Real Estate - Property Matters by Afra Raymond
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Taxing thoughts on property - Part 2
Land & Building taxes

Published Thursday 25th March, 2004

Last week we introduced the taxation aspect of property and gave a brief overview of Land & Building taxes from 1993 to present. This week we will continue our examination of this tax and its operation in our country.

The Land & Building tax was originally intended to raise finance for the operation of local government and its level is meant to relate to the rental value of the property. In order for the taxes to respond to changes in market value, it is necessary for regular revaluations to be carried out.

There is an understandable demand from property owners for better levels of government services, which would maintain or enhance the value of their holdings. Yet, we all know that Land & Building taxes have not been revised for years and as a result are far too low. A few examples show the picture and the 'Revised' figures shown are my own estimates -

Location/Type Open Market Value Annual Rental Value Existing L & B Taxes  Revised L & B Taxes
Residential Property (Woodbrook) $1.0M $60,000 $240 $6,000
POS office Building $1.5M $160,000 $840 $16,000
Executive home in Maracas St. Joseph $1.4M $100,000 $260 $9,000
Commercial property in Chaguanas $850,000 $275,000 $500 $20,000

It is not surprising that these figures bear so little relation to today's market prices, after all, I was told by the civil servants involved that the last time properties were revalued in this country was 1978. By way of comparison, properties in Barbados are revalued every 3 years without any fuss or protest. Of course, collections of Land & Building taxes have improved since a valid receipt was made a requirement of those applying for the mortgage interest relief.

Given the unrealistically low levels of this tax, it does have some resemblance to a 'nuisance tax' - i.e. one that could have no possible relation to the cost of the service and which is just ripe for phasing out. Of course, this is only if one considers this tax in its present form as a nominal sum barely worth collecting. However, there is a way in which these taxes can be used to achieve more than the financing of local government.

Realistic property taxation and a more proactive land-use planning system could be used to encourage the redevelopment of our country. Critics suggest that the present system is fundamentally unfair in that it rewards those who leave valuable land empty and undeveloped while taxing investors who develop land and provide jobs. Of course, its supporters make the point that if investors reap rewards from land when they develop it, the State is entitled to a share of those.

Some further points on Land & Building taxes are -

Missing Buildings - Some taxpayers might be surprised to know that there are substantial buildings that are not even on the records for Land & Building taxes. The building enters the records when the Completion Certificate is granted and of course this is a requirement of all lenders. But if you are one of those who can afford to build using your own money you do not need to apply for a completion certificate. What is even more interesting is that all these buildings are connected to WASA and TTEC, TSTT and so on. There obviously needs to be better communications between these state bodies.

Shortfall - Last week we considered the plunge in receipts from this tax in the period 1995-2001. This shortfall in receipts could have cost the State an estimated $300M and a number of possible explanations were put forward. It would be interesting to find out how this apparent shortfall arose. We would hope that this tax was not being just ignored by those property owners who are unable to claim the tax allowance for mortgage interest.

Independence of Local Government - One of the possibilities arising from the revision of our property tax regime is a greater degree of independence for local government. The Municipal Act 1990 sets a framework within which certain municipalities can independently review property taxes in their area with the possibility of reviewing these every 3 years. Some municipalities - most recently Chaguanas - have taken these steps and it is interesting to wonder, just how independent a Local government will the Central government tolerate?

Constitutional reform - Yet again, we are hearing that our 2 main political parties are determined to seek Constitutional reform. Like the best calypsoes, these exact words have many meanings to many people, but we do know that the opposition UNC is not going to cooperate on certain critical matters unless some such fundamental reform takes place. Only last week we heard that the governing PNM had appointed a committee to advise on this aspect of our nation with a senior party member, Mr. John Donaldson, as chairman. Question here being that for constitutional reform to have real impact, more of us must feel as if we can make a difference in our districts. Local government must play a bigger part in our country; if we are to regain some sense of community, we cannot do that by relying on MPs who are seldom seen outside the 'hothouse' of POS. For local government to have a real meaning, it has to be more independent. As we all know, independence is meaningless without financial resources. Local government financing and the role of property taxation are vital ingredients in any meaningful constitutional reform.

Next, we will be examining the stamp duty and tax on property income.

Afra Raymond - Property Matters

Possible reasons for revising taxes:

Professional support - The government's property advisers are the Valuation Division of the Ministry of Finance; after a significant loss of experienced professionals, this department is now being restaffed.

Legislative situation - The legal framework for revising these taxes is in place and a revaluation need not depend on any support from the opposition.

Phase in the Economic cycle - Of course, we are all part of a system which has now made increasing any taxes taboo, so there is real reluctance to do so.   This has gotten to the point that governments will only raise taxes when they must and this is usually in a recession.

We have vivid memories of the last time a government here tried to raise taxes to balance its budget during a recession; the results are still with us. It is not the usual way of doing things, but there is probably no better time to raise these taxes than now.  

No property owner could seriously claim to be under financial pressure and the general buoyancy is such that the level of resistance is unlikely to be as great as at another time.  

A calmly phased program of revaluations and increases in these taxes could be done; do our political rulers have the vision to do so or will the property owners continue to enjoy their special status?