose main asset is their ability to generate income through
work and those with wealth. Value-based property taxes can encourage the productive use of
land to generate an income with which to pay the taxes (Malme and Youngman, 2001).

In the absence of effective value-based recurrent property taxes, local governments may levy
alternative taxes and charges, particularly on businesses, that can undermine economic
development. In Serbia, for instance, there were approximately 15 communal fees, such as
charges on business signage, though since 2012 they have been reduced. Until its abolition in
2014, a quasi-property tax in the form of the urban land use charge was payable by
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companies whose buildings were on state land; land which was retained in public ownership
when businesses were privatised (Rašković et. al., 2016). This is believed to have raised a
similar amount in revenue to the annual property tax, but the charge was unrelated to the
market value of the land. In Slovenia more than 80 percent of the property tax revenues
raised by municipalities come from a similar urban land use charge (Žibrik, 2016). In Albania
a tax on small businesses produced 40 percent of local governments’ own revenues in 2004,
though this fell to 13 percent in 2013. Levying value-based recurrent property taxes avoids
the use of less neutral means of raising revenue.

Although the use of recurrent property taxes is widespread - Almy (2014) has identified 166
countries with such taxes - they are relatively lightly used in most cases. The average
percentage of Gross Domestic Product (G.D.P.) raised by recurrent property taxes for the
European Union (EU) is 0.8 percent and that for the middle and low-income countries 0.4
percent (Grover et. al., 2016; Norregaard, 2013). Both of these are far below what is achieved
by leading users of property taxes such as the UK (3.4 percent), France (2.4 percent) and
Denmark (2.1 percent). Figure 1 examines the burden of recurrent property taxes as a
percentage of incomes from capital and land in the European Union using a methodology
developed by Walters (2013). Incomes were derived by taking the gross value added (total
output less that part used for intermediate consumption) and deducting employee
compensation (wages and salaries plus employers’ social contributions). The average for the
EU is 1.9 percent of non-employment incomes being raised by recurrent property taxes but
the UK raises 8.4 percent, France 6.2 per cent and Denmark 6 per cent.

Insert Figure 1 here

This raises the questions as to why, in spite of the benefits, recurrent property taxes are not
more widely used, what the barriers to their use are and how these might best be overcome.
There is some evidence to suggest that income level is a factor in determining their use, as is
the extent of urbanisation, the openness of the economy, the legal heritage, and the degree to
which there is decentralisation of government (Norregaard, 2013; de Cesare, 2012).
However, none of these factors can be argued to prevent the use of recurrent property taxes.
Even when recurrent property taxes are used they are often levied on an area basis rather than

3
 being value-based. For instance, the property tax in Kazakhstan is based on the area adjusted
for depreciation and location (McCluskey, 2016). Area-based taxes, even if modified by
coefficients that reflect attributes such as location, age of the building, or fertility of the soil,
do not fully reflect the market value of properties. They can result in large properties of low
value paying more in tax than small properties of much higher value. As governments have
no knowledge of the effective rates of tax actually paid by taxpayers, tax rates may be set at a
low level to avoid affordability problems.

The countries that have successfully introduced value-based recurrent property taxes have
had to overcome two main types of barriers. Firstly, there are technical obstacles concerned
with how to levy an efficient value-based property tax. These include the comprehensiveness
of property registration, the quality and availability of transaction price data, whether
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internationally-recognised valuation standards are followed, and the quality of tax collection
systems. Secondly, there are political or governance barriers which stand in the way of
satisfactory technical solutions being implemented. Property taxes are widely seen as being
unpopular and work has to be undertaken to convince the public that they are fair and
necessary. Moreover, they tend to lack champions in government. They require different
skills from other taxes levied. Their roles in reducing intergovernmental fiscal transfers and
in countering the impact of globalisation on revenue yields are not widely understood.

2. Methodology
The aim of the project was to identify best practice with respect to the adoption of value-
based recurrent property taxation and the factors that facilitate or obstruct this. The
methodology used was to develop a series of case studies carried out on a systematic basis of
countries from within the World Bank’s Europe and Central Asia (ECA) Region, with the
countries selected being at different stages in the development of value-based recurrent
property taxes. The World Bank has funded 42 land reform projects in 24 countries since
1991 and a number of these have included the improvement of property taxation amongst
their objectives. The case study approach has enabled rich sources of data to be exploited and
nuances explored that would be otherwise missed in a more econometrically-orientated
approach. The introduction of value-based property taxes has typically been the product of
several multi-year projects funded by World Bank loans and with technical assistance from
the Food and Agriculture Organization of the United Nations (F.A.O.) and bilateral donors,
which have generated technical assistance reports, loan proposals, and mission and project
evaluations. The case studies have been able to follow projects through their lives, which in
some cases have been more than two decades. Source material has included laws and
regulations, unpublished reports, quantitative data, interviews and re-interviews with
stakeholders, and fieldwork and site visits. Case studies were completed for Albania,
Kazakhstan, Lithuania, Moldova, Poland, Serbia, Slovenia and Turkey1.
1
In writing this article we have benefitted greatly from the work and advice of our colleagues who prepared the
individual country case studies. We are pleased to acknowledge our debt to Anila Gjika and Elton Stafa
(Albania), William McCluskey (Kazakhstan), Richard Almy, Albina Aleksienė and Arvydas Bagdonavičius
(Lithuania); Olga Buzu (Moldova); Marco Kuijper and Ruud Kathmann (Netherlands); Marek Walacik
(Poland); Marija Rasković and Olivera Jordanovic (Serbia); Neva Žibrik (Slovenia); and Tuğba Güneş, Ümit

4
 The eight ECA countries were selected to provide a variety of experiences, ranging from
countries with developed systems of value-based recurrent taxation to those who were just
beginning to experiment with it. Lithuania has a well-developed and highly centralised
system of valuation and property tax collection. Moldova, Poland and Slovenia have
developed mass valuation systems but, for different reasons, these have not been fully
implemented. Albania, Kazakhstan, Serbia, and Turkey have undertaken preparatory work
and their experiences highlight the pre-conditions necessary for success. As is inevitable with
a study of this type, it was not possible to complete case studies for some of the countries
originally selected though it proved possible to replace them with comparable ones.

The case studies were produced during 2015. Edited versions of the case studies were
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published in a themed edition of the Land Tenure Journal, issue 2/15

(http://www.fao.org/3/a-i5429t.pdf). The template used asked authors to explain the property
tax system in their country; the role of property taxation in the country’s public finances at
national and local levels; how property taxes were assessed; the valuation standards adopted;
the data sources used in valuation and their reliability; the methods employed in mass
valuation; and the lessons learned from property tax reforms. The annex summarises the key
points about each and shows the comparisons between the case study countries.

The key constraint was to find authors capable of producing a complex case study requiring
substantial expertise and access to data. In each case the authors were either working for a
government agency involved in the property tax reform or had been a consultant to the
government or a donor, so they were produced through participant observation over often a
lengthy period of time. This gave the authors access to data and an insight into the processes
that an outsider would not have but does require processes to ensure that an appropriate
degree of objectivity is maintained. There was strict refereeing including presentation at a
workshop of independent experts. In addition, the authors of this article were able to draw
upon their experience in working on projects for the World Bank and/or F.A.O. in the case
study countries and elsewhere in the ECA region to evaluate the case studies and extract key
conclusions.

A ninth country from outside the group that has received World Bank assistance was chosen
as a comparison. The choice of the Netherlands is because it is one of a number of countries
that has a well-developed system of mass valuation for recurrent property taxation and
outstanding systems of registers and cadastre. Value-based property taxation in the ECA
region has developed as part of land management projects aimed at creating comprehensive
land registers and cadastres. Specifically, the Netherlands has annual revaluations of

Yildiz, and Aivar Tomson (Turkey) and the helpful comments of reviewers and editors. They are not
responsible for any errors in the article and the views expressed here are not necessarily theirs. The project was
funded by World Bank Europe and Central Asia Region’s Programmatic Trust Fund for Public Finance
Management and the World Bank-F.A.O. Co-operative Program. The views expressed here are those of the
authors and are not necessarily those of the World Bank or the Food and Agriculture Organization of the United
Nations.

5
 properties and has developed streamlined systems that are embedded into the property tax
system to enable this to happen. Valuation is undertaken by local governments with the
resulting valuations forming one of the official registers used throughout government. As
there are 393 local authorities, and there is no requirement for them to use identical
methodology, the Netherlands has been obliged to develop a strict system of quality control
of the processes and outcomes based upon transparent standards. Within the ECA Region
municipalities are often responsible for property tax assessments and are in many cases quite
small. For instance, Albania has 61 local governments (Gjika, 2016), Serbia 168 (excluding
Kosovo) (Rašković et.al., 2016), and Poland 2,479 (Walacik, 2016). The experience of the
Netherlands in assuring quality in a highly devolved system is of particular relevance.

3. Mass Valuation
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The introduction of value-based recurrent property taxes is often accompanied by the

adoption of mass valuation. Mass valuation is not just used to produce value-based property
taxes but can also be used to produce assessments on a different basis. A Federal Land
Cadastre Service of Russia survey of mass valuation systems for taxation in Europe in 2001
found that 72 percent of respondents had mass valuation systems but only 45 percent of these
produced market-based valuations (U.N.E.C.E., 2001).

The attraction of mass valuation is the number of assessments that have to be carried out over
a short period of time, the need to prevent costs from spiralling out of control, and the lack of
capacity to undertake more conventional valuations. In Lithuania the cost difference was
between €1 per property for mass valuation and €100 for each single property valuation
(Almy, 2016). In Moldova the costs per valuation were put at €0.36 per apartment (2004) and
€1.4 per residential block (2005) (Buzu, 2016). In the Netherlands the cost per assessment
was reduced from €23 in 1997 to €17 in 2014 (Kuijper and Kathmann, 2016) when the
system changed from revaluations every four years to annual revaluations in 2007. Mass
valuation reduces the input from scarce and expensive valuers through automation and using
unskilled clerical workers to collect standardised data. The limited pool of valuers can be
used most effectively, including advising on models, setting standards for data cleaning,
making judgments when there is insufficient market evidence, and hearing appeals. The
countries considered in the research use different mass valuation models according to the
valuation method most suitable for each type of property and a variety of statistical methods.

Mass valuations were mainly established to levy recurrent property taxes but the values can
also be used for other purposes. In the Netherlands a common definition of real estate
property value was established by the Special Act for Real Estate Assessment, 1995.
Valuations are produced annually by local governments but their use is mandatory in all tax
calculations, including inheritance and income taxes, irrespective of the level of government
levying the tax. In addition, the valuations are used for setting maximum rents for social
housing and by notaries, banks and insurance companies for the prevention of mortgage and
real estate fraud (Kuijper and Kathmann, 2016). In Slovenia the Generalized Market Value
produced by mass valuation is used in sporadic taxes as well as to determine whether a
family’s real estate assets exceed the level per family member for social security support,

6
 compulsory purchase for infrastructure purposes, to determine mortgage collateral, and to
assess the capital adequacy of banks under the Basel II agreement (Žibrik, 2016). Multiple
usages avoid repeated valuations and enable the costs to be spread over a number of
applications..

4. Registration of property rights

The effectiveness of recurrent property taxes depends on the quality of land administration
(Slack and Bird, 2014). As immobile assets are taxed, the tax should be hard to avoid but this
depends on the comprehensiveness of land registration. Informal transfers and construction
make it difficult to produce accurate tax rolls. Three-dimensional occupancy rights must be
recorded and not just land parcels or footprints. An accurate address system is needed with
links between the property and the taxpayer. Weaknesses in registration mean that the taxes
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fail to reach their revenue potential and are unfair between those who pay taxes and those
who avoid assessment.

Serbia’s cadastre records parcels but does not contain a comprehensive record of buildings or
three-dimensional occupancy. There is a significant problem with unregistered properties. It
has been estimated that 14 percent of apartments, 22 percent of family homes, and 15 percent
of commercial premises are unregistered, and 37 percent of municipalities put the level of
unregistered properties at between 20 and 40 percent (Arsić et.al., 2012, pp. 9, 40). A study
by the World Bank (2012) in the municipality of Aranđelovac found 21,000 electricity
consumers but only 9,500 property taxpayers and in Inđija the number of taxable properties
increased from 16,000 to 26,000 by cross-checking utilities and land use databases (Rašković
et. al., 2016). In Albania the Immovable Property Register Office (I.P.R.O.) does not register
properties until all claims have been resolved. This presents problems where there are
outstanding disputes and also with informal settlements (Gjika, 2016). It is estimated that first
registration has been completed for 83 percent of rural cadastral zones in Albania but only 25
percent of urban ones (World Bank, 2011). Some local governments in response have created
their own databases so that Tirana has increased the number of commercial properties taxed
by 15 percent and revenues by 189 percent (Gjika, 2016). In Moldova there has been no
systematic registration of rural houses or agricultural land hence mass valuation cannot be
applied until this has been completed (Buzu, 2016). Registers not only have to be created but
maintained. In Kazakhstan it is only mandatory to register leases and conveyances that
transfer land rights from the state to private persons but not transfers between private owners
(McCluskey, 2016).

5. Quality of transaction price data

Levying value-based property taxes involves taking a sample of properties for which the
market price is known and applying these to comparable properties. The credibility of
assessments depends on the accuracy of price data and property attributes. The former
requires there to be a functioning and transparent property market for all classes of property
and all locations, not just major urban areas, and media through which buyers and sellers can
be informed about market conditions (Walters, 2011). Accurate attribute data is not always

7
 available. In Albania, for instance where registration is incomplete, reported characteristics
are not accurate in most cases (Gjika, 2016).

The quality of price data is undermined where there are incentives to conceal true prices in
order to evade taxes or other charges. In Moldova property sales contracts are thought to
understate true prices in 90 percent of cases (Buzu, 2016) due to a capital gains tax levied at
18 percent of the difference between the sales price and those produced by mass valuations
carried out between 2004 and 2009. In Turkey there is a land registry fee of 4 percent of the
transaction price and this is thought to result in under-declaration of the true price. Mass
valuation pilot studies in two areas indicated that annual property tax yields should be 2.94
and 1.88 times the sums actually raised respectively (Güneş, and Yildiz, 2016). By contrast,
declared prices in Lithuania are believed to be relatively accurate because low taxes and
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transfer fees at just 0.8 per cent of value and the use of mortgages provide little incentive to
make a false declaration (Almy, 2016). A capital gains tax on sales made within five years
discourages purchasers from under-declaration.

In the absence of reliable prices being declared on registration of transfers other approaches
are needed, leading to the development of sales price, rental and mortgage valuation registers.
In Turkey mortgage valuations are regulated by the Capital Markets Board and only licensed
valuers can carry them out (Güneş, and Yildiz, 2016), which makes them a more reliable
source of price data than declared prices on transfers. Slovenia and Serbia have developed
sales price registers (Žibrik, 2016; Rašković et. al., 2016). In Serbia the reliability of prices is
enhanced by the Tax Authority enforcing the property transfer tax and the activities of
notaries. By contrast mortgage valuations are not regarded as being particularly reliable due
to weaknesses in the qualifications of those licensed to carry them out (I.M.F., 2015).
Furthermore, the court experts in Serbia approved to carry out mortgage valuations are
qualified construction engineers or architects but are not required to have valuation
qualifications or adhere to any standards. In Moldova prices from sales contracts were
supplemented by asking prices and data from realtors, valuers, and auctions (Buzu, 2016).
The methods used to address price data problems depend on the institutional strengths and
weaknesses in a country, so it is unlikely that there are universal solutions.

6. Valuation infrastructure
Countries which have successfully introduced value-based property taxes have adopted
valuation standards consistent with international protocols including the qualifications
required of valuers and ethical standards. In Lithuania the privatisation and restitution
programmes after 1991 gave rise to a demand for improved valuation methods. The
Lithuanian Association of Property Valuers, established in 1994, has been instrumental in
developing education, qualifications, and standards. General Property Valuation Principles
were approved by the Government in 1995 and the Law on Fundamentals of Valuation of
Property and Business (1999) established valuation procedures. The Ministry of Finance
began certifying valuers in 1998 (Almy, 2016). Valuations in Moldova are regulated by the
Law on Valuation Activities (2002). Other than for tax purposes, valuations may only be
undertaken by licensed valuation companies, who must have at least one licensed valuer.

8
 Standards are based on European Valuation Standards (Buzu, 2016). In Lithuania and
Moldova licensed valuers have been employed in mass valuation in local cadastre offices and
the national headquarters. In Serbia private valuers’ associations have grown up that have
sought to promote internationally-recognised standards but their work is not officially
sanctioned.

7. Quality of property tax administration

Reliable systems are needed for the billing and collection of taxes, which requires the
development of collection-led strategies (N.A.L.A.S., 2009; Kelly, 2013). If the onus is
placed on taxpayers to fulfil their obligations, many will not do so. In Moldova collection
rates for the land tax are 99 percent for that payable by individuals and 96 percent for legal
entities and for the value-based assessments 95 percent and 90 percent respectively (Buzu,
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2016). By contrast in Albania the average collection rate is below 50 percent in largest urban
areas (Gjika, 2016). Arrears can only be collected when a registration document is requested.
Enforcement is hindered by widespread informality in transactions. Weak collection and
accounting systems, lack of capacity, and unregistered properties undermine collection rates
in Serbia (Rašković et. al., 2016). Taxes on businesses can be easier to collect since they have
to be registered (Gjika, 2016).

As Gjika (2016) has argued in relation to Albania, “there is a need to overcome the social and
cultural views that influence tax evasion,” including campaigns to focus attention on why the
property tax needs to be paid. Collection rates are higher where there is a belief that the local
elites cannot avoid paying their dues (Monkam and Moore, 2015, p.10). However, wider
initiatives to improve governance and increase transparency in public finances may be
required if the public are to be persuaded that taxes are not being wasted or rewarding
corruption (Kelly, 2013).

In transition countries there is a particular problem arising from privatising housing at

nominal prices and the restitution policies employed (N.A.L.A.S., 2009). For instance, in
Slovenia households were able to acquire housing for about 10 percent of market prices
(Žibrik, 2016) and as a consequence some households own dwellings whose value bears little
relationship to their lifetime earnings. However, these assets are not income producing and
do not generate the means with which to pay taxes (Malme and Youngman, 2001), so reliefs
are likely to be needed to mitigate liquidity problems (Haveman and Sexton, 2008). The
approach often adopted is to grant extensive exemptions but this increases the tax burden on
those who do not benefit and can be expensive. In Moldova exemptions from the real
property tax amount to 27 percent of the maximum tax revenue payable by individuals and 55
percent of that for entities, the loss of income being made worse by a discount of 15 percent
if taxpayers pay at least six weeks before the payment deadline (Buzu, 2016).

8. Overcoming resistance to property taxes

The use of recurrent property taxes often produces hostile reactions from the population.
They are highly visible and their unavoidable nature can make them unpopular. The quality
of the local services they are supposed to finance is also highly visible (Slack and Bird,

9
 2014). Visibility, accountability, enhancement of local economic management and the
potential to support local democracy can be argued to enhance governance, “…but that does
not make it popular, and the unavoidable and uncompromising nature of property tax has led
to it being neglected globally” (Monkam and Moore, 2015, p.4). Opposition can be expected
from those who are likely to pay more tax as a result of property tax reforms but often goes
far beyond this. In three of the countries in the sample – Moldova, Poland and Slovenia –
value-based recurrent property taxes have not been fully implemented due to resistance to
completing the programme.

In Moldova it was intended that all properties would be valued using the new system within
five years with an additional type of property being added each year. In the event, the new
approach has been applied to residential properties in urban areas, commercial and industrial
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property, and agricultural land with structures used for business but not to agricultural land,
rural housing, property in public ownership, infrastructure systems and networks, and assets
used for specific purposes such as power plants and airports. Mass valuation has been applied
to just 12.5 percent of all properties. The main reason is a lack of funding to complete the
first property registrations. Revaluations due to take place every three years have not
happened resulting in major differences between the current market and assessed values
(Buzu, 2016).

Slovenia’s mass valuation began in 2006 with initial development taking place between 2008
and 2009 and the valuations sent out to owners in 2010. The models were approved by the
government in 2012 but in 2013 the new system became the subject of a constitutional
dispute. There were substantial divergences in the effective tax rates levied by different
municipalities, which made harmonisation of the system difficult, and as well as
discrepancies between the effective rates of tax on residential and non-residential properties.
The Government wanted to increase tax rates on residential properties to bring them closer to
those of non-residential properties but also to retain part of the revenue for its own use. The
proposals were challenged in the Constitutional Court which ruled against the Government.
Although the Government has put forward revised proposals to address the Court’s ruling,
municipalities remain opposed to the changes and favour the continuation of the previous
system, making the future of the property tax uncertain (Žibrik, 2016). Opposition from
municipalities, who stood to lose some of their powers, and residential taxpayers faced with
higher tax rates have proved to be an obstacle to the implementation of the tax.

Work on reforming Poland’s property taxation started early in its transition with the Unit for
the Reform of the Tax System being created in 1993. This drew up detailed plans with the
Council of Ministers approving a comprehensive reform of real estate records for fiscal
purposes in 1994, followed by legislation in 1997 and 2005. Although much preparatory
work for a new system has been undertaken, no legislation has been adopted that specifies the
commencement date for the new system or identifies a source of funding. The municipalities
must pass resolutions on the costs to be borne by their communities and technical guidelines
still have to be adopted. There appears to be no political will to bring the new system into

10
 existence and there is little public support for it, with the over-riding belief being that any
change would result in an increased tax burden (Walacik, 2016).

Technically the easiest category of properties on which to carry out mass valuation is
residential property for which there are likely to be large numbers of transactions involving
properties with relatively similar characteristics. However, governments are less likely to
encounter resistance if value-based recurrent taxes are levied on commercial and industrial
properties as businesses do not have votes. The revenue raised can help to provide local
public services that can help persuade the population of the merits of property tax reform.
Examples can be found of individual municipalities which have successfully exploited the
potential for increased expenditure from higher collection rates from previously untaxed
properties, such as Inđija in Serbia and Altindag (Ankara) in Turkey. In Lithuania, where tax
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reforms have been implemented, the government has not extended the buildings tax to
include ordinary residential properties although they are liable to the land tax and in 2013 a
tax was introduced on luxury residences (Almy, 2016).

Property taxes can lack effective advocates in government as valuation may be outside the
technical competencies of typical ministries of finance (as the lead ministry for taxation). The
effect of property taxes, which are usually the responsibility of local governments, on
national finances through their impact on intergovernmental fiscal transfers may not be fully
appreciated. Part of the problem may be the perceived technical demands and costs of
developing value-based property tax systems. Property taxes require different administrative
systems and skill sets from most other taxes and run counter to the trend of creating “one-stop
shops” for taxes on businesses. They require the coming together of many agencies of
government, including national cadastres and land registries, tax authorities, municipalities,
and national banks (as the regulators of mortgage markets). Each country needs to address the
best way to achieve cooperation between these bodies, particularly if there are histories of
distrust and inter-agency rivalries.

There is a need for property taxes to be recognised as being fair by the public. Apart from
education programmes and transparency of methods and valuations, using assessments in
multiple uses and making them available for citizens to use for their own purposes, such as in
setting asking prices, may help to convince the population of their fairness. Property taxes
can be part of a policy to produce a more progressive tax system. In any tax reform there are
inevitably winners and losers. It is important to determine who these are and to recognise that
the losers are likely to articulate their potential losses and lobby to have these mitigated,
whereas the potential winners may be unorganised, less vocal or not understand the
implications of the change. Property taxes are wealth taxes. Implicit is the willingness of
governments to challenge powerful and well-resourced groups in the national interest. In
transition economies there is a need to educate the public on the balance between taxation
and public expenditure where citizens are now faced with explicit taxes to fund public
expenditure whereas under central planning, public expenditure was financed through levies
on state enterprises. As Rosengard (2013, p. 184) has noted, “there is no fixed formula for
successful property tax reform that applies to all jurisdictions in all countries at all times,

11
 there are nevertheless common challenges and general lessons from past attempts to improve
property taxation around the world”.

9. Conclusions
Recurrent property taxes are widely used but in most countries are not significant
contributors to public finances. They are often levied on the basis of area modified by
coefficients rather than by market value. Only value-based property taxes can ensure that the
tax burden is distributed equitably and that governments are aware of what the effective rate
of tax actually is. Value-based recurrent property taxes can make an important contribution to
the tax system by providing a stable source of revenue for local governments, a means of
combating the erosion of corporate and personal income taxes by globalisation, and in
ensuring greater equity by taxing wealth as well as incomes.
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The introduction of value-based recurrent property taxes requires a number of conditions to

be met, principally a comprehensive system of property rights registration from which tax
rolls can be derived, good quality data on transactions prices to enable the value of
comparable properties to be estimated, a valuation infrastructure of standards and
qualifications for valuers that meet internationally-recognised standards, and an efficient tax
collection system. Property taxes tend to be unpopular and reforms can encounter political
resistance. They tend to lack champions in finance ministries and their role in a stable fiscal
system is not widely understood. The countries that make the most effective use of property
taxes took time to develop their systems. There is no universal model as to how property
taxes should be organised but there are common issues that countries encounter and lessons
that can be learned from the experiences of other countries.

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 Downloaded by HACETTEPE UNIVERSITY At 20:57 16 March 2017 (PT)

0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
9.00%
Belgium
Bulgaria
Czech Republic
Denmark
Germany
Estonia
Ireland
Greece
Spain
France
Croatia
Italy
Value Added Less Employee Compensation

Cyprus
Latvia
Lithuania
Luxembourg
Source: Eurostat (2014) with calculations by the authors Hungary
Malta
Netherlands
Austria
Poland
Portugal
Romania
Slovenia
Slovakia
Finland
Sweden
Figure 1 Recurrent Taxes on Immovable Property in the EU as a Percentage of Gross

United Kingdom

15

Annex
Property taxation
Mass valuation
Registration of property rights
Quality of transaction price
data
Valuation infrastructure
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Lithuania
Market values introduced for
buildings tax in 2006 and land
tax in 2013 with revaluations
every five years. Assessed and
collected by central
government with revenue
assigned to local governments.
Dwellings exempt from
buildings tax but tax on luxury
housing introduced in 2013.
Work began in 1998 and first
valuations 2005. Different
valuation models adopted
according to type of property.
Ratio studies used to check
accuracy.
Unified cadastre and land
registry established in 2000
and electronic registration in
2009.
Registered prices believed to
be accurate as low cost of
registration, growth of
mortgages and capital gains
tax provide little incentive to
provide false information.
Principles approved by
government in 1995 and
licensing of valuers from
1998. Licensed valuers
employed in mass valuation
system.
Moldova
Dual system in place. Single
property tax assessed on
market values introduced from
2007 for urban areas but no
revaluations. Assessment by
central government with local
governments collecting tax.
Previous system of land and
buildings taxes based on area
and book values remain for
rural areas.
Mass valuation of urban
properties 2004-09. Different
valuation models adopted
according to type of property.
Delphi approach used
alongside regression analysis.
Property rights subject to
compulsory registration but
systematic first registration
has still to be completed for
rural areas.
Registered prices are believed
to understate transaction
prices due to impact of capital
gains tax. Other sources of
data have to be used.
Licensing of valuers from
2000. Licensed valuers
employed in mass valuation
system.
Slovenia
Principal tax is a charge for
the use of building land
payable to municipality and
assessed on area. A
buildings tax is payable by
physical persons. Attempts
to introduce value-based tax
assessed using mass
valuation have been ruled
unconstitutional.
Work started in 2006 with
experimental valuations in
2010. Models approved by
government in 2012 but not
implemented. Generalised
Market Value used for a
variety of other purposes.
Real Estate Property
Register in operation from
2010 and digitised cadastre,
land registry and buildings
cadastre.
Sales price register
established in 1997. Tax
Authority collects data on
sales for property transfer
tax, value added tax on new
building and rents.
Mass valuation based on
International Valuation
Standards.
Poland
Separate taxes on property,
agricultural and forestry land.
Taxes are area-based. Mass
valuation legislation to
generate market values
adopted in 1997 and 2005 but
no laws have been passed to
specify commencement dates
or how change is to be funded.
Work started in 1993 and
detailed plans for
implementation in 1999.
Reform proposed in 2012 to
be realised in 2020. Processes
developed and some pilot
studies but not implemented
Unified multi-purpose land
and buildings cadastre dates
from 1947 and land register
from 1982.
Data available on transaction
prices and rents.
Licensing of valuers
developed in 1997 and 2004.
16

Turkey
Tax on buildings and land.
Buildings assessed using
depreciated construction costs;
urban land by area and street;
and rural land by type.
Responsibility of local
governments.
Two pilot studies in Istanbul
and Ankara 2015 used variety
of statistical methods and
demonstrated deficiencies in
current system.
Cadastre and land register with
some parts needing renovation.
Informal construction and
housing make it difficult to
produce comprehensive tax
rolls.
Land registry fees discourage
declaration of true prices on
registration. Pilot studies show
significant differences between
tax valuations and market
ones.
Licensing of valuers working
on mortgages and capital
markets but not property
taxation.
Derived from “Thematic issue on property valuation and taxation in Europe and Central Asia”, Land Tenure Journal, issue 15/2 (2016), Guest
editor Grover, R.
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Kazakhstan
Agricultural and urban land
taxes based on area. The
property tax is based on book
value for businesses and area
for persons. Payable to local
authorities.
Case study of residential
properties in Astana using
multiple regression approach.
Cadastre and land register
operate on decentralised basis
but no obligation to register
transfers of private land rights.
No property transfer tax and
low registration costs so no
incentive to declare false
prices.
Chamber of Professional
Appraisers working to develop
standards.
Serbia
Urban land use charge on
businesses abolished in 2014.
Development fee can be
significant source of revenue.
Property tax based on book
values for businesses and
useable area and average sales
price for persons.
Responsibility of local
authorities.
Responsibility assigned to
Republic Geodetic Authority,
which has created a Sales Price
Register and plans to carry out
pilot studies.
Unified system of land
registration and cadastre has
covered country since 2012.
Legacy of informal land
transfers and construction to
be resolved.
Sales price register developed.
Tax Authority actively
enforces property transfer tax
and challenges declared prices.
Work underway to develop
licensing system for valuers.
Albania
Taxes on urban buildings,
area-based according to
category of local authority, and
agricultural land, determined
by land quality. Local
authorities responsible for
collection.
Laws provide for property
taxes to be on market value but
no moves to implement this.
Compensation for restitution
based on market values.
Incomplete registration as this
cannot take place until
disputes have been resolved
and informal construction
legalised.
The property transfer tax
appraisal system is not applied
to the annual property tax.
Poor tax collection rates.
International Standards used in
restitution valuations but not
taxation.
Netherlands
Municipalities assess property
tax on market values. Annual
reassessment since 2007. The
values are used by all levels of
government for all taxes.
Standards set by Council for
Real Estate Assessment, which
monitors assessment and
enforces standards.
Municipalities can choose their
approach to mass valuation.
Sales comparison method used
for residential property and
variety of methods for non-
residential.
Mandatory registration of
property transfers and
comprehensive recording of
properties.
Cadastre collects sales prices.
Internet listings mean asking
prices readily available. Cross
checking possible between
registers.
Market value defined using
International Standards.
Guidelines for qualifications of
those responsible for mass
valuations.
17