| Challenge for the TTRA
Published Thursday October 15th 2009
The challenge for the
newly founded T&T Revenue Authority (TTRA) is considerable, given the
depth of criticism against the proposed review of property taxes. It is
my belief that no review or reform, however well-intended, can succeed
without a solid grasp of what has gone before. Those who forget the
lessons of the past are doomed to repeat them. That old saying also
extends to those who do not bother to seek out those historical lessons.
This article will outline the nature and extent of that challenge. Last
week’s Property Matters ended with details of the total amounts
collected in land and building taxes between 1993 and 2009. To recap,
those figures showed total receipts of those property taxes ranging from
$72.0 million in 1993 to an estimated $72.77 million in 2009.
I made the point that
as a major engine of wealth, property taxes amounted to less than
one-fifth of 1.0 per cent of the country’s total tax revenue. That
figure came from the Ministry of Finance and was only for land and
building taxes. I have been as yet unable to get the figures for stamp
duty on property transfers, or income/corporation taxes paid on rental
income. Based on the official figures, it is plain to me that even if we
limit the discussion to land and building taxes, there is a major
problem. At the very least, there is gross inefficiency in the
monitoring and collection of these taxes. The bleaker view would seem to
suggest improper behaviour by the officials responsible. It is
impossible that the land and building taxes collected in this country
could justifiably remain at the same level in the period 1993-2009.
There are five elements of change which would each have significantly
increased the collections of that tax.
Those elements are:
• Inflation—Over the
period, there was a tremendous increase in property values. I hear you
say that properties were not revalued for decades but that is just not
so since revaluations were carried out in San Fernando (2004) and Point
Fortin (2008). More on that one later in the sidebar.
• New buildings—There
has been a large number of new buildings added to the national stock in
the period. The Minister of Finance has made the surprising statement
that about 200,000 of those properties have never paid any taxes and
that they are effectively “missing” from the official records.
• Improved
buildings—In addition to those two elements, it is also the case that
significant improvements which add value would increase the tax
liability of the owner.
• Extended
buildings—If a property is extended so as to increase its value, that
would increase the taxes payable.
• Changes of
use—Changes of use which increase value would also increase the taxes
payable.
Each of these five
elements occurred, to a huge extent, in the period under review and yet
the amount of taxes collected is virtually the same. Something has gone
seriously wrong here and we need to consider that situation before
arrangements are set in concrete for the proposed review. To return to
the first of the five elements set out above, the revenues in those
areas which were revalued should have increased significantly. That is
not the case, as shown by both the national figures and the sidebar
dedicated to County Victoria. The point of the recent revaluations was
to increase the revenue base and we need to enquire how that has
changed. In these circumstances, it is just not good enough for the
Ministry of Finance to publish Estimates of Revenue showing this poor
performance at the same time as announcing a review of the system. We
need to understand the problems if we are to have any chance of fixing
them. If we press on without asking the right questions, we will just
continue spinning top in mud.
We need to find out
how come these government revenues went missing in San Fernando. Did
people complain about unfair assessments of their properties and have
successful appeals? Even if that took place, it could never lead to the
scandalous situation set out in the sidebar. Never. It seems to me that
a significant number of people in San Fernando are either having their
assessments unduly reduced or just not paying the tax. Either way, it is
simple work to identify the mischief-makers. We have already located
them. It would only be necessary to examine the records for the largest
100 properties in San Fernando or select a few along certain major
roads. A clear pattern would soon emerge. The real question, if the
government was serious about reviewing these taxes and doing so under
the new TTRA, is how to proceed. It is vital that those who undermined
San Fernando’s property tax revenues must form no part of the new,
revised system. In the period under examination, the highest total
receipts for this tax was $109.4 million in 1994, which has now declined
to $72.77 million this year. If the Ministry of Finance cannot collect
$109 million, how are they going to collect the $325 million anticipated
in 2010? Some serious house-cleaning is in order.
County
Victoria
The revenue riddle
The properties in San
Fernando were revalued for land and building taxes in 2004, and it is
reasonable to expect that the receipts from that source would have risen
to reflect that increase in values. The Ministry of Finance compiles
those receipts by county and San Fernando is part of County Victoria.
The records for County Victoria are instructive:
Year
Land
& Building taxes receipts
2001
$5.64M
2002
$5.56M
2003
$5.96M
2004
$5.97M
2005
$10.01M
2006
$8.66M
2007
$6.49M
2008
$7.11M
2009 (revised
estimate)
$5.90M
This is showing the
depth of the problem in that in 2001 the total land and building taxes
collected in County Victoria was $5.64 million. and after the 2004
revaluation, that figure rose to $10.01 million. A few short years
later, the ministry’s own Estimates of Revenue is telling us that only
$5.90 million is expected from County Victoria in 2009.
Next week, I will examine the property tax review
itself.
Afra Raymond is a chartered
surveyor and managing director of
Raymond & Pierre Ltd. afra@raymondandpierre.com. |
