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The proposed 2010 review

Published Thursday October 29th  2009

This week the actual proposals of the Ministry of Finance are examined. The proposed review is formally set out in the Property Tax Bill 2009, which is to be tabled for debate.

It is proposed that all the properties in the country will be re-valued as at 1st January 2010 and that the new assessments of Annual Taxable Value (ATV) will be set. Those ATVs will be used to establish the amounts payable under the tax rates according to the type of property.

Mass Valuations will be conducted, due to the sheer impracticality of carrying out individual inspections of each property in the country. ‘Bands’ of values (given in terms of $ per unit of area) will be set for various standards of property in different areas.

In the case of residential and commercial properties, a deduction of 10% is being proposed to allow for periods in which these might normally be vacant and that adjusted figure is the Annual Taxable Value (ATV).

How much money will this tax raise?

The Estimates of Revenue 2010 disclose an anticipated total of $325M for 2010 from Property Tax. That is a little more than twice-times this year’s estimated total of $142.52M. In my view, that anticipated increase is an under-estimate and I have already estimated new revenue in the $1.0Bn range.

My estimate is derived from considering the five elements which would have changed the government’s entitlement to property tax. We are starting from a $143M baseline figure -

·      In terms of inflation alone, it is surely at least 6-times increase in the several decades since most areas were revalued. In the areas where recent revaluations did take place, it is clear from last week’s column that there was no corresponding increase in revenues. Even if we take account of the change in the rate at which the property is taxed – in some cases down from 10% of ATV to 3% – that is at least a three-times increase. Revised total – about $429M.
 

·      In terms of new buildings, as stated by the Minister, there are about 200,000 properties stated to be ‘missing’ from today’s records, then that is about 40-45% of the buildings in the country to be added to the new database. Almost a doubling. Question is on what terms are the ‘new’ buildings to be included. You see, it is possible to just include a 10-year old block of apartments and start collecting taxes on 1st January 2010 or one could take the position that there are substantial taxes and penalties owed under the old regime, after all it is the legal responsibility of the owner to register your property with the rating authority. Even ignoring the penalizing approach involving back-taxes etc. that is a revised total of about $800M.

·      Improved and extended buildings, together with other changes of use – These are three elements have added considerable value to the nation’s stock of properties, as we can all see. Even if we estimate a modest doubling in values for these factors, our revised total is about $1.6Bn.

That is the rationale for my conservative estimate of $1.0Bn in ‘new’ money.

Will landlords raise rents to compensate for this tax? In other words, will the burden be transferred to the ’small fry’? There are already advertisements from the Ministry of Legal Affairs warning that to raise tenants’ rents is illegal. The dangers of that happening are overstated, in my view, since the market is now at such a low ebb that it would be the rare landlord who would antagonise their tenants by doing so. Paradoxically enough, the low ebb at which the economy stands is the very reason why this is a very poor time at which to try implementing the tax.

 

HOW MUCH TAX WILL YOUR PROPERTY ATTRACT?

Residential – A figure of 3% of the ATV is being proposed.

·      In the case of a home with an estimated monthly rental value of $3,500, the Annual Rental Value is $42,000.

·      After adjustment, that is an Annual Taxable Value of $37,800.

·      At the 3% rate, that is an annual property tax liability of $1,134.

·      A monthly sum of $94.50.

Commercial – A figure of 5% of the ATV is being proposed.

·      In the case of a property with an estimated monthly rental value of $10,000, the Annual Rental Value is $120,000.

·      After adjustment, that is an Annual Taxable Value of $108,000.

·      At the 5% rate, that is an annual property tax liability of $5,400.

·      A monthly sum of $450.

Agricultural – A figure of 1% of the ATV is being proposed.

·      The ATV is calculated to be 2% of the estimated market value of the property.

·      In the case of an agricultural property with a market value of $600,000, the Annual Taxable Value is $12,000.

·      At the 1% rate, that is an annual property tax liability of $1,200.

·      A monthly sum of $100.00.

Industrial – A figure of 6% of the ATV is being proposed.

·      The ATV is calculated to be 6% of the installed cost of the plant and machinery, plus the cost of the structures within which they are housed.

·      In the case of an industrial property with a total installed cost of $3.0M, the Annual Taxable Value is $180,000.

·      At the 6% rate, that is an annual property tax liability of $10,800.

·      That is a monthly bill of $900.

Last week’s column set out my findings in respect of County Victoria and those findings were incorrect in so far as stating that San Fernando’s property tax revenues were included along with that County’s. The combined picture of County Victoria and San Fernando, is set out here -

County Victoria/San Fernando revenues 2000 to 2009 ($M)

Year

County Victoria

San Fernando

Total

 

1999/2000

6.37

8.7

15.07

 

2001

5.64

9.94

15.58

 

2002

5.56

9.71

15.27

 

2003

5.96

12.39

18.35

 

2004

5.97

13.66

19.63

 

2005

10.01

13.46

23.47

 

2006

8.66

10.87

19.53

 

2007

6.49

13.1

19.59

 

2008

7.11

18.19

25.3

 

2009

5.9

16

21.9

 

Readers should also note that there was a tax amnesty in 2007/2008.

The property tax revenues of our Municipal Corporations are separately published by the Ministry of Finance in the Estimates of Revenue and Expenditure for the Statutory Boards, Similar Authorities and the THA. Those Municipal Corporations and their property tax revenues for 2009 are –

·      POS – $30.0M

·      San Fernando – $16.0M

·      Arima – $3.75M

·      Point Fortin – $15.0M

·      Chaguanas – $5.00M

The national figures will be correctly compiled for presentation in the final column in this series.

Next week, I will conclude by setting out how the tax might be administered in a more transparent and accountable fashion. Other issues would include the destination of the funds and the creation of ‘whistleblower’ processes.

 

Afra Raymond is a chartered surveyor and managing director of
Raymond & Pierre Ltd. afra@raymondandpierre.com.

Afra Raymond - Property Matters

HOW MUCH TAX WILL YOUR PROPERTY ATTRACT?

Residential – A figure of 3% of the ATV is being proposed.

Commercial – A figure of 5% of the ATV is being proposed.

Agricultural – A figure of 1% of the ATV is being proposed.

Industrial – A figure of 6% of the ATV is being proposed.