## 1rouea2022001 ## Source details **Canonical URL:** [1rouea2022001](https://www.imf.org/-/media/files/publications/cr/2022/english/1rouea2022001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2022/english/1rouea2022001.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2022/english/1rouea2022001.pdf.json) --- ### PREFACE — Mission and engagements - TA mission remotely engaged from March 28 to April 11, 2022, at the request of the Romanian Minister of Public Finance (MoPF); conducted by IMF Fiscal Affairs Department (FAD). - Mission composition: Martin Grote and William McCluskey (both FAD external experts). - High-level MoPF contacts: Minister Mr. Adrian Câciu; Secretary of State Mr. A. Chitu; Director-General Macroeconomic Analysis Mr. D. Matei; Director-General Tax Legislation Mr. I. Ardeleanu; Deputy Director-General Ms. E. Iordache. - Consultations with: Local Taxes Directorate (Sector 3, Bucharest), ANCPI, MoRDPA, Romania National Institute of Statistics, ANEVAR, PWC, Deloitte, World Bank Office in Bucharest, UNNPR, and municipal revenue departments (Bucharest, Brasov, Cluj-Napoca). - Acknowledgements: Mrs. Carmen Balasoiu (ANAF), Mr. Elian C. Diculescu (ANAF Reform Unit), interpreters Mrs. Daniela Ionescu and Mrs. Silvia Statescu. ### EXECUTIVE SUMMARY — Core diagnosis and reform framing - Core diagnosis: - Romania’s area-based property tax is inefficient, producing revenue below potential and with inequitable and complex taxable value determination. - Property tax revenue: 0.6 percent of GDP in 2021 vs. 1.8 percent of GDP in OECD and 0.9 percent of GDP in EU-27. - Local authorities’ own-source revenues represent 3 percent of total consolidated government revenues. - System weakened by multiple exemptions and fragmented self-declaration yielding incomplete fiscal cadasters. - Reform guiding principle: - Treat property tax primarily as a benefit tax: those consuming local public services should contribute reasonably to their cost. - Immediate step: without changing appraisal method, stop erosion of tax base by minimizing exclusions, exemptions, and lower-rate differentiations. - A broad-based property tax at modest rates can materially increase local revenue contributions. - Five pillars of the property tax reform program: - Simplicity in design and implementation. - Centralized valuation with uniform standards; centrally-created and managed legal cadaster; improved coordination/oversight over decentralized tax administrations and fiscal cadasters. - Rationalization of central government agencies for property registration/valuation and strict data sharing protocols to capture sales price evidence. - Careful preparation, sequencing, and public communication of transition towards a market value–based property tax for residential buildings. - Bolder rationalization of tax expenditures for commercial telecommunication structures, pipelines, or linear infrastructure. ### Fiscal impact and high-level targets - Conservative scenario: moving assessed property values closer to market values could yield an additional 0.4 percent of GDP. - Conservatively estimated yield from rationalization of tax expenditures: additional 0.1 percent of GDP. - Recovery and Resilience Plan requires an increase in tax revenues of about 0.5 percent of GDP. - Tax expenditures are estimated, on average, at 4.6 percent of GDP for the period 2020 to 2024. ### Tax base approach and key recommendation - Two main approaches: - Value-based assessment (market value = combined capital value of land and improvements). - Non-value (area-based) assessment (size-based). - Preferred approach where practical: market-value — more buoyant, more equitable, better differentiates burden by ability-to-pay. - Key recommendation: view land and buildings as a single property unit for valuation and taxation. ### Implementation challenges and staged pragmatic solution - Scale: ~9 million properties and ~18 million assessments due to separate treatment of land and buildings. - Administrative burden: transition must avoid over-burdening local administrations. - Proposed pragmatic approach: owner self-declaration into value bands for residential properties. - Rationale: owners already self-declare property data; Notaries Public “Grid” offers granular locational price data; residential market generates ample sales evidence. - Advantages: quick implementation; minimal administrative costs; fewer appeals; self-declaration renewals could be on a 5 to 10 years cycle. - Preparatory step: analytical studies to calibrate value tables and adjustment coefficients in the Fiscal Code to market evidence. - Non-residential and large infrastructure: - Treat land-plus-building as a single market-valued property unit; value at same valuation date. - Consider reintroducing property tax on large private-sector infrastructure entities with national government role in valuing and apportioning market value to municipalities. - Valuation administration short-term advice: - Private sector should continue non-residential valuations; larger municipalities should consider in-house valuation departments. ### Tax rates, fiscal autonomy, and exemptions - Guarantee fiscal autonomy by letting Administrative Territorial Units select a single property tax rate from a centrally determined range. - If commercial and residential properties receive comparable municipal services, no rate differentiation favoring residential properties is advised. - Do not reintroduce progressive property tax rates for multiple properties owned by individuals. - Limit exemptions to an absolute minimum. - Property rate relief for low-income households, the elderly, and those in hardship should be application-based, reviewed annually, and means-tested. - For the elderly, if necessary allow mortgaging of arrears to be settled on sale or bequest. - Recommend separate revenue-forgone estimates for property tax incentives (tourism-linked real estate, linear infrastructure, incubators, technology parks); aim to halve forgone revenue from property tax relief to 0.1 percent of GDP by curtailing current relief measures. ### Transparency, reporting, and tax expenditure facts - Romania records property tax expenditures together with revenue losses from income tax incentives, social security contributions and VAT. - Forgone revenues from property tax incentives estimated at a constant 0.2 percent of GDP for the period 2020-2024. - Tax Expenditures* (million lei): 50,445; 55,285; 60,966; 65,180; 68,971. - (% of GDP): -4.8; -4.6; -4.6; -4.5; -4.4. - Local taxes and fees (million lei): 2,079; 2,208; 2,289; 2,355; 2,417. (% GDP): -0.2; -0.2; -0.2; -0.2; -0.2. - Memo: GDP (million lei): 1,040,800; 1,190,300; 1,317,300; 1,440,100; 1,560,100. - Recommendation: calculate and report individual tax-expenditure measures in budget documentation. ### Data, cadaster, and valuation infrastructure — status and recommendations - ANCPI (established 2004 by Law No. 7/1996) merged cadaster and land registry; devolved structure: 42 county offices and ~132 local offices; technical platform: Oracle and ESRI-based GIS/custom apps. - ANCPI estimate that 45 percent of some 40 million land and buildings are currently registered; likely time to full systematic cadastral coverage: some 10 years. - Registered properties (ANCPI): 2005–2016: 9,188,028; 2017: 1,420,425; 2018: 1,578,066; 2019: 2,302,160; 2020: 2,179,709; 2021: 2,334,346; 2022: 251,939; TOTAL: 19,254,673. - Major data gap: transaction prices field exists but is not mandatory; Notaries and municipalities record transaction prices separately. - Recommendations: - Record property counts by property type and collect more granular property-type data. - Make it mandatory that all official real property databases record the unique cadastral number for cross-platform sharing. - Develop protocols for data sharing between municipal fiscal cadaster and national cadaster. - Establish a Sales Price Register (SPR) within the National Institute for Statistics. - INS to consider developing a residential property Automated Valuation Model (AVM). ### The “Grid” system and sales transaction data - “Grid” system: - Compiled annually by 15 Chambers of Notaries via authorized valuers. - Granular by city/town/commune zones; tables for apartments by size, rooms, quality, age. - Public and free; used to verify declared transaction prices for transfer tax. - Transaction reporting: - Notaries forward transaction data twice a year to ANAF and monthly to INS. - If declared price < grid value, notary notifies tax bodies and transfer tax calculated on grid value; if price > grid, transfer tax on realized transaction value (3 percent on amounts exceeding RON 450,000 for natural persons). - Recommendation: establish SPR, link to cadaster; SPR supports house price indices, capital gains benchmarks, AVMs. ### Valuation regimes, periodicity, and administration - Residential buildings: - Current base: prescribed RON/m2 rates in Fiscal Code (Art 457/458) with location and age coefficients. - Example RON/m2 table highlights: Reinforced concrete or bricks: With utilities — 1,000; No utilities — 600; Wood or stone: With utilities — 300; No utilities — 200. - Location coefficient matrix (Zone rows A–D by Rank columns 0,I,II,III,IV,V): Row A: 2.6, 2.5, 2.4, 2.3, 1.1, 1.05; Row B: 2.5, 2.4, 2.3, 2.2, 1.05, 1; Row C: 2.4, 2.3, 2.2, 2.1, 1, 0.95; Row D: 2.3, 2.2, 2.1, 2, 0.95, 0.9. - Age discounts: >100 years = 50 percent; 50–100 years = 30 percent; 30–50 years = 10 percent. - Indexation: tables revised annually by inflation as adopted by MOPF and MoRDPA; specific historical indexation notes for 2014–2018 indicated. - Non-residential buildings: - Taxable value options (Art 458/460): registered taxable value; valuation report by authorized valuer; final value of construction works for new buildings; value from transfer act. - Revaluation frequency: every 5 years (previously every 3 years); penalty for failure to update: 5 percent. - Current practice: non-residential valuations often cost-based; recommendation: adopt market value for land+building as single property unit and value at same date. - Land tax: - Urban land tax prescribed as RON/ha varying by Zone A–D and Rank 0–V; example Row A ranges: 8,282 - 20,706; 6,878 - 17,194; 6,042 - 15,106; 5,236 - 13,090; 711 - 1,788; 569 - 1,422. - Agricultural and outside-urban land tables provided (e.g., construction land: 22 – 31 RON/ha; arable land: 42 – 50 RON/ha). - Local councils may increase local tax up to 500 percent for poorly maintained properties. ### Tax rates, comparative international context, and Romania’s ranges - Pre-2015 structure (ownership-based): Individuals: 0.1 (percent); Legal Entities: 0.25 - 1.5 (percent). - Post-2015 structure (use-based): Residential: 0.08 - 0.2 (percent); Non-residential: 0.2 - 1.3 (percent). - Municipal examples (2022): - Cluj-Napoca: residential 0.1 percent; non-residential owned by individuals 0.2 percent; non-residential owned by legal entities 1 percent. - Constanta: residential (individuals) 0.1 percent; non-residential (natural entities) 0.2 percent; residential (legal entities) 0.2 percent; non-residential (legal entities) 1.5 percent. - International practice: market-value systems typically range 0.5 to 2 percent; many jurisdictions apply single or differential rates; Romania target to raise to near EU-27 average of 0.9 to 1.0 percent of GDP is discussed. ### Revenue identity and administrative levers - Property Rates Collection identity: - Property Rates Collection = Tax base × Tax Rate × Valuation Ratio × Coverage Ratio × Collection Ratio - Definitions: - Coverage Ratio: proportion of properties that should be included that are actually in the fiscal cadaster. - Valuation Ratio: proportion of the defined value of properties that is assessed for tax purposes. - Collection Ratio: proportion of assessed taxes that are actually collected. - Numerical illustration (Box 2): - Example municipality: Coverage Ratio = 90 percent; Valuation Ratio = 25 percent; Collection Ratio = 95 percent → Captured revenue = 21 percent of potential property tax revenues (0.9 × 0.25 × 0.95). - If Valuation Ratio improves to 70 percent → Captured revenue = 60 percent (0.9 × 0.7 × 0.95). - Implication: increase of 86 percent ((60 − 21) / 21). ### Empirical evidence and conservative revenue estimate - Cluj-Napoca empirical examples show assessed:market value ratios of 1:3.5 for apartments and 1:2.2 for detached dwellings. - For country-wide extrapolation, authors conservatively halve 3.5 to 1.8 for apartments. - Using current recurrent property tax revenue importance 0.5 percent of GDP and an adjustment factor 1.8 → implied result 0.9 percent of GDP, from which the report states a conservative additional yield of 0.4 percent of GDP. ### Residential valuation reform options and timelines - Two principal options for residential property: 1. Revise table values and adjustment coefficients in Fiscal Code to better approximate market values. 2. Move toward market-value using: - Self-declaration into value bands (recommended immediate pragmatic approach). - CAMA (Computer Assisted Mass Appraisal) — technically robust but multi-year and resource-intensive. - Self-declared value banding details: - Rationale: owners have reasonable sense of market value; Grid provides reference; existing self-declaration practice exists. - Advantages: minimal appeals, administrative cost containment, feasible rollout < 18 months to implementation; realistic timeline two years to pilot and legislate. - Under-declaration mitigation: require supporting evidence; if sale occurs within 2 years at significantly higher price, additional tax plus interest payable; municipality may estimate value using Grid where no declaration made. - International banding examples: England/Scotland/Wales band ranges; Ireland’s LPT example (basic rate 0.18 percent up to €1m; higher rate 0.25 percent above €1m; band mid-point method illustrated). - CAMA overview and constraints: - CAMA components: model specification; sales and descriptive data; model calibration; calibrated models; properties to be valued; value estimates. - Benefits: scalable, integrated database-driven, greater consistency. - Constraints: requires integrated transactional and property characteristic databases; development would take several years; appeals expected (rule of thumb: 2–5 percent appeals); costly in technical and institutional investment. - Given constraints, mission proposes self-declared banding as more immediate solution. ### Appeals, transparency, and taxpayer protections - Transition to market-value produces contested valuations and taxpayer negativity without mitigants. - Mitigation measures: - Communicating discounted appraisal values for tax purposes (example: 70–75 percent of market value during transition). - Payment flexibility (e.g., 12 installments), tax deferral schemes payable on sale or bequest for asset-rich but income-poor households. - Well-designed, independent, timely, proportional appeals process; informal resolution mechanisms; comprehensive public information. ### Institutional and capacity considerations - Centralized valuation administration advantages: economies of scale, uniform processes, single information system, better capacity for cross-jurisdiction valuations. - Local administration advantages: local market knowledge, transparency, taxpayer access. - Romania current reality: - Municipalities have fiscal cadasters and good collection rates (in-year collection rates ~90-95 percent). - Municipalities lack valuation capacity to undertake mass market valuations; private sector dominates non-residential valuations. - Recommendation: short-term private sector continuation for non-residential; build capacity/plans for centralized or hybrid valuation arrangements; larger municipalities consider in-house valuation units. - GIS adoption: beneficial but costly; national cadaster cooperating with Sector 5 (Bucharest); Cluj-Napoca has functional GIS. - Land registration progress: National Cadaster and Land Book Program (2015) aiming to complete registration for some 660 rural ATUs by 2023; progress slow due to restitution and compensation issues. *Source: 1rouea2022001 (IMF Fiscal Affairs Department TA report excerpts).* ### PREFACE ___________________________________________________________________________________________________ 6 ### PREFACE ### Mission context - A technical assistance (TA) mission remotely engaged from March 28 to April 11, 2022, at the request of the Romanian Minister of Public Finance (MoPF) to evaluate design options for a revenue productive recurrent property tax. - The mission was conducted by the International Monetary Fund’s (IMF) Fiscal Affairs Department (FAD). - Mission composition: Martin Grote and William McCluskey (both FAD external experts). - This TA report contains the mission’s findings and recommendations. ### High-level meetings with MoPF - At the MoPF, the mission met with: - Minister, Mr. Adrian Câciu - Secretary of State, Mr. A. Chitu - Director-General: Macroeconomic Analysis, Mr. D. Matei - Director-General: Tax Legislation, Mr. I. Ardeleanu - Deputy Director-General, Ms. E. Iordache ### Other government and public-agency engagements - Local Taxes Directorate, Sector 3 (Bucharest): Director-General, Mr. I. Ilie. - National Agency for Cadaster and National Registration (ANCPI): Director, Mr. V. Grigorescu — reviewed progress with property registration and sharing of cadaster information. - Ministry of Regional Development and Public Administration (MoRDPA): Mr. D. I. Marinescu (Director-General) and advisors — discussed planned legislative amendments to the building and land taxes. - Romania National Institute of Statistics — discussed construction price indices. ### Professional, private-sector, and international partners consulted - National Association of Authorized Valuers in Romania (ANEVAR): President Mr. R. Timbus and Vice-President Mr. A. Vascu — reviewed property valuations process. - PWC: Country Manager Mr. D. Bumbăcea and Mr. D. Anghel (Head: Tax Consulting) — discussed reform options and cost-effective administration of property taxes. - Deloitte: Mr. V. Boeriu and Ms. A. Smedoiu (Partners). - World Bank Office in Bucharest: Ms. A. Akhalkatsi (Office Country Manager), Messrs. C. Pauna and M. I. Heroiu — exchanged information on local government finance. - National Union of Public Notaries (UNNPR) — discussed the role of notaries in property transfers and sharing of property value grids. ### Municipal and local government consultations - Senior staff in the revenue departments of selected cities: Bucharest, Brasov, Cluj-Napoca. - Association of small rural villages — engagement to gain practical insight into property tax administration. ### Support and acknowledgements - The mission expresses gratitude for the collaboration extended by the authorities. - Special thanks to: - Mrs. Carmen Balasoiu (General Director: General Directorate for Strategy and Monitoring Processes, National Agency for Fiscal Administration, ANAF) - Mr. Elian C. Diculescu (Chief of Reform Unit, ANAF) — for support in planning meetings, providing data resources, and general execution of the mission. - Interpreters: Mrs. Daniela Ionescu and Mrs. Silvia Statescu — for translation support. *Source: PREFACE, TA report (IMF Fiscal Affairs Department), mission remotely engaged March 28 to April 11, 2022.* ### EXECUTIVE SUMMARY ### EXECUTIVE SUMMARY ### Core diagnosis - Romania’s current area-based property tax system is inefficient, producing revenue below its potential and with inequitable and complex taxable value determination. - Property tax revenue: 0.6 percent of GDP in 2021 vs. 1.8 percent of GDP in the OECD economies and 0.9 percent of GDP in EU-27. - Local authorities’ own-source revenues represent 3 percent of total consolidated government revenues—one of the lowest values in the EU. - The system is weakened by multiple exemptions and an inadequate, fragmented self-declaration system for residential buildings that yields incomplete fiscal cadasters and lowers coverage ratios. ### Reform guiding principle - Treat the property tax primarily as a benefit tax: those consuming local public services should contribute reasonably to their cost. - As an immediate step, without changing appraisal method, stop erosion of the tax base by minimizing exclusions, exemptions, and lower-rate differentiations. - A broad-based property tax at modest rates can materially increase local revenue contributions. ### Five pillars of the property tax reform program - Simplicity in design and implementation. - Centralized valuation with uniform standards, underpinned by a centrally-created and managed legal cadaster, plus improved coordination and oversight over decentralized tax administrations and their fiscal cadasters. - Rationalization of central government agencies responsible for property registration, legalization, valuation, and strict data sharing protocols to capture property sales price evidence. - Careful preparation, sequencing, and public communication of transition towards a market value–based property tax for residential buildings. - Bolder rationalization of tax expenditures granted to commercial telecommunication structures, pipelines, or linear infrastructure improvements. ### Tax base approaches and recommendation - Two main approaches to set the taxable amount: - Value-based assessment (market value = combined capital value of land and improvements). - Non-value (area-based) assessment (size-based). - Where practical, market-value approach is preferred: more buoyant, more equitable, and better at differentiating burden by ability-to-pay. - Key recommendation: view land and buildings as a single property unit for valuation and taxation. ### Implementation challenges and staged solutions - Scale: about 9 million properties and approximately 18 million assessments due to separate treatment of land and buildings. - Administrative burden: transition to market-value must avoid over-burdening local administrations. - Proposed pragmatic approach: move toward owner self-declaration of property value using value bands: - Rationale: owners already self-declare property data; the residential market generates ample sales evidence; the Notaries Public “Grid” offers granular locational price data. - Advantages: can be implemented quickly; minimal administrative costs; fewer appeals against assessed market values; self-declaration renewals could be on a 5 to 10 years cycle. - Suggested preparatory step: conduct analytical studies to calibrate value tables and adjustment coefficients in the Fiscal Code to market evidence. ### Non-residential and large infrastructure properties - Non-residential valuations should include the land component and treat land-plus-building as a single market-valued property unit. - Non-residential property valuations should be undertaken at the same date of valuation. - Large municipalities should consider in-house valuation departments. - Consider reintroducing property tax on large private-sector infrastructure entities (telecommunications, energy) with national government role in valuing and apportioning market value to municipalities. ### Tax rates, fiscal autonomy, and exemptions - Guarantee an element of fiscal autonomy by letting Administrative Territorial Units select a single property tax rate from a centrally determined range. - If commercial and residential properties receive comparable municipal services, no rate differentiation favoring residential properties is advised. - Do not reintroduce progressive property tax rates for multiple properties owned by individuals. - Limit exemptions to an absolute minimum. - Property rate relief for low-income households, the elderly, and those in hardship should be application-based, reviewed annually, and means-tested. - For the elderly, if necessary allow mortgaging of arrears to be settled on sale or bequest. ### Transparency and tax expenditure rationalization - Granular reporting on property tax expenditures can improve transparency and subject tax reductions to scrutiny comparable to direct expenditures. - Recommend separate revenue-forgone (tax expenditure) estimates for pertinent property tax incentives (tourism-linked real estate, linear infrastructure, incubators, technology parks) to assess costs and benefits ahead of evaluations. - Rationalization of tax expenditures could yield additional revenue. ### Data, cadaster, and valuation infrastructure - Romania lacks a comprehensive, fully computerized cadaster to support nationwide property valuations. - Recommendations: - Record property counts by property type and collect more granular property-type data (e.g., dwelling house, retail, office, factory, hotel). - Make it mandatory that all official real property databases record the unique cadastral number for cross-platform sharing. - Develop protocols for data sharing between municipal fiscal cadaster and the national cadaster. - Establish a Sales Price Register within the National Institute for Statistics. - The National Institute for Statistics to consider developing a residential property Automated Valuation Model. ### Fiscal impact estimates (select recommendations) - Under a conservative scenario, moving assessed property values closer to market values could yield an additional 0.4 percent of GDP. - Conservatively estimated yield from rationalization of tax expenditures could yield an additional 0.1 percent of GDP. - The Recovery and Resilience Plan requires an increase in tax revenues of about 0.5 percent of GDP. - Tax expenditures are estimated, on average, at 4.6 percent of GDP for the period 2020 to 2024. ### Structure of the full report (chapters) - Chapter I: Revenue importance of property taxes in Romania over time and European comparisons. - Chapter II: Design shortcomings of current building and land tax regimes and revenue forgone from exemptions. - Chapter III: Property tax reform agenda — tax base options, rate choices, and measures to broaden the base. - Chapter IV: Assessment of property market transaction evidence and the feasibility of transitioning residential buildings to a self-declaration/value-based recurrent property tax; reviews data availability and quality and needed efforts to address fragmented information platforms. *Source: EXECUTIVE SUMMARY, 1rouea2022001 - EXECUTIVE SUMMARY* ### 5. As to the recurrent property taxes in particular, Romania’s revenue importance of ### 1rouea2022001 - 5. As to the recurrent property taxes in particular, Romania’s revenue importance of ### Recurrent property tax: revenue importance and comparisons - Romania’s recurrent property tax revenue importance: 0.5 percent of GDP in 2020. - EU average for recurrent property tax: 0.9 percent of GDP (2020). - Pattern across Europe: - Western European countries (e.g., France, Denmark, Iceland) collect significant revenues from recurrent property tax. - Central Eastern and Southeastern Europe.collect well below the EU-27 and EA-19 average for recurrent property tax, with Poland a possible exception. - Romania’s reliance across property tax types: - Romania seems to rely more on the recurrent property tax than the transfer duty. - City-level example (Cluj-Napoca, 2021): - Average land tax charge (combining legal and natural persons): €60. - Average building tax charge: €18. - Total collected in recurrent property taxes (Cluj-Napoca): €57 million. - Since 2019, the property tax on means of transport has a larger revenue significance than the land tax. ### Local government revenues, reliance on transfers, and fiscal decentralization - Local government units: - Total subnational government units (ATUs) in Romania: 3,228. - Two-tier structure: 41 counties at intermediate level plus Bucharest; local level: 2,861 communes, 217 towns and 103 cities, and six sectors within the City of Bucharest. - ATU population range: smallest has 98 inhabitants; largest more than 400,000. - Own-source revenue importance (select statistics and averages): - Bucharest: own source revenues account for about 21 percent of total income (average 2016-2019). - Group of municipalities: own source revenues on average 16.6 percent (average 2016-2019). - In 2018, ATUs’ expenditures accounted for 23 percent of total government expenditures. - Romanian subnational revenue autonomy lower than EU average; dependency on central government transfers: - Romania: 56.7 percent (for 2020). - Europe (EU-27 average): 44.6 percent (for 2020). - Local own revenues represent 3 percent of total government revenues (Romania). - Practical issues from transfer dependence: - Local authorities must wait for national budget rules and final transfers before finalizing annual budgets. - The method of calculating PIT and VAT-based transfers lacks predictability, clarity, and transparency. - Delays in transferring funds from the central level impede smooth functioning of local authorities. - Implication: - Greater collections from buoyant recurrent property taxes would ameliorate funding problems for ATUs and reduce dependency on central transfers. ### Tax categories and administration at subnational level - Four major categories of revenues available to sub-national governments: - Current fiscal revenues (e.g., taxes on properties, land and mainly transportation vehicles, provided for by art 454 of the FC). - Current non-fiscal revenues (e.g., transfers/grants from the state budget). - Capital revenues (e.g., revenues from local assets). - Other special resources (e.g., taxes and unused expenses from previous years). ### Transfer taxes, notary and cadastral registration fees - Fees and taxes on transfer of immovable property: - Notary fee: - Computed on the value of the transfer deed. - Ranges from 2.2 percent (but not less than RON 150) on values up to RON 15,000, to 0.44 percent plus RON 5,080 on values exceeding RON 600,001. - Notary fees are payable by the buyer subject to minimal fees established by the National Union of the Notaries. - VAT is added to the notary fee. - Cadastral registration fee (ANCPI): - For companies: registration tax is 0.5 percent of the value resulting from the authenticating deed. - For individuals: registration tax is 0.15 percent of the value resulting from the authenticating deed. - Transfer tax for natural persons: - Income from disposal of immovable property is subject to a transfer tax of 3 percent on amounts exceeding RON 450,000 (art 111 of the FC). - Exemptions: - Immovable property received through the state restitution process. - Immovable property received by inheritance if the inheritance process is finalized within 2 years from the death of the deceased (if period is exceeded, a 1 percent inheritance tax is payable). - Immovable property received by donation from a spouse or from relatives up to the third generation. - Income from transfer of property rights over a mortgage-backed property, for the purpose of covering the debt, is exempt from transfer tax. ### Compliance measures, valuation data, and information flows - Anti-avoidance and valuation verification: - National Union of Public Notaries (UNNPR) maintains a detailed grid values database to support transfer tax compliance and enforcement. - Grid values are publicly available on the UNNPR website. - Data sharing and reporting: - Transaction data from the UNNPR are shared twice a year with the National Agency for Fiscal Administration (ANAF) and on a monthly basis with the National Statistical Institute of Romania. - Reports to tax authorities include: description of contracting parties, values declared in transfer documents, tax on transfer values of real estate properties, and notary fees levied. - Role of grid values: - If declared transaction value is lower than minimum value established by notaries’ market research, notary must notify tax bodies and transfer tax is calculated on grid value. - If transaction price is above grid value, transfer tax is calculated as 3 percent on the realized transaction value. - Chambers of notaries public must update market research at least once a year and communicate minimum values to regional ANAF directorates. - Market data availability and limitations: - Banking sector holds market value, book value and “guarantee value” for mortgage evaluation. - Market data exist but are fragmented; migrating to a market value-based system requires consolidation and public access to scattered databases. - Potential for annual revaluation: - The annual, systematic reporting of property transaction values by UNNPR is a potential cornerstone for transition from an area-based to a market value-based recurrent property tax (for land and building tax). ### IMF Technical Assistance (TA) advice and key reform recommendations (2011, 2013, 2020) - 2011 TA Report recommendations (select): - Reform area-based valuations to approximate market values for land and buildings, and ensure regular revaluation. - Treat individuals and legal persons the same by applying a uniform tax rate for all taxpayers. - Apply a uniform tax rate of at least 0.5 percent for land and buildings. - Provide local authorities discretion to set rate within a small range (maximum and minimum) set by central government. - Mobilize funds to develop a computerized cadaster with nation-wide property valuations. - 2013 TA Report recommendations (short-term, medium-term, residential/nonresidential specifics): - Short-term (2014–15) — Building tax: - Introduce principle of property taxation on basis of use rather than ownership, retaining owner as primary taxpayer. - Retain area-based “taxable values” and “book value” as distinct tax bases for residential and nonresidential building tax, respectively. - Migrate properties owned by individuals but used for nonresidential purposes from area-based “taxable values” to “book values”. - Migrate properties owned by legal entities but used for residential purposes from “book values” to area-based “taxable values”. - Stipulate in Fiscal Code that LGA discretionary exemptions must be quantified in annual budget and justified in LGA annual financial report. - Mobilize funds to ensure comprehensive cadaster and Land Registry coverage. - Residential buildings: introduce a tax rate range with minimum of 0.2 percent and maximum of 0.5 percent [in 2014]; introduce means-tested hardship relief requiring annual reapplication; regularly revise taxable values (lei/m2) with reference to market value data and/or construction costs. - Nonresidential: if necessary for revenue, rate on business-owned/nonresidential properties could be raised to 0.5-2 percent; consider cap on annual increase in tax liability to protect small businesses; extend definition of “building” or add “improvements” to capture infrastructure. - Medium-term (2016–17): - For residential, retain area-based system and refine coefficients to better approximate market value. - Adjust tax rate range to minimum 0.5 percent and maximum 1.0 percent, coupled with targeted hardship relief. - For nonresidential, take steps to introduce market value system: identify steps to establish market value assessments and develop road map. - Long-term (2018–20): - Introduce market value-based tax for nonresidential properties [by 2018 or 2019]. - Research feasibility of market value system for residential property. - Land tax recommendations: - Short-term (2014–15): increase tax revenue from land tax by adjusting coefficients and/or introducing a tax rate multiplier; review and rationalize exemptions. - Medium-term (2016–17): consider increasing land tax rate on land in built-up areas that is vacant. - Long-term (2018–20): if market value tax implemented, merge building and land taxes into a single property tax. - Transfer duty recommendation: - Short term: retain transfer tax at current tax rates. - 2020 TA Report recommendations (select): - Merge land and building tax into a single property tax to simplify administration. - Use value-based assessment where market information allows, for both residential and nonresidential properties; maintain area-based assessment for other areas. - Revisit and regularly update area values and coefficients for area-based assessment to closely follow market values. - Extend regular revaluation and indexation to all properties. - Eliminate some exemptions from land and building tax. - Apply a uniform band of (0.5-1.3) percent for land and buildings and keep discretion of local authorities to set the rate within this band. _Italic: Source — Excerpt from 1rouea2022001 (PDF chapter/section) provided content._ ### 15. Romania has two separate recurrent property taxes, a tax on buildings and a ### 15. Romania has two separate recurrent property taxes, a tax on buildings and a ### Overview - Romania levies two separate recurrent property taxes: a tax on buildings and a tax on land. - Taxes are differentiated by use of the building (residential vs non-residential) and by ownership (individuals/natural persons vs legal entities/companies) and are collected by municipalities. - These taxes are established in Chapter II and Chapter III of Title IX of the FC: Law No 227/2015. ### Definition of Building — issues and recommendation - Current FC definition of “building” includes: “… any construction situated above the ground and/or underground, regardless of its name and use, and which has one or several rooms that can serve as shelter for people, animals, objects, products, materials, plant, equipment and others similar, and the structural basic elements thereof are the walls and the roof, whatever the materials used for building them might be, including the constructions representing the supporting towers of eolian turbines and their foundations.” - Interpretation implies structures without walls and a roof may not be assessed for the buildings tax; examples possibly not covered include outdoor swimming pools, landscaping features, and tennis courts. - Ancillary buildings are defined to include: “buildings situated outside the dwelling place, as well as: kitchens, stable, basements, storerooms, barns, storehouses, warehouses, garages and others similar.” - Finding: The expansive list approach is impractical; simplifying the definition to include as taxable elements those structures that are permanently constructed on or under the land is preferable. - Recommendation: - The definition of building contained in the FC should be simplified, to remove the need for a building to have walls and roof. ### A. Tax on Buildings — Residential buildings (assessment methodology) - Residential tax liability is based on a prescribed base value provided in the FC (Art 458, FC: Law 227/2015). - Base value is related to gross floor area (m2) and whether the building has connected utilities. - The base assessment is adjusted by applying coefficients to reflect location, age of the building, and in apartments the number of floors and number of apartments in the building. - Table 3 prescribed amounts (RON/m2): - Reinforced concrete or bricks: With connected utilities such as water, sewerage, electricity, and heating — 1,000; No connected utilities — 600 - Wood or stone: With connected utilities — 300; No connected utilities — 200 - Dependency or ancillary building of reinforced concrete or bricks: With connected utilities — 200; No connected utilities — 175 - Dependency or ancillary building of wood or stone: With connected utilities — 125; No connected utilities — 75 - Basement or attic within the building used for residential purposes: 75% of the building base value (both with and without connected utilities) - Basement or attic within the building used for non-residential purposes: 50% of the building base value (both with and without connected utilities) - Assessment steps: 1. Multiply area (m2) by relevant rate/m2. 2. Apply location coefficients (reflecting zone within locality and rank/status of locality). - Location coefficient matrix (Table 4) — Zone rows A–D by Rank columns 0, I, II, III, IV, V: - Row A: 2.6, 2.5, 2.4, 2.3, 1.1, 1.05 - Row B: 2.5, 2.4, 2.3, 2.2, 1.05, 1 - Row C: 2.4, 2.3, 2.2, 2.1, 1, 0.95 - Row D: 2.3, 2.2, 2.1, 2, 0.95, 0.9 - Additional adjustments: - Apartment discount: if apartment block comprises more than three floors and has more than eight apartments, adjustment coefficients reduced by 0.10. - Age discounts: Buildings older than 100 years receive a 50 percent discount; 50 to 100 years receive a 30 percent discount; buildings between 30 to 50 years receive a 10 percent discount. - Indexation: - Tables remain fixed until a new FC is passed; values in the tables are revised annually according to the rate of inflation as adopted by MOPF and the Ministry of Regional Development and Public Administration (Article 491 paragraph (1)). - For 2015/16, amounts were indexed until April 30, 2015, based on the inflation rate for 2014, which was 1.1 percent. - For fiscal years 2017 and 2018 the tables were not indexed because for years 2015 and 2016 negative inflation rates were recorded: minus 0.6 percent and minus 1.5 percent, respectively. ### A. Tax on Buildings — Non-residential buildings (assessment methodology) - Non-residential buildings are assessed based on an estimate of taxable value (Articles 458 and 460 of the FC: Law 227/2015). - FC provides options to determine taxable value: 1. Taxable value registered in the records of the tax body. 2. Amount from a valuation report drawn up by an authorized valuer according to asset valuation standards in force at the valuation date. 3. Final value of construction works for new buildings built during the previous fiscal year. 4. Value of the buildings resulting from the act of transfer of the property right. - If value is not specified in certifying documents, the last value registered in the tax administration database is used. - Mixed-use buildings: non-residential part valued by an authorized valuer; residential part follows prescribed assessment in Article 457 of the FC (consistent with international practice). ### Revaluations and management issues - Taxable value of non-residential buildings must be updated every 5 years (previously every 3 years) based on a valuation report by an authorized valuer compliant with asset valuation standards. - Administrative challenge: municipalities must monitor varying revaluation dates; example: with 5,000 non-residential buildings a municipality could face different valuation dates for each building. - Penalty for failure to update taxable value per schedule: 5 percent. ### B. Tax on Land — structure and rates - Land tax is a fixed amount per hectare (RON/ha), determined by land area, location within a locality, ranking of the locality, and area/category of use (FC, Art 463). - No tax rates are applied; assessment is prescribed in the FC and varies by whether land is urban (construction land) or agricultural. - Table 5 — Level of Land Tax for Urban Land (Level of Land Tax - RON/ha) — Zone rows A–D by Rank columns 0, I, II, III, IV, V: - Row A: 8,282 - 20,706; 6,878 - 17,194; 6,042 - 15,106; 5,236 - 13,090; 711 - 1,788; 569 - 1,422 - Row B: 6,878 - 17,194; 5,199 - 12,998; 4,215 - 10,538; 3,558 - 8,894; 569 - 1,422; 427 - 1,068 - Row C: 5,199 - 12,998; 3,558 - 8,894; 2,668 - 6,670; 1,690 - 4,226; 427 - 1,068; 284 - 710 - Row D: 3,558 - 8,894; 1,690 - 4,226; 1,410 - 3,526; 984 - 2,439; 278 - 696; 142 - 356 - Example comparison: - Knight Frank research: prime land in center of Bucharest sells for €2,000/m2 => one hectare sells for €20 million. - With a low suggested tax rate of 0.001 percent, tax liability would be €20,000. - Under current regime the land tax would equate to €4,185, representing approximately 20 percent of the tax that could be levied. - Agricultural land within urban areas: - Land tax determined by multiplying land area (hectares) by appropriate amount in Table 6 and applying rank coefficients from Table 7. - Table 6 (Urban Zones - RON/ha) — Category of Use A B C D: - Arable land: 28, 21, 19, 15 - Grazing land: 21, 19, 15, 13 - Hay land: 21, 19, 15, 13 - Vineyard: 46, 35, 28, 19 - Orchard: 53, 46, 35, 28 - Forestry land: 28, 21, 19, 15 - Land with waters: 15, 13, 8, 0 - Roads and railway land: 0, 0, 0, 0 - Unproductive land: 0, 0, 0, 0 - Table 7 — Coefficients to Reflect the Rank of the Locality: - Rank 0: 8 - Rank I: 5 - Rank II: 4 - Rank III: 3 - Rank IV: 1.1 - Rank V: 1 - Land outside built-up urban areas: - Table 8 — Land Tax on Land Located Outside of Urban Areas (RON/ha): - Construction land: 22 – 31 - Arable land: 42 – 50 - Grazing land: 20 – 28 - Hay field: 20 – 28 - Productive vineyard: 48 – 55 - Immature vineyard: 0 - Productive orchard: 48 – 56 - Immature orchard: 0 - Forest land: 8 – 16 - Land with water: 1 – 6 - Land with fishing rights: 26 – 34 - Exemptions and local penalties: - Land tax due by any individual who owns land in Romania; computed as fixed amount per square meter based on criteria. - Owners of degraded or contaminated plots (not included in area for improvement) may be granted exemptions. - Local councils may increase local tax up to 500 percent for buildings and land not properly maintained and situated in towns. ### C. Tax Rate Structure — history and current ranges - Pre-2015 structure (based on ownership): - Individuals: 0.1 (percent) - Legal Entities: 0.25 - 1.5 (percent) - Post-2015 structure (based on use): - Residential: 0.08 - 0.2 (percent) - Non-residential: 0.2 - 1.3 (percent) - Table 9 (selected municipalities, 2021) shows variation across 46 large municipalities; only Bucharest sector 5 selected the maximum permissible tax rate of 0.2 percent for residential buildings. - The simplified post-2015 structure gives local authorities autonomy to choose a tax rate within the given range. - Example municipal 2022 tax rates: - Cluj-Napoca (2022): - 0.1 percent tax rate on taxable value of residential buildings owned by natural or legal persons. - 0.2 percent tax rate on taxable value of non-residential buildings owned by individuals. - 1 percent tax rate on taxable value of non-residential buildings owned by legal entities. - Constanta (2022): - Residential buildings belonging to individuals: 0.1 percent of the taxation value. - Non-residential buildings owned by natural entities: 0.2 percent. - Residential buildings owned by legal entities: 0.2 percent. - Non-residential buildings owned by legal entities: 1.5 percent. - Note: Evidence indicates some taxation based on ownership persists despite formal move to use basis. - Prior policy: - Prior to 2016, individuals owning more than one building were taxed at progressive rates; abolished due to administrative enforcement difficulties. - MoRDPA reform proposals consider reintroduction of graduated tax rates for multiple property ownership; mission’s tax rate reform proposals are discussed in Chapters 3 and 4. ### D. Tax Exemptions and other tax relief - Articles 456 and 464 of the FC provide extensive discretionary exemptions for building and land tax respectively. - Some exemptions aligned with global practice; others benefit narrow groups for socio-political reasons and may be reconsidered. - Examples of building tax exemptions: - State-owned buildings; buildings owned by foundations supporting cultural and humanitarian activities; places of worship of recognized religious denominations; funeral buildings; public education and sports buildings; public health care facilities; buildings of business incubators, industrial, scientific, and technology parks; buildings for hydrotechnical, hydrometric, hydrometeorological, oceanographic works; land reclamation and flood protection works; buildings in ports and navigable canals; structures linked to linear infrastructure (bridges, viaducts, aqueducts, dams, barrages, tunnels); public railway infrastructure; historic monuments; buildings of the defense industry and the military; structures in agriculture. - Control mechanism: building tax exemptions are permissible only as long as they are not being used for other economic activities used by unintended beneficiaries. - Since 2016 local councils may grant exemptions or building tax reductions for: - Protected buildings besides monuments; buildings of non-governmental organizations; restituted buildings (expropriated between 1945–1989); buildings damaged through natural catastrophes; residential buildings of people earning less than the minimum salary; energy-efficient buildings; residential buildings in the Apuseni Mountains, Danube Delta; and buildings owned by agricultural, consumption, and craftsmen cooperatives. - Land tax exemptions provide relief for similar beneficiary classes and additional qualifications: - Degraded or polluted lands being rehabilitated; lands used for linear infrastructure such as pipelines, highways, European connector roads. - With effect from 1 January 2021, buildings and land used for providing touristic services for a maximum of 180 days in a tax year are reduced by 50 percent. *Source: 1rouea2022001 - 15. Romania has two separate recurrent property taxes, a tax on buildings and a — IMF PDF chapter* ### 37. Romania records annually the property tax expenditures together with the revenue ### 37. Romania records annually the property tax expenditures together with the revenue losses from tax incentives under the income tax system, social security contributions and VAT ### Tax Expenditures, Including Property Taxes, 2020-2024 (Key statistics) - Tax Expenditures* (million lei): 50,445; 55,285; 60,966; 65,180; 68,971 - (% of GDP): -4.8; -4.6; -4.6; -4.5; -4.4 - Of which: - Corporate income tax (million lei): 3,677; 4,389; 5,061; 5,345; 5,738 - (% GDP): -0.4; -0.4; -0.4; -0.4; -0.4 - Income tax (million lei): 13,221; 13,875; 14,540; 15,111; 15,682 - (% GDP): -1.3; -1.2; -1.1; -1; -1 - VAT (million lei): 15,818; 17,695; 20,607; 23,216; 25,425 - (% GDP): -1.5; -1.5; -1.6; -1.6; -1.6 - Social security contribution (million lei): 15,650; 17,118; 18,469; 19,152; 19,708 - (% GDP): -1.5; -1.4; -1.4; -1.3; -1.3 - Local taxes and fees (million lei): 2,079; 2,208; 2,289; 2,355; 2,417 - (% GDP): -0.2; -0.2; -0.2; -0.2; -0.2 - Memorandum item: GDP (million lei): 1,040,800; 1,190,300; 1,317,300; 1,440,100; 1,560,100 - Note: *The impact was estimated for expenses for which there are statistical reports. The tax expenditure calculation does not include exemptions that comply with EU Directives.* ### Transparency and reporting issues - Romania records property tax expenditures together with revenue losses from income tax incentives, social security contributions and VAT. - The forgone revenues from the extensive list of tax expenditures for property taxes are estimated at a constant 0.2 percent of GDP for the period 2020-2024. - The revenue loss significance of some individual tax relief measures is unknown. - Recommendation: calculating and reporting individual measures in the budget documentation would add to transparency and cost-efficient policy design. - Data limitation: debating individual trends of revenue losses would require accessing more granular data from both national and subnational level. ### The benefits and political economy of a recurrent property tax - International experience: well-designed, broad-based property taxes have many advantages for local governments (fairness, progressivity, immobility of tax base, incentives for efficient land use). - Political constraints and taxpayer resistance: - Property taxes are capitalized in property prices; taxpayers cannot exit the tax jurisdiction. - If the tax base is linked to market value, taxpayers will contest assessed market values. - High visibility and single annual payments can cause cash flow problems for taxpayers. - Policy considerations to mitigate resistance: - Comprehensive tax reform packages that reduce burdens elsewhere. - Clearly communicating discounted appraisal values (example given: 70-75 percent of market value). - Consider a uniform national standard allowing payment over 12 installments. - Synchronize property tax measures with reductions in the tax wedge on employment income to improve distributional perceptions. - Provide credible tax deferral schemes where tax is paid upon sale or bequest to protect asset-rich but income-poor households. ### Quintessential property tax design principles and trade-offs - Expect policy trade-offs and need for public education when restructuring the tax base, appraisal methods, exemptions, reliefs, and rate uniformity. - Important practical points: - Periodic value updates can provoke taxpayer negativity; transition rules are necessary. - Property tax visibility is a condition for good local government taxation (efficiency, governance, accountability). - Property taxes are mildly progressive but less so than personal income tax. - Asset-rich but income-poor households (pensioners, unemployed) may face unaffordability unless mitigated. ### Property tax revenue identity and administrative levers - Revenue buoyancy relates to two factors: (1) tax rates; and (2) growth in the tax base. - Recurrent property taxes in Romania averaged 0.6 percent of GDP for the period 2008 to 2020. - Lack of buoyancy attributed to: - Low property tax rates. - Almost no growth in the tax base due to tax value determination coefficients deviating from market-related values. - Administrative focus to improve buoyancy: - Expand the number of parcels on the valuation list. - Review tax rates per budget cycle. - Property tax revenue identity (as expressed in the text): - Property Rates Collection = Tax base x Tax Rate x Valuation Ratio x Coverage Ratio x Collection Ratio - Definitions: - Coverage Ratio: proportion of properties that should be included that are actually in the fiscal cadaster. - Valuation Ratio: proportion of the defined value of properties (often vs. market values) that is assessed for tax purposes. - Collection Ratio: proportion of assessed taxes that are actually collected. - Box 2 numerical illustration: - Example municipality: Coverage Ratio = 90 percent; Valuation Ratio = 25 percent; Collection Ratio = 95 percent. - Captured revenue = 21 percent of potential property tax revenues (0.9 * 0.25 * 0.95). - If Valuation Ratio improves to 70 percent, captured revenue = 60 percent (0.9 * 0.7 * 0.95). - This change implies an increase of 86 percent ((60−21)/21). ### Tax base options and international practices - Two broad approaches to determine the taxable amount: - Value-based assessment (market/capital value or rental value). - Non-value or area-based assessment (size of land and/or buildings). - Current Romanian residential building tax is area-based. - Guidance on choosing bases: - Value-based preferred where property markets are efficient and valuation capacity exists. - Area-based works where formalized land markets do not exist and sales data are lacking; it is simpler and a steppingstone toward market-value regimes. - Examples and international practice excerpts (as presented): - Capital value of land and improvements: Canada, Germany, Finland, Italy, New Zealand, the United States, Argentina, Brazil, Malaysia, South Africa. - Unimproved land value: Jamaica, selected councils in New Zealand, selected states in Australia (New South Wales, Queensland, Western Australia). - Banding: Great Britain and Ireland. - Rental value: Australia, Hong Kong, India, Malaysia, Singapore, Uganda, United Kingdom. - Area-based: India, Macedonia, Slovenia, Slovakia. - Area-based systems: - Two basic approaches: (1) strict per unit assessment (rate/sq. m.) without adjustments; (2) unit value assessment with adjustments for location, use, quality, age. - Romanian building tax legislated tax value tables in the FC (art. 457) are informed by area-based practice. - Many countries using area-based systems adjust for location and use to approximate value. - Transition experience: - Several countries shifted from area-based to market-value based systems as markets developed (Estonia, Latvia, Lithuania, Moldova, Slovenia). - Some South-Eastern European countries apply area-based approaches approximating market value (about 80 percent in Croatia, Kosovo, Macedonia, Serbia). - Hybrid example (Box 3 — Bangalore): - Self-Assessment Scheme (SAS) led to >60 percent compliance with declarations within 45 days. - Unit Area Model/Value (UAM) uses average expected returns per square foot per month by location and use. - Value increases mandated at least 15 percent over a three-year cycle to ensure buoyancy and steadily increase revenues. - Value-based assessment: - Two broad valuation approaches: capital (market) value and annual rental value. - Three standard valuation methods for market value: comparable sales, cost, and income methods. - Assessment values are commonly discounted market values to reduce appeals (example: 70-75 percent of assessed market value used in transition). *Source: Romanian Authorities.* ### 52. To emphasize, experts generally agree that where it is possible to use the market- ### D. Proposal for Romania: Transition to a Market Value Basis ### Market-value versus area-based assessment — key findings - Experts generally agree that where it is possible to use the market-value approach in practice, it "provides the better, more buoyant, and more equitable tax base." - A simple area-based assessment can result in the same tax burden for a person living in a dilapidated house as a person living nearby in a newly renovated house, assuming similar size houses; a value-based assessment better differentiates tax burden by ability-to-pay. - Market values better capture neighborhood amenities and infrastructure services (schools, parks, retail outlets, transport access, paved roads, footpaths, street lighting) that are commonly funded from local government budgets. - Assessments should be based on the current market value of property to reflect changes inherent in a dynamic economy and to maximize fairness and ease of understanding. ### Tax-base decision and governance - Determination of the tax base is a key policy decision; many countries make this decision at central government level, while in federal countries it may be at state/provincial level (examples given: Australia, Canada, India, United States). - Some national laws provide for a single uniform tax base country-wide (examples given: Egypt, Indonesia, South Africa). - Some jurisdictions allow local governments a choice of tax bases (examples given: Australia, Malaysia, Namibia, New Zealand) or different tax bases within a jurisdiction on the basis of: (1) Location (e.g., urban versus rural—as done in Western Australia); (2) Whether developed or undeveloped (e.g., Côte d’Ivoire, Senegal); or (3) Use (e.g., residential or non-residential—as done in the United Kingdom). ### Rationale for adopting market value in Romania - New evidence on annual property value recording for the whole country supports adopting market value for residential and non-residential property, contrary to the 2011 IMF tax policy TA mission view. - Supporting factors in Romania: - The real estate market is sufficiently robust to provide necessary market transactions to support valuations. - The capacity of the registered valuation profession to provide market values for commercial property is of a high standard. - The “Grid” system provides objective evidence on the market value of residential property. - House price indices are published on a regular basis, indicating sufficient open market transactions being systematically captured. - Countries with mature real estate markets tend to base property tax assessment on market value; several Central and Eastern European countries transitioned from area-based to market-based systems over time. ### Problems identified with Romania’s current system - The present system is table-driven and centralized: central government determines basic structure (land vs. buildings tax; individual vs. company tax; specific table-based values vs. valuation). - Several adjustment coefficients are applied to determine taxable value for residential properties and land; limited revenue buoyancy exists due to fixed taxable values and tax rates. - Clear disadvantages: - Leads to potentially large variations in effective tax rates for similar economic activities across taxpayers, property types, locations, and over time, causing resource misallocations and economic efficiency costs. - Likely highly inequitable both horizontally and vertically. - With taxable values believed to be considerably below market values, current system generates revenues well below its potential and the EU-27 region. - As a local tax almost completely determined centrally, it is deficient as a benefit tax and lacks transparency. - Current adjustments are blunt; example: in Bucharest the adjustment coefficient to reflect location shows that the percentage difference between the highest value zone (A) and the lowest value zone (D) is "13 percent" — implausibly small given actual residential price variation. ### Recommendations for Romania (valuation and structure) - Extend the use of market values to both residential and non-residential property. - Agricultural land to continue to be taxed on adjusted area basis and prescribed value levels. - Combine land and buildings for residential and non-residential in the same ownership into a single property unit: - Rationale: market transactions typically price land and buildings as a single property unit; separating components is artificial and complicates valuation and evidence availability. - For non-residential/commercial buildings, including land avoids relying on cost-method valuations where income or discounted cashflow approaches would be more appropriate. - Unification simplifies valuation, administration, and data collection; aligns tax base with how property markets operate. - Note on administrative considerations: if the tax base is linked to market value, the design must confront the issue of estimated values being contested, the expense and contention of assessing market values, and taxpayer negativity at periodic updates — communicating a discounted appraisal value for tax purposes may be a minimum requirement. ### Setting the statutory (tax) rate — considerations and practices - Property tax liability = assessed value × rate. Given the size of the tax base, the tax rate is the second most important element determining revenue potential. - Three key considerations for rate-setting: (1) Who should determine rates; (2) Single rate or differentiation; (3) How high should rates be? - International practices summarized include: - Flat ad valorem rate — simplest way to tax property values. - Flat specific rate — simplest way to tax an area base. - Progressive ad valorem rate — to tax higher valued properties at higher nominal rates. - Differential rates by property type (non-residential usually higher; agricultural/residential lower). - Different rates for land/site and capital improvements; surcharge for underutilized land to encourage development. - Progressive tax rate on total value of an individual’s land holding (example: Peru). - Annual increase in tax rates to compensate for failure to revalue properties or adjust through indexing. - Specific practices and governance: - Property tax rates are either set centrally or locally with central restrictions; fiscal autonomy varies by country (examples: Cameroon, Egypt, Rwanda — central; Romania allows local discretion within central range; Botswana allows local setting but central approval required; Uganda imposes legal minimum and maximum rates). - Romania: ATUs administer building and land taxes; proceeds are exclusive function of county councils, ATUs and/or communes. Setting rates locally is crucial for accountability; central government commonly restricts rates to a statutory range to minimize inter-jurisdictional distortions. - Romania authorizes local authorities to increase the tax on land up to "500 percent" for agricultural land not used for two consecutive years, and for buildings and land within built-up areas that have not been properly maintained. - Differentiation trade-offs: - Differentiated rates can be justified for fairness, efficiency, or land-use objectives, and are used in many jurisdictions (e.g., allowing higher rates on vacant development land to encourage development). - Many jurisdictions allow lower property tax rates for residential properties (examples: Australia, Canada, India, Liberia, Pakistan, South Africa, Romania), while others apply higher rates for commercial properties or favored industries. - Best practice emphasizes simplicity in rate-setting to minimize administration and compliance complexity; a single rate may be preferable because market valuations already reflect differences in ability-to-pay, making discriminatory rates superfluous. However, in simplified value-based or area-based systems, differentiation may be more appropriate. *Source: 1rouea2022001 - PDF chapter/section (excerpts).* ### 69. Internationally, and especially in developing countries, property tax rates are ### 1rouea2022001 - 69. Internationally, and especially in developing countries, property tax rates are ### International property tax levels and implications for Romania - Finding: Property tax rates are generally very low internationally, especially in developing countries, which partly explains property taxes’ low revenue importance expressed as percentage of GDP. - Romania target: If Romania intends to raise more revenues from property taxes, the target should perhaps be around the EU-27 average of 0.9 to 1.0 of GDP—thus, raising it from the current 0.5 percent of GDP. - Global practice: Tax rates for market value-based (land and improvements) systems typically range from 0.5 to 2 percent but are higher for land-only systems. - Current draft law: Proposals in the Law on Local Public Finance seek to end differentiation between residential and non-residential buildings by proposing a single rate of 0.14 percent; the legislation should expressly provide this. - International evidence: Table 14 (overview of 26 European countries) lists recurrent property tax systems and tax rate levels, with selected exact rates including: - Albania: 0.05% of residential property value; 0.2% for commercial properties; 30% property value discount for unfinished buildings - Austria: 0.1 – 0.2% annually - Belgium (Flemish region): generally 2.5% of the annual rental income; Brussels-Capital Region 2.25%; Walloon region approximately 1.25% - Bulgaria: 0.15 - 0.45% - Cyprus: 0.6 - 1.9% - Czech Republic: up to 1% (with specified per-sq.m rates) - Denmark: Property value tax 0.92% - 3% (values exceeding €409,000); Municipal land tax amount determined by municipality, 3.4% - Finland: 0.41-2% of value; 2-6% on vacant land - France: Land tax 0-10% but 2.3% average rate; Property tax, buildings 4.5-29.26%, 17.04% average - Germany: 0.26 to 1% - Greece: Buildings: €2-13/sq. m; Land: €0.0037 to 11.25€/sq. m; Supplementary progressive tax 0.15 to 1.15% for properties valued above €250,000 - Hungary: Net floor space: rate of HUF1,100 to 2,018/sq. m or 3.6% of adjusted market value; vacant building plot max rate HUF200/sq. m - Ireland: 0.1029% of first €1.05 mill market value; 0.25% for properties up to €1.75 mill; 0.3% for values above €1.75 mill - Netherlands: 0.1% to 0.3% - Norway: 0.2% and 0.7% depending on municipality - Poland: commercial use land = PLN 1,03/sq. m; buildings for business = PLN25.74/sq. m; Structures taxed at 2% of initial value - Portugal: Urban real estate: 0.3 to 0.45% of registration value; Rural real estate 0.8%; real estate in tax havens taxed at 7.5% - Romania (current): Residential buildings 0.08-0.2% (natural/legal persons resp.); non-residential bldgs 0.2 to 1.3%; agriculture buildings 0.4% - Serbia: up to 0.40% - Slovakia: Land tax 0.25% - Spain: IBI on urban condominiums 0.4-1.1% of cadastral value; rural buildings 0.3-0.9% - Switzerland: 0.1% to 0.15%; some cantons up to 0.3% ### Policy recommendations on rates and structure - Guarantee an element of fiscal autonomy to ATUs by setting a single property tax rate which can be selected out of a centrally determined range of property tax rates. - If commercial and residential properties benefit from the same level of municipal service, no rate differentiation in favor of residential properties is advised. - Do not reintroduce progressive property tax rates for multiple properties owned by individuals. - Support elimination of progressive taxation of multiple properties owned by individuals (as recommended in the 2013 IMF TA report) because: - The primary justification for a property tax is to compensate for local service benefits delivered to property owners by the relevant LGA. - Charging different owners of the same property different tax rates can interfere with allocation of properties to highest value use. - Progressive rates for multiple properties are administratively challenging (requires LGAs to know how many properties each individual owns across all jurisdictions and sequence of acquisition). ### Property tax relief, exemptions, and fiscal costs - Analytical questions when assessing exemptions: 1. What cost does the exempt property impose on local (or central) government with regard to service delivery? 2. Should the property be billed by user-charging for the costs it imposes? 3. Does the property owner create public good benefits that exceed the value of tax forgiveness? 4. Would the tax exemption provide the owner with an unfair economic advantage? - Revenue impact: Numerous discretionary exemptions lead to significant revenue loss—in the case of Romania 0.2 percent of GDP for the last 5 years. - Recommendations on exemptions and relief: - Limit exemptions to an absolute minimum. - Property rates relief for low-income households, the elderly and those in hardship should be granted on application, reviewed annually, and be means-tested (see 2013 IMF TA Report). - For the elderly and only if necessary, allow for the mortgaging of arrears of property rates which will get settled when the property is finally sold or bequeathed. - Seek to provide separate revenue forgone estimates for property tax incentives (tourism-linked real estate, linear infrastructure, incubators and technology parks) for evaluation. - Guidance on exempt categories: - Restrict relief to properties meeting narrowly defined criteria (e.g., international conventions—embassies and multilateral organizations; merit uses like schools and churches). - If exemptions for cultural or religious public benefit organizations are maintained, they should be carefully defined and qualified (tax properties not directly used for public benefit). - Alternative: discounted “service charge” in lieu of the standard real property tax (example: Bangalore, India—charge raises 25 percent of the property tax; applies to all exempt properties except places of worship and homes for the destitute). - State-owned properties: - International practice varies: many countries exempt state-owned entities used for public goods; some jurisdictions (e.g., South Africa) tax government-owned properties; Canada, the United Kingdom, and the US provide for payments/contributions in lieu of taxes. - Tax expenditure management: - Good practice: review exemptions periodically (e.g., every five years) and require renewal based on evaluation. - Place all exempt properties on the valuation roll to enable periodic revaluation and publication, and to monitor annual tax expenditure for forgone revenues. - Policy aim: halve forgone revenue to 0.1 percent of GDP by curtailing current property tax relief measures. ### Administration, valuation capacity, and market evidence - Key reasons property tax underperformance: 1. Tax revenues given away through favorable exemptions. 2. Growth in the tax base not buoyant. 3. Static tax rates that do not reflect inflationary pressures. 4. Increasing costs of administration. 5. Insufficient enforcement to tackle cumulative revenue arrears. - Administration success factors: - Comprehensive identification and ‘capture’ of all relevant properties in the fiscal cadaster via inter-agency cooperation and data exchange. - Development of technical administrative infrastructure. - Effective collection of the tax. - Romanian municipal capacity: - Municipalities have well-developed structures for fiscal cadasters that appear comprehensive. - Larger municipalities manage large databases for residential and non-residential property. - Municipal in-year collection rates for land and building property taxes are in the region of 90-95 percent. - Systems exist to identify previously un-declared buildings and closely monitor building permit approvals. - Electronic payment systems are varied, available, and convenient for taxpayers. - Institutional responsibilities: - National government prescribes assessment/valuation approaches via legislation (the FC). - Local governments implement and administer the land and building property tax (assessment, data collection, billing, collection, enforcement). - Smaller municipalities face greater administrative challenges; fragmentation of ICT systems has limited interoperability with national systems. - Recommendation: collective procurement among smaller rural communes for common systems; draft legislation on partnership approaches between metropolitan areas and ATUs could improve policies and administration. - Geographic Information Systems (GIS): - Many municipalities are unlikely to have embedded GIS; GIS enhances revenue administration (managing delinquency, permits, change of use) but can be expensive to deploy and maintain. - National cadaster has been working with Sector 5, Bucharest to establish a GIS; Cluj-Napoca has a functional GIS. - Land registration and cadaster progress: - Romanian Constitution Article 44 protects private property rights. - National cadaster and registration provide security of tenure, supporting real estate markets and market-transaction–based taxation. - Systematic registration efforts: National Cadaster and Land Book Program launched in 2015 to complete registration of some 660 rural ATUs with EU funding by 2023. - Progress has been slow; key constraint is ongoing property restitution to former owners nationalized during the Communist era, with many restitution cases pending compensation or allocation—particularly affecting rural areas and vulnerable persons. - A national program of systematic registration has begun to address these issues. *Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1rouea2022001.pdf* ### 84. The ANCPI was established in 2004 (by Law No. 7/1996) by merging the cadaster ### 1rouea2022001 - 84. The ANCPI was established in 2004 (by Law No. 7/1996) by merging the cadaster ### ANCPI, institutional setup, and cadastral system - ANCPI established in 2004 (by Law No. 7/1996) by merging the cadaster from Ministry of Agriculture and land registry (Land Book system) from the Ministry of Justice. - ANCPI responsibilities: - National cadaster and registration of property rights. - Management of the national spatial infrastructure (a collective of agencies and ministries requiring access to cadastral GIS data). - Technical platform: - Modern digital cadastral platform based on proprietary software such as Oracle and ESRI (GIS) products with custom applications for specific business purposes. - Organizational coverage: - Devolved administrative structure with 42 cadaster and land registry offices at the county level and some 132 offices at the local level. - Geographic coverage supports access given Romania’s size at approximately 230,000 km2 (according to the World Bank). ### Registration coverage, trends, and projections - Current coverage and timeline: - ANCPI estimate that 45 percent of some 40 million land and buildings are currently registered within the cadaster. - Likely time to have full or systematic cadastral coverage will take some 10 years. - Registration approach: - Sporadic land registration accounts for 90 percent of registrations (client-initiated, typically at point of sale). - ANCPI is also engaged in free systematic registration (government-initiated) for whole municipalities, initial focus on rural areas. - Urban areas such as Bucharest and Constantia would have some 80 to 90 percent of properties currently registered in the cadaster. - Table 15 — Number of Registered Properties (ANCPI): - 2005 – 2016: 9,188,028 - 2017: 1,420,425 - 2018: 1,578,066 - 2019: 2,302,160 - 2020: 2,179,709 - 2021: 2,334,346 - 2022: 251,939 - TOTAL: 19,254,673 ### Data content, gaps, and key stakeholders - Data held in the cadaster: - Spatial (geo-referenced to the national co-ordinates system) and textual data on land and buildings. - Fields include unique cadastral number, property description, location/address, building size, categories of use, construction details, name of the owner, and proof of title ownership. - Land register (Land Book) records rights of owners and other legal rights or liens over land. - Major data gap: - Transaction prices: field exists in cadastral database but is not mandatory and therefore not comprehensively collected. - Notaries and municipalities record transaction prices in their systems and by declaration of property sales contracts. - Key data providers and users: - Cartographic and land surveyors: inspection, measurement, delineation of parcel boundaries, access to cadaster database for verification. - Notaries public: provide ownership details at point of sale and information on actual sale price; registered users of the cadaster. - Public search fee: RON 20 per search for parts of the cadaster publicly available. ### Property tax base, exclusions, and municipal practices - Current tax base composition: - Largely residential and non-residential/commercial properties. - Municipal fiscal cadasters developed by municipalities include many properties not registered in the national cadaster, particularly in rural areas. - Municipalities require owner declarations for taxation, providing local tax departments with comprehensive data for enforcement. - Exemptions and non-inclusion: - Properties owned by national government are exempt from property tax. - National companies forming part of linear infrastructure (electricity generation and distribution, railways, utilities, airports) are not part of the property tax base. - Privatized national-network entities (telecommunication companies, renewable energy entities) are noted as should contribute to property taxes. - Historical note: - Property tax on special properties was levied in 2014 but abandoned in 2017. - Data on taxpayers versus properties: - Municipalities gather numbers of taxpayers rather than number of properties, which can misrepresent base size (e.g., joint owners). - Table 16 — Brasov and Constanta: Number of Buildings and Land Parcels (selected figures): - Brasov TOTAL (2021): Buildings 162,380; Land 199,107 - Brasov TOTAL (2020): Buildings 158,401; Land 188,394 - Brasov TOTAL (2019): Buildings 150,583; Land 174,796 - Brasov trend note: total number of buildings grown by 8 percent and land parcels increased by 14 percent over 2019–2021. - Constanta (2021) TOTAL: Buildings 182,783; Land 184,027 - Cluj-Napoca (2021) TOTAL: Buildings 192,298; Land 133,974 ### Recommendations related to property tax base - Record the number of properties by property type such as residential vs. non-residential; collect more granular data (apartment, dwelling house, retail, office, factory, hotels, etc.). - Reconsider the re-introduction of the property tax on large private sector infrastructure entities such as telecommunications and energy infrastructure. ### Real estate market transparency and readiness for value-based tax - Transparency indicators: - JLL Global Real Estate Transparency Index ranks Romania at 35 out of 99 countries — considered a semi-transparent market. - Evidence of active real estate market in larger urban areas; growing international investor interest in retail and office sectors. - Owner-occupation: - Owner occupation of residential property estimated in the region of 96 percent. - Real property price indices and data flows: - National Institute for Statistics (INS) produces quarterly indices: apartments and dwellings in urban and rural areas, newly constructed dwellings, apartments in Bucharest; national house price index published quarterly by EuroStat. - Notaries public forward transaction data monthly to INS after quality control checks. - Typical notary data: area of building/apartment, area of land/dwelling houses, date of sale, age, construction materials, quality, location, ancillary buildings/garages, heating, floor level (apartments). - Market transaction volumes: - ANCPI reported 538,218 properties sold in 2019 and 602,805 in 2020 (a 12 percent rise). - These sale figures represent around 6 percent of a total estimated residential stock of 9 million. - Figure 10 indicates an increasing trend in property transfers (buildings and land) for 2011–2021. ### Data integration for property taxation and valuation - Two key data components for value-based property tax: - Data on the tax base — stock of properties liable to tax and key characteristics for each property. - Sales transaction data — required to support valuation of the tax base. - Current arrangements and challenges: - Multiple institutions collect and manage property data: national cadaster (spatial and textual data), notaries public (transfers and transaction prices), municipalities (self-declared detailed information). - Databases are fragmented and cannot exchange and share information. - Current property taxes rely heavily on self-declarations by owners (changes in ownership, sale/purchase, size, new construction, refurbishments). - Declaration for property tax is a legal obligation by owners; municipal fiscal cadaster used to levy property taxes operates in parallel to the national legal cadaster. - Integration recommendation: - Leverage the unique cadastral reference number created by the national cadaster for each registered land parcel and building. - Reforms should ensure properties in all databases carry the cadastral reference number, if available, to enable data sharing and integration. *Source: 1rouea2022001 (IMF PDF chapter/section).* ### 107. A remarkable “value” based resource is the “Grid” system that is primarily used by ### Property Valuation and Market Data Systems (sections 107–128) ### The “Grid” system and transaction price data - Description and features of the Grid system: - A “value” based resource primarily used by the Notaries Public with extensive geographic coverage in Romania. - The 15 Chambers of Notaries procure services of authorized valuers to compile the system on an annual basis. - Granular detail: cities, towns, communes divided into zones; lists of streets or parts of streets within zones. - Tables of values for specific property types show prices of apartments detailed by size (m2), number of rooms, quality of construction and age of building. - Provides typical prices to check transaction prices declared by parties on a sale. - Effectively a standalone database of detailed price-related information used primarily to verify property transaction prices for the transfer tax. - The system is open to the public and free and could support other uses (e.g., supporting a self-declared residential property tax). - Importance of transaction price data for value-based property tax: - Transaction price data is fundamental to transitioning toward a value-based property tax. - Need for a systematic process for recording and analysis of market transactions. - Many countries in Eastern and Southern Europe have established property sales price and rental registers drawing data from recognized authorities into separate databases for statistical analysis and development of real estate price indices. - Recommendations (related to transaction data and data sharing): - Make it mandatory that all official databases holding real property information should record the unique cadastral number so that information can be shared among different platforms. - Develop additional protocols for the sharing of data between government entities such as the municipal fiscal cadaster and the national cadaster. ### Sales Price Register (SPR) and Automated Valuation Models (AVMs) - Proposal for Romania: - Consider establishing a Sales Price Register (SPR) based on declared transaction prices. - Allocate the function of establishing and maintaining the SPR to a national government institution; suggestion to consider the National Institute of Statistics. - The SPR would be a separate database with links to the national cadaster and databases held by the notaries. - Multi-purpose uses of SPR data: - Support development of a house price index at national and possibly county levels. - Establish benchmark values for capital gains tax involving real estate. - Provide indicative average prices of residential property at city and county levels. - Automated Valuation Models (AVMs): - AVMs are cost effective and quick solutions for valuation of residential property; adopted by banking and finance industries to speed up mortgage approval. - AVMs require sufficient transactional data to permit development of representative and valid statistical samples. - The International Association of Assessing Officers defines an AVM as a statistically based model producing an estimate of market value based on market analysis of location, market conditions, transaction prices, and real estate characteristics. - Recommendations: - Establish a Sales Price Register within the National Institute of Statistics. - The National Institute of Statistics to consider the development of a residential property based Automated Valuation Model. ### Role of Notaries Public and ANEVAR (key actors) - Notaries Public: - Notaries handle the legal process of land registration and act as an important tax collector for national government. - They collect property transfer tax based on declared transaction price; to guard against under-declaration they use the Grid values: - If declared price is above the indicative grid value, transfer tax is based on declared price. - If declared price is below the grid value, transfer tax is based on the grid value. - Notaries have access rights to the national cadaster to check property registration. - Organization and size: - Notaries organized into Chambers covering Romania: currently 15 Chambers with each covering two to three counties. - Notaries are civil servants appointed by the Ministry of Justice and currently number some 3,000. - National Association of Authorized Valuers in Romania (ANEVAR): - Membership growth and scale: - ANEVAR established in 1992 with around 500 valuer members. - Currently there are some 3,800 individual valuer members and 570 member organizations. - ANEVAR has provided training to over 12,000 individuals. - Legal and standards framework: - Incorporated under Government Ordnance No. 24/2011 which gives authorized valuer status to qualified members. - Adopted the International Valuation Standards (IVS); in 2012 developed Romanian Valuation Standards compliant with IVS. - ANEVAR is a member organization of The European Group of Valuers Association. - Use of valuation services: - Chambers of Notaries request authorized valuers annually to revise Grid values applicable to main types of real property. - Notaries do not share transaction data with valuers; valuers use ANEVAR repository of valuation reports prepared by member valuers. - Market valuation workload in 2020 (Table 17): - Individuals — Number of valuation reports and %: - Financial reporting: 2,989 — 2.8 - Mortgage lending: 49,386 — 46.0 - Legal/Court: 4,644 — 4.3 - Building taxation: 31,110 — 29.0 - Others: 19,286 — 18.0 - TOTAL: 107,415 - Companies — Number of valuation reports and %: - Financial reporting: 5,759 — 4.3 - Mortgage lending: 94,049 — 70.1 - Legal/Court: 1,209 — 0.9 - Building taxation: 14,974 — 11.2 - Others: 18,107 — 13.5 - TOTAL: 134,098 - Source: ANEVAR, 2022 - Standards for building taxation: - Valuations for municipal tax purposes governed by Romanian Valuation Standards including Valuation Guidance Note – GEV 500 – Determination of the Taxable Value of a Building. ### Valuation approach for non-residential buildings - Current valuation standard: - Non-residential buildings are assessed to a value based on construction costs, not market value or “book” value. - Authorized valuers produce cost-based valuation reports to produce a taxable value. - ANEVAR developed cost estimates for some 90 plus types of commercial buildings, including location and transportation costs. - Procedural and frequency aspects: - Mandatory compliance with Romanian valuation standards and Valuation Guidance Note – GEV 500. - Building valuations must be prepared every five years (previously every three years; FC 227/2015 introduced the amendment). - Building owner is responsible to pay for the valuation provided by an authorized valuer. - Quality and uniformity issues: - No evident systematic quality assurance unless municipalities sample check values. - Use of authorized valuers is good practice but multiple valuers across municipalities could produce inconsistent valuation levels. - Not all buildings are valued at the same valuation date, creating lack of uniformity; international practice values all properties at the same valuation date. - Example consequence: two identical buildings could have different assessed values due to being valued at different dates several years apart. - Land valuation: - Land on which buildings are constructed is assessed according to a table of values in the FC and is not part of the building valuation process. - Preferred option: value land and buildings as a single property unit to align with market views and allow application of income approach or discounted cash flow (GEV500 covers this). - Periodicity and international norms: - Non-residential properties revalued every five years under the FC. - International norms suggest revaluation at least every 4–6 years. - Examples of revaluation cycles in other jurisdictions: - Annual: Hong Kong, Singapore, British Columbia (Canada), Queensland (Australia) - Two years: Denmark - Three years: Australia, New Zealand - Four years: Ontario (Canada) - Five years: Malaysia - City of Cape Town: presently on a three-year cycle though law stipulates at least every four years. - Recommendations: - In respect of non-residential property, the land and the buildings constructed on the land should be valued to market value comprising a single property unit. - Non-residential property valuations should be undertaken at the same date of valuation. ### Policy choices in valuation administration - Key question: who should be responsible for valuation when introducing a market value based property tax? - Current context in Romania: authorized valuers undertake non-residential property valuations; the larger issue is residential property valuation. - Options available internationally: - (1) national government; (2) dedicated national government agency; (3) local government valuation department; (4) private sector; (5) self-assessment or -declaration of values; (6) combination of the above. - International examples of primary responsibility for valuation (selected countries, as presented in table format in the source): - Albania — National government — Ministry of Finance - Czech Republic — Local government — National government establish adjustment coefficients - Estonia — National government — National Land Board - Greece — National government — Ministry of Finance - Kosovo — National government — Ministry of Finance - Latvia — National government — State Land Service - Lithuania — National government — National Center for Real Estate Registers - Macedonia — Local government — National government establish adjustment coefficients - Moldova — National government — National Cadastral Agency - Montenegro — Local government — National government establish adjustment coefficients - Poland — Local government — National government establish adjustment coefficients - Serbia — Local government — National government establish adjustment coefficients - Slovenia — National government — Surveying and Cadastral Agency - Slovak Republic — Local government — National government establish adjustment coefficients *Source: Excerpt from IMF PDF chapter sections 107–128.* ### 129. A centralized valuation administration has the following advantages: (1) It improves ### 1rouea2022001 - 129. A centralized valuation administration has the following advantages: (1) It improves ### Valuation administration: centralized — advantages and disadvantages - Advantages of a centralized valuation administration: - It improves the chances that economies of scale will be realized in terms of valuation skills and the use of automated mass appraisal approaches. - It provides a single structure for dealing with all ratepayers throughout the country. - It permits the development of a single information system to support a national valuation. - It improves the quality of valuations through consistent and uniform processes. - A centralized valuation administration can be better equipped in terms of resources to deal with valuation activities that cross regional or local jurisdiction boundaries within the country. - Disadvantages of a centralized valuation administration: - Valuation may become remote from the locality in which the property is located and hence a loss of local knowledge. - Unless there is a local dimension to the valuation department property owners may have considerable distances to travel to meet valuation officials. ### Valuation administration: local — advantages and disadvantages - Advantages of a local valuation administration: - Familiarity with local conditions and better understanding of the local real estate market. - It is easier for property owners to see which government is administering the property rates. - Better transparency in the valuation process through having locally based meetings with property owners. - Disadvantages of a local valuation administration: - The Lack of experienced staff with the requisite valuation skills. - Inability to value all specialized property within the local jurisdiction. - Inability to retain staff resulting in a significant workflow and planning issues. ### Outsourcing valuations to private sector valuers - Outsourcing is common internationally, particularly where local governments lack capacity. - Contracts can cover all properties or specific types of property. - Disadvantage: cost, which can be mitigated if several municipalities collectively contract with one valuation provider (example noted: South Africa). - International examples of specialized municipal valuation firms: Netherlands, South Africa, New Zealand, and the state of Victoria, Australia. ### Romanian municipalities — current capacity and short-term recommendation - Romanian municipalities currently would have no capacity to undertake property valuations. - Allocating valuation responsibilities to municipalities would be difficult; non-residential properties are currently being valued by the private sector. - Municipalities could recruit valuers for in-house valuations; cost could be an issue but "would not be insurmountable." - Short-term recommendation: - The private sector should continue to undertake non-residential property valuation (land and buildings). - Recommendation: The larger municipalities should consider the benefits of an in-house valuation department. ### Reform options for the recurrent property tax in Romania — overall approach - Transition to market value as the basis of the property tax should consider non-residential property separately from residential property. - Support merging land and buildings to comprise a single property unit, providing a single valuation of land and buildings and a single tax rate. - Effect: removal of the need to apply a separate tax rate on land; simplification of administration at the municipal level. ### Options for the valuation reform of residential property - Current status: - Residential property has separate assessments of land and buildings loosely connected to market value. - The residential market treats property as a single property unit; INS residential indices derive from transaction prices giving a single value. - Two principal reform options: 1. Revision of the tables contained in the FC: re-engineer values and adjustment coefficients to align more closely with market realities. Advantages: familiarity and administrative simplicity at municipal level. 2. Move valuations towards adopting market value using specific methodologies; two potential approaches for large numbers of properties: - Self-declaration by owners into value bands. - Statistical approach: CAMA (Computer Assisted Mass Appraisal) — technically most challenging. - Scale of the exercise: - Assessment of some 9 million residential properties would be required to transition to market-value estimates. - Institutional and system requirements: - Significant investment into the design of new systems and development of institutional capacity. - Decision needed whether to revise current table-based approach (easier) or adopt market-oriented methodology (fairer and more transparent). ### Revision of the current assessment methodology — analysis and empirical examples - Key point: Current prescribed residential land and building tax bears little relationship to market value. - Need for detailed analytical study to recalibrate tables and coefficients; annual uplifting by inflation may be insufficient given historically low inflation in the past 3 to 4 years. - Empirical comparisons (Table 19 examples from Cluj-Napoca): - City Center Apartment example (50m2, reinforced concrete, built 5 years ago; Zone A): - Current property tax assessment: 50m2 x 1,000 x 2.5 = 125,000 RON (€25,270) - Adopting average market price: 50m2 x €1,766/m2 = €88,300 - Ratio of assessed to market value: 1:3.5 - Applying tax rates: - Current application: Applying a tax rate of (0.1 per cent) 0.001 x €25,270 = €25 - Adopting market price with tax rate 0.000286 x €88,300 = €25 - Alternatively, applying a tax rate of 0.0005 x €88,300 = €44 - Detached dwelling house example (170m2, land area 400m2, reinforced concrete, built 5 years ago; Zone A): - Current property tax assessment: 170m2 x 1,000 x 2.5 = 425,000 RON (€86,000) - Adopting average market price: 170m2 x €1,766/m2 = €185,000 - Ratio of assessed to market value: 1:2.2 - Implication: significant differences between table-based assessed values and market prices. ### Potential revenue impact from recalibrating assessed values - Observed adjustment factors in Cluj-Napoca: 3.5 for apartments and 2.2 for detached dwellings. - For country-wide extrapolation, authors conservatively halve 3.5 to 1.8 for apartments (given apartments are the most prevalent building stock in cities). - Current recurrent property tax revenue importance in Romania: 0.5 percent of GDP. - Conservatively estimated revenue impact of moving assessed values closer to market values: - Moving assessed property values closer to market values could conservatively yield an additional 0.4 percent of GDP (0.5 percent x 1.8 adjustment factor = 0.9 percent of GDP). [Note: calculation in source text presents 0.5 percent x 1.8 adjustment factor = 0.9 percent of GDP and states the move could conservatively yield an additional 0.4 percent of GDP.] ### Self-declared value banding — rationale, advantages, issues, and timeline - Rationale: - Market value is internationally accepted and homeowners generally have a reasonable sense of market value based on recent sales and published data. - Self-declared banding builds on existing self-declaration practice (owners currently self-declare information used for assessed values for residential buildings and land). - Advantages of self-declaration: - Minimal objections for municipalities to deal with because estimated values are self-declared. - Municipalities bear primarily administrative costs rather than full valuation exercise costs. - Allows assessment of large numbers of properties within a relatively short time frame; "less than 18 months would not be unrealistic." - Municipalities have comprehensive data on owners enabling cross-checking of self-declared returns. - Issues and mitigation: - Key concern: under-declaration. - Minimization: require supporting information with declared value. - Principle: accept declared values but have measures if under-declaration is evident (e.g., if dwelling sold for a price significantly higher than declared value within 2 years of declaration, the additional tax must be paid, plus interest). - Where no declaration is made, municipality could estimate value based on the "Grid" price used by the Notaries Public. - Requirement: permit owners to use multiple sources of market-related information (sale prices, asking prices on estate agents’ websites, property insurance values, recent independent valuations, "Grid" system on Notaries Public website). - Timeline: - A realistic timeline to have a working self-declared banding system would be two years (to pilot test number of bands, band widths, tax rates, and to modify legislation). ### International banding examples and rates - Banding regimes for England, Scotland, and Wales (values in £): - England: - A up to 27,000 - B 27,001 - 35,000 - C 35,001 - 45,000 - D 45,001 - 58,000 - E 58,001 - 80,000 - F 80,001 - 106,000 - G 106,001 - 212,000 - H over 212,001 - I over 424,001 - Scotland: - A up to 40,000 - B 40,001 - 52,000 - C 52,001 - 68,000 - D 68,001 - 88,000 - E 88,001 - 120,000 - F 120,001 - 160,000 - G 160,001 - 320,000 - H over 320,000 - I (blank in table) - Wales: - A up to 44,000 - B 44,001 - 65,000 - C 65,001 - 91,000 - D 91,001 - 123,000 - E 123,001 - 162,000 - F 162,001 - 223,000 - G 223,001 - 324,000 - H 324,001 - 424,000 - I over 424,001 - Box 5: Self-declared Banding Scheme in Ireland — selected details - Introduction: - LPT introduced in 2013; over 1.3 million taxpayers obliged to file LPT Returns and pay tax for around 1.9 million properties. - First valuation date: 1 May 2013 (valuations declared for that date determined tax liabilities for 2013 (half year), 2014, 2015 and 2016). - Next revaluation date was due on 1 November 2016 (for tax years 2017, 2018 and 2019) but was pushed back to 2019 to cover years 2020, 2021 and 2022. - Rates and structure: - Basic rate: 0.18 percent applies up to property values of €1m. - Higher rate: 0.25 percent applies on the portion of value above the €1m threshold. - Local authorities have discretion to vary LPT rates by up to 15 percent. - For assessment, property values structured according to valuation bands of €50,000 in width, with an initial band €0–100,000. - Tax liabilities are calculated by applying the tax rate (0.18 percent) to the mid-point of the band. - Example table (selected entries) — Value Band, Valuation Band Range (€), Mid-Point of Band (€), Annual PT liability (€) @ 0.18%: - 1: 0–100,000; 50,000; 90 - 2: 100,001–150,000; 125,000; 225 - 3: 150,001–200,000; 175,000; 315 - 4: 200,001–250,000; 225,000; 405 - 5: 250,001–300,000; 275,000; 495 - 6: 300,001–350,000; 325,000; 585 - 7: 350,001–400,000; 375,000; 675 - 8: 400,001–450,000; 425,000; 765 - 9: 450,001–500,000; 475,000; 855 - 10: 500,001–550,000; 525,000; 945 - 11: 550,001–600,000; 575,000; 1,035 - 12: 600,001–650,000; 625,000; 1,125 - 13: 650,001–700,000; 675,000; 1,215 - 14: 700,001–750,000; 725,000; 1,305 - 15: 750,001–800,000; 775,000; 1,395 - 16: 800,001–850,000; 825,000; 1,485 - 17: 851,000 - 900,000; 875,000; 1,575 - 18: 900,001–950,000; 925,000; 1,665 - 19: 950,001–1,000,000; 975,000; 1,775 - 20: Over €1m (no mid-point shown) *Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1rouea2022001.pdf* ### 152. Requiring residential owners to self-declare the market value of their property is ### 1rouea2022001 - 152. Requiring residential owners to self-declare the market value of their property is ### Self-declared values and banding systems - Requiring residential owners to self-declare market value is becoming more widespread as an efficient way to deal with large numbers of residential properties. - Successful implementation requires good public relation campaigns and communications on how owners must comply with self-declaration requirements. - International examples: - Great Britain (England, Scotland and Wales) in 1993: some 30 million residential properties were valued using owners’ self-declaration of value. - Republic of Ireland in 2014: introduced a residential property tax based on owners’ self-declared market values for 2 million properties. - Purpose and concept of a property value banding system: - Relies on dividing properties into different value bands according to an estimate of market value for determining a property tax bill. - The process is one of estimation rather than valuation; owners typically can place their property into an appropriate band. - Three key elements of a banded system: the number of value bands, the band widths, and the tax rate per band. - These elements can be modified to examine performance in terms of progressivity. - Design trade-offs: - Balance required between band width and avoiding substantial liability differences between adjacent bands. - Sufficient number of bands allows confident self-placement without disproportionate risk from incorrect placement by one or two bands. - Wider bands ease self-assessment but risk inequities and compliance challenges. ### Self-declaration process, evidence, and compliance risks - Owners are obliged to self-declare the band they believe corresponds to market value. - Acceptable supports for choosing a band include: - (1) recent purchase of the property within last 3 years; - (2) recent valuation of their property such as for a bank loan or other purposes; - (3) recent insurance value of their property; - (4) asking prices of similar properties advertised on real estate agents’ internet sites. - Co-owned property: only one declaration is required. - Compliance and enforcement: - Self-assessment requires honest assessment; if owners follow government guidance honestly the valuation is unlikely to be challenged. - Challenges can be made where deliberate under-valuation has occurred. - Owners are responsible for choosing the correct value band. - If an owner sells and there has been a substantial increase in value beyond the declared value, they could be liable for back tax. - Evidence requirements on sale: - Houses in the capital city selling for more than 25 per cent of their declared values are required to provide evidence to substantiate their original valuation. - The level is set at 15 per cent in the rest of the country. ### Applicability to Romania and implementation considerations - Feasibility in Romania: - Introduction of a banding system for residential property tax purposes in Romania would be implementable. - Supporting infrastructure already in place: comprehensive residential property databases and ownership information at each municipal government. - The “Grid” system used by Notaries Public provides sufficient granular information on residential property prices for owners to estimate property values. - The real estate market for residential property is active, mature, and transparent. - Implementation requirements and risks: - Would require planning and a strong public information campaign. - Detailed revenue modelling is important to measure revenue impact at the individual taxpayer level. - With reform of this scale there inevitably would be “winners” and “losers”; early identification of issues in design is critical. - Value banding would introduce a fairer and more equitable property tax and an element of progressivity. - Key advantage: administrative simplicity and low cost of implementation. - Timeframe: system could be introduced within an 18-month timeframe though advice is to ensure proper and diligent planning. ### Automated Valuation Using Computer-Assisted Mass Appraisal (CAMA) - CAMA overview: - Universally used by many countries (Denmark, Netherlands, Slovenia, Estonia, and Lithuania). - Uses multivariate statistics to estimate real property values. - CAMA components (as listed in source): - (1) Model Specification (the mathematical form of the valuation model or models); - (2) Sales Price and Property Descriptive Data; - (3) Model Calibration (usually a multivariate statistical method); - (4) Calibrated Models (Some function of the input data with model coefficients determined. A mathematical expression for computing a value estimate); - (5) Properties to be valued (property characteristics needed by the valuation model in computer readable form); - (6) Value Estimates. - Additional elements illustrated in source figure: - 1- Model Specification - 2 - Sale Prices and Property Descriptive Data - 3- Income & Expense and Property Description/Economic Data - 4 - Model Calibration Software - 5 - Calibrated Models - 5 - Properties to be Valued - 7 - Valuation Software - 8 - Value Estimates - Benefits and data requirements: - Core is an integrated database of properties rather than separate data silos; requires decisions on how to match or join parcel data with other sources lacking parcel references. - Integrated database affords operational efficiencies and higher data integrity. - Statistical models can be applied to large numbers of properties; calibration techniques largely rely on multiple regression analysis. - Requires specific characteristic data on the population of properties and transaction data; models built on transaction data are tested and then applied to the population. - Implementation challenges and timelines: - Development of a CAMA solution would take several years (Slovenia cited as an example). - Degrees of complexity and cost constraints may put the approach beyond resources of small municipalities; national government or larger municipalities more likely developers. - Municipalities in Romania currently have no experience in development and application of such methodologies; building technical capacity would take several years. - Appeals and dispute handling: - Application of CAMA will bring opportunities for taxpayers to lodge objections and appeals to assessed values. - Rule of thumb: following valuation of all properties within a jurisdiction some 2 to 5 percent would be subject of an appeal. - Costs involved in handling appeals include legal fees, valuer fees and court costs. - Introducing a market-value based property tax with government estimates would require an appeal system following international best practice characteristics: - (1) Independence from those whose decisions are being reviewed; - (2) Timeliness and proportionality; - (3) Process of informal hearing to attempt resolution; - (4) Comprehensive non-technical information about the process; - (5) Non-adversarial hearings not too daunting or legalistic; - (6) Consistent and comprehensible decisions; - (7) Good value to the taxpayer. - A CAMA solution for residential property is feasible but would require significant institutional reforms, large investment in technology and human resources, and would take several years to implement. - Given constraints, the mission proposes the self-declared value banding system for Romania as a more immediate solution. ### Recommendations (as stated in source) - Conduct analytical studies to calibrate more closely to the market the value tables and adjustment coefficients contained in the Fiscal Code. - Evaluate the potential of introducing a value banding for the residential property tax. - Consider the option of Romanian residential property owners self-declaring the band they believe corresponds to the market value of their property. *Source: Excerpt from internal IMF chapter on residential property valuation and taxation (content unit 1rouea2022001 - pages 152–71).* --- _Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1rouea2022001.pdf_