## How to Design and Implement Property Tax Reforms — Introduction (How to Note NOTE/2024/006)

## Source details

**Canonical URL:** [How to Design and Implement Property Tax Reforms — Introduction (How to Note NOTE/2024/006)](https://www.imf.org/-/media/files/publications/howtonotes/2024/english/htnea2024006.pdf)

## Other formats

- [Markdown version](/-/media/files/publications/howtonotes/2024/english/htnea2024006.pdf.md)
- [Structured JSON version](/-/media/files/publications/howtonotes/2024/english/htnea2024006.pdf.json)

---

### Overview and motivation
- Property taxes covered: recurrent tax on immoveable property and real property transfer tax.
- Observed revenue-to-GDP benchmarks (2021 or cited aggregates):
  - Sub-Saharan Africa and Emerging Asia: 0.1 percent of GDP in 2021.
  - Europe: 1 percent of GDP.
  - United States: 3 percent of GDP.
  - OECD: 1.4 percent of GDP.
- Reasonable policy target: between 1 and 2 percent of GDP in property tax revenues.
- Long-run buoyancy estimate (OECD): 1.048.
- Recurrent property-tax revenues generally dominate revenues from financial and capital transactions, with regional exceptions.

### Key barriers to property tax productivity (findings)
- Low coverage of taxable properties.
- Inaccurate property assessments and tax bills.
- Weak tax administration capacity.
- Paper-based record-keeping facilitating data falsification.
- Static property assessments that reduce buoyancy in non-OECD countries.

### Technological and administrative opportunities
- Digital cadasters, GIS, aerial/satellite imagery to identify parcels/buildings, register ownership, and map to fiscal cadaster.
- Electronic tax filing and payment to improve collections and administration.

### Reform design principles and sequencing (policy guidance)
- Structural reforms should be comprehensive and preceded by wide stakeholder consultations.
- Review intergovernmental fiscal transfer systems to incentivize subnational governments to exploit own-source revenues.
- Bundle property tax reforms with reduction of capital transfer duties and necessary changes to intergovernmental transfers for synchronized fiscal decentralization.
- Central government must support devolution of tax and spending powers when reforms increase municipal revenue autonomy.
- Incentivize local governments through reduced shared-tax allocations over time or grants that reward better municipal tax collection.

### Communication and distributional framing (policy guidance)
- Emphasize fairness: owners of multiple properties contribute; use means-tested exemptions and deferrals to protect low-income households and those with cash constraints.
- Communicate potential social benefits (for example, softened property prices aiding first-time buyers).
- Expose multiple exemptions that circumvent payment for local public services.

---

### Recurrent property tax — rationale and characteristics
- Well-designed, properly administered recurrent property tax can mobilize revenues fairly and efficiently.
- Market-value–assessed recurrent taxes link payments to local services via capitalization of local service quality into property values.
- Considered progressive because property ownership correlates with wealth; less distortive to labor supply due to immobility of real estate.
- Immeasurably suited for local government finance because of immobile tax base.

### Tax base approaches (findings and guidance)
- Value-based assessments:
  - Rely on market transactions; preferred where property markets are efficient and valuation capacity exists.
  - Advantages: fairness and buoyancy.
- Area-based assessments:
  - Refer to land area (m2 or acre) and/or building area (m2 of floor or usable area).
  - Simpler and suitable where land markets or valuation capacity are weak.
- Unit-area tax rates (rate/m2) can be adjusted for location, property use, and physical characteristics.
- Flat tax per property (no adjustments) is less common; may be used when parcel or value information is unavailable.
- Market-value approaches capture buoyancy during urban growth; area-based systems require statutory rate adjustments or revenues will stagnate.
- Hybrid systems: area-based assessments improved through multiplicative adjustments to approximate market values.

### Equity and incidence considerations
- Simple area-based systems can create equal tax burdens for different-quality dwellings of the same size; adjustments improve horizontal and vertical equity.
- Incidence:
  - Short run: taxes on land and structures borne by owners.
  - Long run: taxes on structures may discourage new construction and repairs; residential taxes can shift via rents.
- Regressivity concerns addressed through relief schemes and targeted income transfers.

---

### Area-based assessments and transitional solutions
- Area-based assessments suitable as interim solutions where valuation capacity is lacking.
- Hybrid approaches apply coefficients to unit-area values to approximate market values.
- Unit-area methods require surface-area data; satellite imagery and GIS cadasters help determine covered/built-up areas.
- Basic unit-area values can be derived from studies of typical sale or rental prices per m2 across homogeneous neighborhoods.

### Example: India’s adjusted area-based system (illustrative practice and parameters)
- Annual value formula:
  - Annual value = unit-area value X covered/built-up area X multiplicative factors.
- Unit-area values by eight value zones (A to H) with category D base unit-area value of 320 Rupees per m2:
  - Category A: Rupees 630/m2
  - Category B: Rupees 500/m2
  - Category C: Rupees 400/m2
  - Category D: Rupees 320/m2
  - Category E: Rupees 270/m2
  - Category F: Rupees 230/m2
  - Category G: Rupees 200/m2
  - Category H: Rupees 100/m2
- Multiplicative factors: occupancy (self-owned or rented), age and use (residential vs non-residential), quality or structure.
  - For categories E to H factors < 1.0; for categories A to C factors > 1.0.
- 2011 tax rates on annual value of vacant land or covered space for residential property:
  - 10 percent for categories A to E
  - 6 percent for categories F to H
- 2011 rate for nonresidential property: 10 percent for all categories.
- Example calculation (owner-occupied business property):
  - Property: owner-occupied 200 m2 business property of good-quality material built in 1995.
  - Unit-area value: 500 rupees/m2.
  - Multipliers: 1.0 (owner-occupied) × 1.0 (quality) × 0.9 (age) × 4.0 (use).
  - Tax rate: 10%.
  - Computation: 500 × 200 × [1.0 × 1.0 × 0.9 × 4.0] × tax rate of 10% = 36,000 rupees.

---

### Value-based assessment: standard valuation methods
- Comparable sales method: uses recent sales of comparable properties.
- Cost method: land value + replacement cost of construction less depreciation; used for utilities, linear properties, industrial properties rarely sold.
- Income method: expected annual net rental income capitalized by discount rate; used for commercial properties when market transactions are insufficient.
- Forest/agricultural/mineral valuations: productivity values, commodity prices, or discounted cash flow analysis as applicable.

### Legal and administrative features of value-based systems
- Valuation standards typically defined in property tax or valuation law (examples cited).
- National law may provide a uniform tax base in some countries; local choice of tax base exists in others.
- Revaluation guidance:
  - Uniform valuation within a jurisdiction is essential.
  - Assessments should be updated periodically (ideally annually) but annual appraisal realistic only with computer-aided mass appraisals.
- Political economy:
  - Periodic value updates provoke owner resistance and demand for transition rules.
  - Discounted market value appraisals sometimes used (example: Slovenia initially calculated property tax on 70–75 percent of market value).
  - Clear communication (for example, property tax information fliers) can enhance acceptance.

### Capital value versus rental value approaches
- Rental-value assessment: assesses annual rent and may assume a percentage as taxable base; reflects current use.
- Capital value assessment: reflects value in highest alternative or best use and can tax unrealized gains.
- Rationale for rental value: analogy with income taxes on rental income.

### Capital value taxation: taxable object types and practice
- Four types: capital-improved value; unimproved land value; two separate taxes on land and improvements; tax on buildings only.
- Majority assess on capital-improved value; examples of practice and simplified band systems cited.
- Split-rate systems: separate land and building valuations; can apply higher tax rates to land to encourage development.

### Land-value tax and building-only taxes
- Land-value tax: requires less data than capital-improved value; zoning and limited vacant-land sales complicate valuation; excluding buildings narrows base and requires higher statutory rates.
- Building-only tax: used when land taxation infeasible; building valuation uses construction costs adjusted for depreciation and is more complex/time-consuming.

### Tax rate setting: authority and design
- Local rate setting promotes political accountability; central restrictions common to limit tax competition.
- Cross-country variation in rate-setting autonomy exists (examples provided).
- India example: 15th Finance Commission required States to notify floor property tax rates and property tax revenue growth pre-conditions for grants.

### Flat versus graduated rates, property-type differentiation
- Progressive/graduated rates used in some jurisdictions (examples provided).
- Differentiation by property type common; higher rates on non-residential properties in many jurisdictions.
- If municipal services equivalent, no differentiation favoring residential properties is justified; market valuations reflect ability-to-pay.
- Risks: differential rates create incentives to reclassify use or values.

### Surtax on undeveloped or vacant land
- Higher rates or surtaxes on vacant/unimproved land used in Brazil, Namibia, Senegal, Venezuela.
- Example: Windhoek applies building penalty clause imposing higher tax on vacant lots that stay undeveloped.
- Effectiveness depends on clear definition of “vacant”; ambiguous definitions invite abusive planning.

### Level of rate and international context
- Market value–based property tax rates typically range from 0.5 to 2 percent but are higher for land-only systems.
- Local governments often set ad valorem rates residually to balance budgets.
- Affordability check: express property tax charge as multiple of annual motor vehicle license fee.
- United States reference: property tax payments account for about 3 percent of household income across most income percentiles.

### Exemptions and other tax reliefs
- Relief should be restricted to narrowly defined criteria (diplomatic missions, multilateral orgs, merit uses like schools/churches).
- Alternatives to full exemption: transparent grants or discounted “service charge” (example: Bangalore where charge raises 25 percent of the property tax and applies to all exempt properties except places of worship and homes for the destitute).
- State-owned entities often exempt; some countries require central governments to compensate equal to tax forgone (examples cited).
- Widespread relief for newly developed/renovated residential properties common in parts of Africa with exemption durations:
  - five to 10 years in Angola
  - five years in Benin, Equatorial Guinea, Madagascar, and Morocco
  - three years in Gabon
  - two years in Niger, Chad, and São Tomé and Príncipe
- Concerns with long-term exemptions: narrow tax base, higher taxes on older stock, sizable subsidies to homeowners, inequitable to tenants, difficult to administer, little evidence of encouraging vacant land development.
- Hardship relief examples: value threshold for market-value tax (South Africa); relief above threshold should be means tested or case-by-case.
- Tax deferral: addresses liquidity problems for “asset-rich, cash-poor” taxpayers; arrears due in full when property is alienated; internationally reserved for elderly or exceptional circumstances (examples: British Columbia in Canada and North Carolina in the US).

### Policy advice (property tax design and relief)
- Local authorities with little transaction evidence or valuation capacity: consider simplified area-based valuation approaches with adjustments for location, age, quality, use, and utility access.
- Promote local fiscal autonomy: allow flexibility to select property tax rate within centrally determined narrow range.
- Prefer flat rate for all properties, unless service differentials justify differentiation.
- For vacant urban land surtax: (1) identify vacant urban land and its surface-area trend; (2) analyze reasons for trend before tax response.
- Severely limit exemptions/holidays; ideally means-tested and reviewed annually.
- Tax deferment schemes for asset-rich/cash-poor taxpayers can lessen cash impact; ensure arrears become due in full when property is alienated.

---

### Transaction taxes on real estate
- Property transfer tax (stamp duty) applied when statutory title transfers; legal liability may rest with buyer, seller, or both.
- Many countries raise significant revenues from transfer taxes; in several countries transfer duties dwarf recurrent property tax revenues.
- Out of 38 OECD countries, 30 levy transfer duties or transaction taxes on market value of the property.
- Advantages:
  - (1) tax base is purchase price (visible/accurate);
  - (2) payable when taxpayers have more liquidity;
  - (3) buyers incentivized to report transactions for legal documents and capital gains base cost;
  - (4) high compliance rates and low administrative cost;
  - (5) face less political resistance than recurrent property taxes.
- Drawbacks:
  - (1) reduce transactions and mobility;
  - (2) encourage underreporting of prices;
  - (3) lead to evasion through non-reporting.
- Policy advice:
  - Maintain transfer tax as acceptable alternative until an easier-to-administer recurrent tax is established.
  - Revenue service should automatically notify central property registry when transfer tax paid.
  - Integrate databases to enhance interoperability and capture transaction values from realizations, disposals, gifts, inheritances.
  - Centralize administration of capital gains, income, and transfer taxes to support cost-effective value verification.
- Empirical considerations:
  - High transfer tax rates require anti-avoidance laws, market value monitoring, and penalties for avoiding registration.
  - Ensure outstanding property taxes are paid before new title registration is certified.
  - Collection and verification of realized values inform valuation roll updates.
  - Transfer taxes are best collected by national revenue authority where administrations cannot verify large-scale market values.

---

### Property tax administration (Box 2 and administrative guidance)
- Property Tax Revenue identity:
  - Property Tax Revenue Collected = Tax Rate x Legal Base x Valuation Ratio x Coverage Ratio x Collection Ratio
  - Definitions and equivalent form:
    - RC = (t × B)(V × C × E)
- Illustrative current scenario assumptions and calculation:
  - Coverage Ratio = 0.75
  - Valuation Ratio = 0.60
  - Collection Ratio = 0.45
  - Efficiency Level (AE) = 0.20
    - AE = 0.75 * 0.60 * 0.45 = 0.20
- Improvement scenarios (examples):
  - Scenario 1:
    - Coverage Ratio = 0.85
    - Valuation Ratio = 0.70
    - Collection Ratio = 0.55
    - Efficiency Level = 0.33
    - Efficiency increase relative to current: 65 percent (= 100 x 0.13/0.20)
  - Scenario 2:
    - Coverage Ratio = 0.95
    - Valuation Ratio = 0.90
    - Collection Ratio = 0.85
    - Efficiency Level = 0.73
    - Efficiency increase relative to current: 265 percent (= 100 x 0.53/0.20)
- Observations:
  - Multiplicative nature means the weakest ratio (for example, collections) drives AE; if any ratio = zero, AE = 0.

### Empirical ranges and administrative emphasis
- Collection ratios in African countries: range between 20 and 80 percent.
- Valuation ratios in developing countries: observed from 20 to 80 percent.
- Coverage ratios: observed from 20 to 70 percent.
- Study of 37 Latin American cities: coverage ratio range about 20 to 95 percent and an average of 67 percent.
- OECD countries: coverage and collection ratios close to 100 percent; low- and middle-income countries estimated average coverage 40 to 60 percent and collection 30 to 60 percent.
- Policy implication: improving administration (coverage, valuation, collection) tends to eclipse policy choices for raising yield and buoyancy.

### Coverage: cadaster, mapping, and data sharing
- Fiscal cadaster required for property tax administration; legal cadaster not prerequisite for imposing property tax.
- Data sharing protocol recommended: land titling/deeds office records transaction values and shares with fiscal/legal cadasters.
- Use satellite imagery and geo-referencing linked to unique property ID to improve coverage, followed by door-to-door surveys to collect property characteristics and integrate with GIS coordinates.

### Assessment arrangements and automated valuation (CAMA)
- Valuation responsibilities options: national government; dedicated national agency; local valuation department; private sector; self-assessment; combinations.
- Centralized valuation: economies of scale, consistent processes.
- Local valuation: familiarity with local markets, transparency.
- Outsourcing to private valuers common where local governments lack capacity; collective contracting across municipalities improves cost-effectiveness.
- CAMA components listed; integrated property database critical; development takes several years; expect 2 to 5 percent of valuations may be subject to appeals.

### Self-declared value-banding and Sales Price Registers
- Self-declared value-banding cheaper than individual market-value assessments; owners self-identify band; safeguards include supporting documentation and anti-undervaluation measures (for example, additional tax plus interest if sold at significantly higher price within two years).
- Realistic timeline to implement self-declaration banding system: two years (allow pilot testing).
- Sales Price Register (SPR): maintain declared transaction prices at national level linked to cadaster; supports house price index, capital gains benchmarks, indicative average prices, and CAMA development.

### Billing, collections, enforcement, and institutional design
- Enforcement tools: restraint on transfer of tax-delinquent property, clearance certificates, civil action, garnishment of wages, attachment of bank accounts, attachment of rent, action against occupiers, tax liens, seizure of goods, forfeiture.
- Payment facilitation: installment systems (monthly as in Namibia and South Africa) improve compliance.
- Institutional considerations:
  - Local billing/collection/enforcement promotes autonomy but enforcement powers often constrained; recommendation to recentralize enforcement until local capacity improved (examples: Rwanda, Tanzania, the Gambia, Republic of Srpska).
  - Utility bills can carry property tax charges to reach occupiers (example: Greece charges municipal property tax via electricity bills).
- Sequencing and political economy:
  - Prioritize collection-led strategy even before modernizing design.
  - In developing countries, major constraint is collection and enforcement; diagnose causes, identify interventions, and build collection capacity.
  - Revaluation and tax roll expansion should follow improved collection and enforcement.

---

### Select practices to improve property tax collections (Box 3)
- Main reasons for compliance gaps and corrective packages:
  - Inadequate accountability and misappropriation:
    - Measures: improve public finance management, regular audits, hold accounting officers accountable, improve transparency linking raised taxes to local improvements, public consultations, visible messaging (billboards, citizens’ guides).
  - Unfairness from outdated information or excessive relief:
    - Measures: continuous capture of transaction evidence, interoperable information platforms, update fiscal cadasters for additions/improvements, tax expenditure reporting, simple objection and appeals process.
  - Cashflow problems from lumpiness of payments:
    - Measures: installment options (monthly/quarterly), online/mobile payments, reduce queuing and physical cash payments.
  - Lack of enforcement/high compliance costs:
    - Measures: issue monthly invoices, public reminders, levy late fees with interest, require property tax clearance certificates for sale registration and motor vehicle license renewal, garnishing orders, seizure/auction of movable goods, tax liens, freeze bank accounts, rationalize use of courts and collection agencies.

### Implementation advice (valuation, coverage, billing, enforcement)
- Valuation and coverage:
  - Calculate property tax revenues per capita by municipality and compare to revenue potential to identify weak links.
  - Use drones/satellite imagery to compile fiscal cadaster.
  - Land titling office to record transaction values systematically and share with fiscal/legal cadasters.
  - Apply CAMA for many properties without site inspection.
  - Consider value banding with self-declaration for residential tax.
  - Ensure sufficient taxation bands and anti-undervaluation measures; establish Sales Price Register in national statistical office.
- Billing and enforcement:
  - Split national/subnational administration: central cadastral registration and coordination; local billing/collection/enforcement.
  - Assign unique property identification numbers and ensure registry interoperability.
  - Require property tax payment-clearance certificate before new property title registration.
  - Issue more frequent installment bills and develop invoice delivery/follow-up strategies.
  - Payments via banking or mobile networks with minimal compliance burden.
  - Prioritize collection-led administrative reform before design modernization; initially focus on collecting from relatively small number of high-end residential and commercial properties.

### Conclusions
- Recurrent property taxes should feature more prominently in domestic resource mobilization.
- Levied on a broad base, they have potential to contribute 1 to 2 percent of GDP in revenues.
- Taxing immovable property is redistributively optimal: captures wealth from construction-intensive urbanization capitalized in rising land values.
- Using revenues to finance improved local public services enhances accountability and political acceptability if properly communicated.
- Advances in information technologies and simplified valuation options can facilitate administration in capacity-challenged countries.
- Note provides guidance on policy choices regarding tax base and rate, and key administrative functions: valuation, billing, enforcement.

*Source: IMF | How to Note 6 (excerpt provided in content unit).*

### Introduction _________________________________________________________________  1

### Introduction

### Overview and motivation
- Property taxes include taxes payable on the use, ownership, or transfer of wealth; this note focuses on the recurrent tax on immoveable property and the real property transfer tax.
- Significant scope exists to increase property tax revenues, especially in developing countries:
  - Sub-Saharan Africa and Emerging Asia: 0.1 percent of GDP in 2021.
  - Europe: 1 percent of GDP.
  - United States: 3 percent of GDP.
  - OECD: 1.4 percent of GDP.
- A reasonable target for property tax revenue-to-GDP is between 1 and 2 percent.
- Long-run buoyancy estimate for property tax revenue in OECD countries: 1.048.
- Recurrent property-tax revenues generally dominate revenues from financial and capital transactions (including levies on real estate sales), though there are regional exceptions.

### Key barriers to property tax productivity (findings)
- Low coverage of taxable properties.
- Inaccurate property assessments and tax bills.
- Weak tax administration capacity.
- Paper-based record-keeping facilitating data falsification.
- Static property assessments that reduce buoyancy in non-OECD countries.

### Technological and administrative opportunities
- Advances in digital mapping technologies (digital cadasters, GIS) and aerial/satellite imagery can:
  - Identify property parcels and buildings.
  - Register ownership.
  - Map geographic location to a central fiscal cadaster.
- Electronic tax filing and payment can improve collections and administration.

### Reform design principles and sequencing (policy guidance)
- Structural reforms should be comprehensive and preceded by wide stakeholder consultations.
- Review intergovernmental fiscal transfer systems to incentivize subnational governments to exploit own-source revenues.
- Bundle property tax reforms with:
  - Reduction of capital transfer duties.
  - Changes to intergovernmental transfers necessary to finance synchronized fiscal decentralization.
- Central government must support devolution of tax and spending powers when reforms increase municipal revenue autonomy.
- Incentivize local governments through reduced shared-tax allocations over time or grants that reward better municipal tax collection.

### Communication and distributional framing (policy guidance)
- Highlight fairness: property taxes can improve distributional fairness by making owners of multiple properties contribute.
- Emphasize means-tested exemptions and deferrals to protect low-income households and those with cash constraints.
- Communicate potential social benefits (e.g., softened property prices aiding first-time buyers).
- Expose current multiple exemptions that circumvent payment for local public services.

---

### Recurrent Property Tax

### Rationale and characteristics
- A well-designed and properly administered recurrent property tax can mobilize revenues fairly and efficiently.
- Recurrent property taxes assessed on market values provide a link between payments and local services (capitalization of local service quality into property values).
- The tax is commonly regarded as progressive because property ownership correlates with wealth, and it is relatively less distortive to economic growth than labor taxes due to immobility of real estate.
- The immobile tax base makes recurrent property tax well suited for local government finance.

### Tax base approaches (findings and guidance)
- Two widely used approaches to assess property values:
  - Value-based assessments: rely on market transactions; preferred where property markets are efficient and valuation capacity exists—advantages: fairness and buoyancy.
  - Area-based assessments: refer to land area (m2 or acre) and/or building area (m2 of floor or usable area); simpler and suitable where land markets or valuation capacity are weak.
- Unit-area tax rates (rate/m2) can be adjusted for location, property use, and physical characteristics (construction materials, age).
- A flat tax per property with no adjustments is less common but may be used when parcel or value information is unavailable.
- Market-value approaches better capture buoyancy during urban growth; area-based systems require statutory rate adjustments to reflect inflation and market appreciations or revenues will stagnate.
- Area-based assessments can be improved through adjustments (a “hybrid” system) to approximate market values.

### Equity and incidence considerations
- Simple area-based assessments can create equal tax burdens for very different-quality dwellings of the same size; adjustments improve horizontal and vertical equity.
- Recurrent property tax incidence:
  - In the short run, taxes on land and structures are borne by owners; over the long run, taxes on structures may discourage new construction and repairs.
  - Residential property taxes may face shifting incidence via rents in the long run; regressivity concerns should be handled through relief schemes and targeted income transfers.

---

### Area-Based Assessments and Transitional Solutions

### Role as interim approach
- Area-based assessments are suitable as interim solutions in countries lacking valuation capacity.
- Hybrid approaches apply coefficients to unit-area values to better approximate market values.

### Practical implementation and data needs
- Unit-area methods simplify valuation and rely on surface-area information, which is often more available than market values.
- Basic unit-area values for municipal zones can be derived from studies of typical sale or rental prices per m2 across homogeneous neighborhoods.
- Effective systems require minimization of exemptions and reliable surface-area measurement; satellite imagery and GIS cadasters help determine covered/built-up areas.

### Example: India’s adjusted area-based system (Box 1) — illustrative practice and parameters
- New Delhi and Ahmedabad introduced an adjusted area-based system as a short- to medium-term alternative to market valuation that enables self-reporting.
- Buoyancy is maintained through regular revision of multiplicative factors/coefficients for property attributes (location, age, residential vs. non-residential use, occupancy).
- Annual value formula:
  - Annual value = unit-area value X covered/built-up area X multiplicative factors.
- Unit-area values refer to eight value zones (A to H) with category D as the base unit-area value of 320 Rupees per m2.
  - Category A: Rupees 630/m2
  - Category B: Rupees 500/m2
  - Category C: Rupees 400/m2
  - Category D: Rupees 320/m2
  - Category E: Rupees 270/m2
  - Category F: Rupees 230/m2
  - Category G: Rupees 200/m2
  - Category H: Rupees 100/m2
- Multiplicative adjustment factors include occupancy (self-owned or rented), age and use of building (residential vs non-residential), and quality or structure.
- For categories E to H multiplicative factors of less than 1.0 are used; for categories A to C factors greater than 1.0 are used.
- The 2011 tax rates on the annual value of vacant land or covered space for residential property:
  - 10 percent for categories A to E
  - 6 percent for categories F to H
- For nonresidential property the 2011 rate was 10 percent for all categories.
- Data requirements for the unit-area method are less than for a value-based approach; additional property characteristics can be incorporated to better approximate market value.
- Indian cities created fiscal cadasters with GIS-mapped, geo-referenced self-declared property tax returns and used the system to generate automatic notices to properties with blank tax returns.

---

*IMF | How to Design and Implement Property Tax Reforms — Introduction (How to Note NOTE/2024/006)*

### 1.0 Pucca 1.0 After 2000 1.0 Medical institutions,

### 1.0 Pucca 1.0 After 2000 1.0 Medical institutions,

### Example calculation: owner-occupied business property
- Property: owner-occupied 200 m2 business property of good-quality material built in 1995.
- Unit-area value: 500 rupees/m2.
- Multipliers: 1.0 (owner-occupied) × 1.0 (quality) × 0.9 (age) × 4.0 (use).
- Tax rate: 10%.
- Computation: 500 × 200 × [1.0 × 1.0 × 0.9 × 4.0] × tax rate of 10% = 36,000 rupees.

### Value-based assessment: standard valuation methods
- Comparable sales method: uses observed recent sales prices of comparable properties.
- Cost method: sum of the value of the land and estimated replacement cost of the construction (as new) less depreciation; sometimes used for public utilities and linear properties or industrial properties that are rarely sold.
- Income method: expected annual net rental income capitalized by applying a discount rate to estimate net present value; used for commercial properties when market transactions or comparable data are insufficient.
- Note: Forest, agricultural land, and mineral reserve valuations often use productivity values, commodity prices, or discounted cash flow analysis as applicable.

### Legal and administrative features of value-based systems
- Valuation standards are typically defined in property tax or valuation law (examples: “market value” or “assessed value”).
- National law may provide a uniform tax base (examples cited include Brazil, Estonia, Indonesia, the Philippines, South Africa, and Zambia).
- Local choice of tax base exists in some countries (examples: Australia, Kenya, Malaysia, Namibia, and New Zealand).
- Revaluation guidance:
  - Uniform valuation within a jurisdiction is essential.
  - Assessments should be updated periodically (ideally annually) but annual appraisal is realistic only if supported by computer-aided mass appraisals.
- Political economy:
  - Value-based assessments can be contested; each periodic value update may provoke owner resistance and demand for transition rules.
  - Discounted market value appraisals are sometimes used (example: Slovenia initially calculated property tax on 70–75 percent of market value).
  - Clear communication (for example, in property tax information fliers) about discounted appraisal values can enhance acceptance.

### Capital value versus rental value approaches
- Rental-value assessment: assesses annual rent the property would command and may assume some percentage as taxable base; reflects current patterns of property use.
- Capital value assessment: tends to reflect value in highest alternative or best use and can tax unrealized gains in value.
- Rationale for rental value: by analogy with income taxes on rental income.

### Capital value taxation: types of taxable objects
- Four types:
  1. Capital-improved value (collective value of land and improvements).
  2. Unimproved land value or site value (land as if unimproved).
  3. Two separate taxes: land and improvements as separate taxable objects.
  4. Tax on buildings only (ignoring land value).
- Practice:
  - Majority of countries assess on capital-improved value.
  - Improved-capital value common in Canada, Germany, Finland, Italy, New Zealand, and the United States; also in Argentina, Brazil, Malaysia, and South Africa.
  - Value bands as a simplified system: example Great Britain’s Council Tax with eight value bands and a 1:3 ratio of tax liabilities between bottom and top.
  - Ireland: value-band based property tax implemented in 2013, applying a uniform local tax rate to the mid-point of each band and an additional marginal rate on properties valued over €1 million.
  - Split-rate systems (separate land and building valuations) used in Denmark, Grenada, Namibia, and some U.S. states; can apply higher tax rates to land to encourage development.

### Land-value tax and building-only taxes
- Land-value tax: based on the “unimproved value of land.”
  - Requires significantly less data than capital-improved value.
  - Zoning regulations must be considered when determining market value of land.
  - Limited sales of vacant land can complicate comparable-sales valuation.
  - Excluding buildings narrows the tax base and requires higher statutory tax rates to generate meaningful revenues.
- Building-only tax:
  - Option where land taxation is politically or culturally infeasible.
  - Building values often determined from building costs adjusted for depreciation.
  - Valuation of buildings is more complex, time-consuming, and costly than land valuation.

### Tax rate setting: authority and design
- Local setting: allowing local authorities to set property tax rates promotes local political accountability; local authorities often responsible for property tax proceeds and administration.
- Central restrictions: central governments commonly restrict local rates to a statutory range to minimize tax competition and exportation of tax burdens; an upper limit may be used to restrict municipal spending growth.
- Cross-country variation in rate-setting autonomy:
  - Centrally determined rates: Algeria, Cameroon, Egypt, Rwanda.
  - Local discretion with central approval: Botswana.
  - Local autonomy within prescribed minimum and maximum: Uganda, Madagascar.
  - In Asia, central government commonly sets statutory rate ranges.
  - India and Malaysia: local prerogative for rates with central government conditions; for India the 15th Finance Commission required States to notify floor property tax rates and property tax revenue growth pre-conditions for grants.

### Flat versus graduated rates, property-type differentiation
- Progressive/graduated rates:
  - Taxing higher-valued properties at higher statutory rates used for progressivity in Singapore, Guatemala, Morocco.
  - Progressive rates may be applied to total value of multiple land holdings in countries like Peru and Ecuador.
  - In developing countries, graduated rates compromise simplicity and transparency and complicate residual local budget finance.
- Differentiation by property type:
  - Many jurisdictions apply higher property tax rates on non-residential properties (examples: Australia, Canada, India, Liberia, Pakistan, South Africa).
  - Some countries apply lower rates for selected industries (for example, manufacturing and tourism).
  - If municipal services are equivalent, no rate differentiation in favor of residential properties is justified.
  - Market valuations tend to reflect ability-to-pay, making discriminatory rates potentially superfluous.
  - In simplified value- or area-based systems some differentiation may be appropriate to compensate for under-valuations of high-end properties.
- Risks:
  - Differential rates or classifications create incentives for taxpayers to reclassify use or values to exploit lower rates.

### Surtax on undeveloped or vacant land
- Common practice: higher property tax rate or surtax on vacant or unimproved land used in Brazil, Namibia, Senegal, Venezuela.
- Example: Windhoek (capital of Namibia) applies a building penalty clause imposing a penal or much higher tax rate on vacant lots that stay undeveloped.
- Policy purpose: deter land hoarding by speculators and reduce urban sprawl; politically more palatable than outright regulatory prohibitions.
- Implementation caveat: effectiveness depends on clear definition of “vacant”; ambiguities invite abusive tax planning (e.g., erecting a structure that looks developed to avoid surtax).

*Italic: Source: IMF | How to Note 6 (excerpt provided in content unit).*

### 37. In Rwanda, the property tax rates for commercial and industrial properties are lower than for residential properties

### 37. In Rwanda, the property tax rates for commercial and industrial properties are lower than for residential properties

### Rate differentiation and assessments
- Implicit rate differentiation occurs when a jurisdiction sets a uniform statutory tax rate but applies different discounts to market values (that is, when assessments of property values are purposefully below 100 percent of market values).
- This implicit approach is less transparent for taxpayers than assessing all properties at a uniform rate (100 percent or some lesser percentage) while varying the statutory tax rates.

### Vacant land and surtaxes
- Definition: In its simplest meaning, “vacant land” can be defined as “land that has no buildings on it and is not being used.”
- The imposition of a higher property tax rate or surtax on vacant land should apply only to speculative land holdings, including land sterilization (that is, restrictions to prohibit improvements) by the corporate sector for purposes of future expansion plans.
- Other vacant land holdings due to unattractive physical characteristics or uncertain/overlapping land use or ownership rights should not attract a higher tax burden until legal uncertainties are regularized.
- Reasons for urban unimproved land include: irregularly shaped remnants, adverse topography, corporate holdings for future development, institutional sterilization for public infrastructure, insecure property rights, and unimproved land held for speculation.

### Level of rate and international context
- Market value–based (land and improvements) property tax rates typically range from 0.5 to 2 percent but are higher for land-only systems.
- Local governments often set their ad valorem property tax rates residually to balance budgets after accounting for projected expenditures and other revenue sources (such as user fees and transfers).
- If an area-based property tax system is adopted, the rate is in units of, say, €/m2.
- A simple affordability check is to express the property tax charge as a multiple of the annual motor vehicle license fee (circulation tax) or another common expenditure item.
- As a reference point, in the United States property tax payments account for about 3 percent of household income across most income percentiles.

### Exemptions and other tax reliefs
- Tax relief should be restricted to properties meeting narrowly defined criteria (for example, reciprocal tax privileges for diplomatic and consular offices and multilateral organizations, and merit use of land such as schools and churches).
- Exemptions for cultural or religious public benefit organizations should be qualified and defined carefully; only properties directly used for the public benefit activity should be exempted.
- Alternatives to full exemption include transparent grants or a discounted “service charge” in lieu of the standard property tax (example: Bangalore, India, where the charge raises 25 percent of the property tax and applies to all exempt properties except places of worship and homes for the destitute).
- State-owned entities often benefit from property tax exemptions; some countries require central governments to contribute payments or grants equal to what the property tax would have generated (examples cited in legislation in Kenya, Zambia, and Canada).
- Widespread property tax relief for newly developed or renovated residential properties is common in parts of Africa; examples of exemption durations:
  - five to 10 years in Angola
  - five years in Benin, Equatorial Guinea, Madagascar, and Morocco
  - three years in Gabon
  - two years in Niger, Chad, and São Tomé and Príncipe
- Concerns with long-term exemptions:
  - Narrow the tax base and lead to higher taxes on older building stock.
  - Result in sizable subsidies to homeowners who consume costly local public services.
  - Are inequitable to tenants and difficult to administer; little evidence that such relief encourages development of vacant urban land.
- Hardship relief:
  - Some countries (for example, South Africa) adopt a value threshold for a market-value based property tax.
  - Relief above the threshold should be means tested or handled case-by-case.
  - Property tax relief can also be provided as an income tax credit or a grant to limit property tax payment as a share of income (common in the United States and Canada; often extends to renters).
- Tax deferral:
  - Can address liquidity problems for “asset-rich, cash-poor” taxpayers (for example, pensioners) or absentee landowners.
  - Under deferral, arrears become due in full – with or without interest – when the property is alienated (for example, through sale or inheritance).
  - Internationally, deferment schemes are typically reserved for the elderly or exceptional circumstances.
  - Examples: British Columbia in Canada and North Carolina in the US.

### Policy advice (property tax design and relief)
- Local authorities with little property transaction evidence or little valuation capacity should consider implementing simplified valuation approaches based on area, with or without adjustments to reflect location, age, quality of building materials, use of the building, and access to utility services.
- To promote local fiscal autonomy, local governments should have some flexibility to select a property tax rate within a centrally determined narrow range.
- The rate should be flat for all properties, with no differentiation in favor of residential or commercial properties, unless clearly justified by service differentials.
- If local authorities wish to tax vacant urban land more by imposing a surtax or higher rate, two key considerations need to inform the policy stance:
  - (1) identify all vacant urban land and determine whether the total surface area thereof has remained constant or changed; and
  - (2) carefully analyze the main reasons for the trend to establish ex ante if any tax response would be effective.
- Exemptions, holidays, or other relief from the property tax should be severely limited to certain organizations, and, ideally, means-tested and reviewed annually when provided to individuals.
- Tax deferment schemes for “asset-rich but cash-poor” taxpayers could lessen the cash impact on certain households, especially the elderly; under a deferment scheme, ensure that property tax arrears become due in full when the property is alienated.

### Transaction taxes on real estate
- Transaction taxes (property transfer tax or stamp duty) are commonly assessed when statutory title to real property is transferred; legal liability for payment may rest with buyer, seller, or both.
- Many developed and developing countries raise significant revenues from property transfer taxes; in several countries revenues from transfer duties dwarf revenues from the recurrent property tax.
- Out of the 38 OECD countries, 30 of them levy transfer duties or transaction taxes on the market value of the property.
- Transaction taxes advantages:
  - (1) Tax base is the purchase price (visible and accurate measure of market value).
  - (2) They are payable when taxpayers have more liquidity.
  - (3) Buyers are incentivized to report transactions to acquire legal documents and a properly recorded base cost for capital gains tax.
  - (4) They enjoy high compliance rates and low administrative cost.
  - (5) They face less political resistance than recurrent property taxes.
- Drawbacks of transfer duties:
  - (1) Reduce the number of transactions, damaging mobility.
  - (2) Encourage underreporting of transaction prices.
  - (3) Lead to evasion through non-reporting of transactions.
- Policy advice (transaction taxes):
  - Maintain a property transfer tax as an acceptable alternative until an easy-to-administer and more revenue productive recurrent property tax system has been established.
  - The revenue service should automatically notify the central property registry whenever the transfer tax for a property disposal has been paid.
  - Integrate separate databases to enhance interoperability of a revenue service’s information platform and to assist in capturing transaction values from realizations, disposals, gifts, and inheritances.
  - Centralize administration of capital gains tax, income, and transfer taxes to support cost-effective value verification.
- Empirical/economic considerations:
  - High transfer tax rates may require effective anti-avoidance legislation, enhanced monitoring of true market values, and penalties for avoiding registration of change of ownership.
  - Ensuring all outstanding property taxes are paid before new title registration is certified is recommended.
  - Collection and verification of realized values for transferred real estate generate market value evidence to inform valuation roll updates.
  - Transfer taxes are best suited for collection by the national revenue authority when administrations are less capable of large-scale market value verification.

### Property tax administration
- Property tax administration includes: registration of land titles (legal cadaster maintenance); fiscal cadaster maintenance (ownership, attributes, location, owner’s address, most recently recorded market or transaction value); assessment of property values; collection of property data; objections and appeals; billing; collection; and enforcement of past-due obligations.
- Administrative capacity is essential: one can have modern recurrent property tax design but without sufficient administrative skills and practices the property tax will not deliver on its revenue potential.
- Revenue performance diagnostics:
  - Calculate property tax revenues per capita in each locality to identify regional disparities and their sources (for example, weak coverage, outdated valuations, accumulated arrears).
  - Local revenue performance can be benchmarked against an estimate of the revenue potential of the property tax, roughly equal to one to two percent of the product of national GDP per capita and the size of the local population.

*Source: IMF How to Note (htnea2024006).*

### Box 2. Property Tax Revenue Identity

### Box 2. Property Tax Revenue Identity

### Revenue identity and variable definitions
- Property Tax Revenue Collected = Tax Rate x Legal Base x Valuation Ratio x Coverage Ratio x Collection Ratio
- Definitions:
  - Tax Rate (t): the average tax rate. It is defined as the total property tax liability billed (R) divided by the assessment of total property values, where the latter expression is the product of the number of properties in the tax rolls (N) and their average value assessment (A).
  - Legal Base (B): the product of the total number of properties legally subject to tax (N*) and the average market value of the properties in the tax rolls (A*).
  - Valuation Ratio (V): the average value assessment of the properties in the tax rolls (A) divided by their average market value (A*).
  - Coverage Ratio (C): the number of properties in the tax rolls (N) divided by the number of properties legally subject to tax (N*).
  - Enforcement (or Collection Ratio) (E): the total property tax revenue collected (RC) divided by the total property tax liability billed (R).
- Mathematical identity (equivalent form):
  - RC = (t × B)(V × C × E)
  - where the first term in parentheses is determined by policy choices and the second represents administrative efficiency.

### Administrative efficiency — illustrative scenarios and key calculations
- Current scenario assumptions and calculation:
  - Coverage Ratio = 0.75
  - Valuation Ratio = 0.60
  - Collection Ratio = 0.45
  - Efficiency Level (AE) = 0.20
    - Calculation shown: AE = 0.75 * 0.60 * 0.45 = 0.20
- Improvement scenarios (Table 2 example):
  - Scenario 1:
    - Coverage Ratio = 0.85
    - Valuation Ratio = 0.70
    - Collection Ratio = 0.55
    - Efficiency Level = 0.33
    - Efficiency increase relative to current: 65 percent (= 100 x 0.13/0.20)
  - Scenario 2:
    - Coverage Ratio = 0.95
    - Valuation Ratio = 0.90
    - Collection Ratio = 0.85
    - Efficiency Level = 0.73
    - Efficiency increase relative to current: 265 percent (= 100 x 0.53/0.20)
- Observations:
  - The multiplicative nature of the ratios implies that the weakest link (for example, the collections ratio) is the principal driver of AE; if any ratio equals zero, AE = 0 regardless of other ratios.
  - Improving administrative efficiency alone can generate important increases in property tax revenues.

### Empirical ranges and administrative emphasis
- Empirical ranges and examples:
  - Collection ratios in African countries: range between 20 and 80 percent (World Bank 1992; Keith 1993; Kich 1996).
  - Valuation ratios in developing countries: observed from 20 to 80 percent (Kelly 1993; Rezk 2004).
  - Coverage ratios: observed from 20 to 70 percent (Kelly 1992; Vaillancourt 2004).
  - Study of 37 Latin American cities: coverage ratio range about 20 to 95 percent and an average of 67 percent (De Cesare 2012).
  - OECD countries: coverage and collection ratios close to 100 percent; for low and middle-income countries estimated average coverage 40 to 60 percent and collection 30 to 60 percent (Kelly, White, and Aanchal 2020, p. 82).
- Policy implication:
  - Better property tax administration tends to eclipse policy decisions for improving property tax yield and buoyancy. Coverage, valuation, and collection ratios are critical variables driving property tax yield, buoyancy, economic efficiency, and equity.

### Coverage: cadasters, mapping, and data sharing
- Fiscal versus legal cadaster:
  - A fiscal cadaster (not necessarily the legal cadaster) is required to impose and administer a property tax; it records information needed to manage a recurrent property tax (legal description, taxpayer information, land/property size, physical characteristics, valuation, location).
  - Legal cadaster records land and building information based on legal rights and ownership; achieving full legal cadaster coverage can take many years and is not a prerequisite for imposing a property tax.
- Data sharing and mapping recommendations:
  - Institute a data sharing protocol whereby the land titling or deeds office records transaction values systematically and shares information with fiscal and legal cadasters.
  - Use satellite imagery and geo-referencing linked to a unique property identification number to improve coverage and enable comprehensive mapping, followed by door-to-door surveys to collect property characteristics and integrate with GIS coordinates.

### Assessment (valuation) arrangements and methodologies
- Choices over responsibility for valuations:
  - Options: national government; dedicated national government agency; local government valuation department; private sector; self-assessment/-declaration of values; or combinations thereof.
  - Centralized valuation advantages: economies of scale, single information system, consistent processes, better resourcing across jurisdictions.
  - Local valuation advantages: familiarity with local markets, transparency, accessibility for property owners.
  - Outsourcing to private valuers is common where local governments lack capacity; contracting collectively across municipalities can improve cost-effectiveness.
- Automated valuation — Computer-Assisted Mass Appraisal (CAMA):
  - CAMA components: Model Specification; Sales Price and Property Descriptive Data; Income and Expense and Property Descriptive Data; Statistical Software; Model Calibration; Properties to be valued; Valuation Software; Value Estimates.
  - Purpose: efficiently provide accurate, uniform, equitable estimates of market value.
  - Requirements and constraints:
    - Integrated property database critical for CAMA.
    - Development of a CAMA solution typically takes several years and may be beyond small municipalities; national governments and larger municipalities are more likely candidates.
    - Expect appeals: rule of thumb that 2 to 5 percent of valuations may be the subject of appeals after jurisdiction-wide valuation.

### Self-declared value-banding and Sales Price Registers
- Self-declared value-banding:
  - Owners self-identify a value band for their property; all properties in a band attract identical tax liability.
  - Advantages: cheaper to implement than individual market-value assessments; allows assessment of many properties quickly; fewer objections expected.
  - Safeguards: require supporting documentation for declared values; anti-avoidance measures (e.g., additional tax plus interest if property sold at significantly higher price within two years); municipality may estimate value if no declaration is made.
  - Design considerations: balance number and width of bands to avoid substantial tax differences between adjacent bands; provide accessible market information; realistic timeline to implement a working self-declaration banding system is two years (to allow pilot testing such as band widths).
- Sales Price Registers (SPR):
  - Establish a SPR based on declared transaction prices, maintained by a national government institution (for example, a national statistical bureau), linked to the national cadaster.
  - Uses of SPR data: support national house price index; establish benchmarks for capital gains tax; provide indicative average prices at city/county levels; develop and test CAMA models.

### Billing, collections, enforcement, and institutional design
- Enforcement measures and collection practices:
  - Legal enforcement tools: restraint on transfer of ownership of tax-delinquent property; clearance certificates; civil action; attachment of wages (garnishment); attachment of bank accounts; attachment of rent; action against property occupiers; tax liens; seizure of goods; forfeiture.
  - Payment facilitation: installment payment systems (for example, monthly as in Namibia and South Africa) can improve compliance by helping taxpayers manage cash flow.
- Institutional considerations:
  - Billing, collection, and enforcement often occur at the local level to promote fiscal autonomy and exploit local knowledge; however, enforcement powers of sub-national governments are often constrained and central administrations may possess stronger enforcement capabilities and data access.
  - Recommendation: recentralize enforcement function until local capacity is improved (examples: Rwanda, Tanzania, the Gambia, Republic of Srpska).
  - Use of local utilities: utility bills can carry property tax charges to reach occupiers; example: Greece charges municipal property tax via electricity bills (owners liable but billed through electricity subscribers).
- Sequencing and political economy:
  - A high-priority collection-led strategy can be adopted even before modernizing property tax design.
  - In developing countries the major administrative constraint is collection and enforcement; the key is to diagnose reasons for low collections and non-compliance, identify interventions (including demonstrating improved local public services from enhanced revenues), and build collection capacity.
  - Increasing the size of the tax base by revaluation and tax roll expansion should follow improved collection and enforcement. Significant political will is required to implement improved collection and enforcement successfully.

*Source: IMF staff calculations and IMF | How to Note content.*

### Box 3. Select Practices to Improve Property Tax Collections

### Box 3. Select Practices to Improve Property Tax Collections

### Reason for Compliance Gap and Package of Corrective Measures
- Inadequate accountability for collected taxes and frequent misappropriation of budget resources in all tiers of government:
  - Taxpayers in general, but property taxpayers particularly, may evince a low tax morale due to their experience of lack of public service delivery. This is especially problematic for efforts that seek to improve compliance with the property tax as it is a very visible tax with explicit invoicing.
  - Corrective measures:
    - Improve public finance management rules, especially at the local government level.
    - Subject local governments to regular audit by the state audit board or court of accounts to reveal misappropriation of funds or corruption in public procurement.
    - Hold accounting officers accountable for such revealed malpractices.
    - Improve transparency for the relationship between raised local taxes and expenditure outlays on improvements of local infrastructure, by initiating public consultations on the selection of local public improvement districts.
    - Inform taxpayers through billboards what public infrastructure projects have been paid by their property tax contributions.
    - Improve key messaging on prudent budgeting through citizens’ guides in local newspapers that reveal in simple language key aspects of the local budget such as the level of property taxes raised, in relation to market price developments of residential properties, and the expenditure programs made possible through taxation.

- Unfairness because of outdated property information or proliferation of tax relief measures:
  - Problems identified:
    - Infrequent or irregular property valuations erode horizontal and vertical fairness of the system (that is, outdated cadaster records with previously recorded properties that are not periodically revalued and, hence, are taxed on dated low values whereas new developments are assessed on recent and much higher values).
    - Outdated property information that does not capture additions or improvements to existing properties.
    - Granting numerous tax relief measures through exemptions or reduced tax rates may fuel resentment within the non-privileged community of property owners.
  - Corrective measures:
    - Improve the continuous capturing of market price evidence of realized property transactions.
    - Institute linkage and interoperability of information platforms across levels of government (that is, the legal and fiscal cadasters of local governments) that share the latest sales prices of property transactions.
    - Ensure that value changes of real estate due to additions or improvements are duly exchanged with the fiscal cadasters operated by local governments (for example, annual updating of a supplemental valuation roll).
    - To rationalize property tax relief measures, introduce regular tax expenditure reporting with improved estimation of forgone tax revenues.
    - Guarantee a simple objection and appeals process whereby property owners can contest inaccurate property valuations. This creates a positive feedback loop for taxpayers, informing them that the property tax structure is administered fairly.

- Cashflow problems through lumpiness of tax payments:
  - Issue: Since many countries collect only annually the property tax liability, many taxpayers complain about the cash outflow shock for which they are unprepared.
  - Corrective measures:
    - Introduce installment options such as monthly or quarterly payments as this facilitates taxpayers’ annual cashflow planning.
    - Enable taxpayers to pay online or simplify tax payment procedures to reduce compliance costs by establishing convenient payment options such as the initially East and Southern African mobile phone-based money transfer service and payments system.
    - Discourage physical contact between taxpayers standing in queues waiting to pay in cash at a municipal office.

- Lack of enforcement and/or high compliance costs:
  - Problems identified:
    - If citizens are faced with an ineffective and burdensome tax administration such as poor facilities and complex rules resulting in a heavy compliance burden, they may delay or postpone for long periods the settling of their tax liabilities.
    - Invoicing and billing may be irregular, or it relies on self-assessment of the property value, and self-calculation of the property tax liability without any support from tax filing and outreach offices.
    - Given the unpopularity of the highly visible property tax, central and local governments may lack the political will to enforce the law, or worse, they may grant frequent payment amnesties.
  - Enforcement measures to consider where forced sale of immovable property is a last resort:
    - Issue monthly tax invoices, mail electronically and/or deliver by hand, and follow up on undelivered invoices.
    - Let public broadcasters or local newspapers announce frequently the due dates for property tax payments.
    - Levy late fee payments with interest.
    - Require property tax clearance certificates for registering a sale and purchase of real estate in the national legal cadaster which is important for the protection of property rights.
    - Require property tax clearance certificates for renewing the annual motor vehicle license.
    - To enforce property tax payments for late payers, issue garnishing orders for rents and wages.
    - Consider seizure and auction of movable goods.
    - Impose tax liens on property titles.
    - Freeze bank accounts of delinquent property taxpayers.
    - Seize and auction the immovable property.
    - Rationalize enforcement measures against property tax non-compliance with the court systems, collection agencies and lawyers, especially in a situation where the courts are overloaded, translating into long waiting times.

### Implementation Advice
- Valuation and coverage:
  - Calculate property tax revenues per capita in each municipality and compare these to estimates of their revenue potential; identify weakest links in the chain of administrative functions.
  - Use aerial surveillance technology such as drones or satellite imagery to expedite the compilation of a fiscal cadaster or to compare routinely the completeness of both the fiscal and legal cadasters.
  - Plan for the land titling or deeds office to systematically record throughout the country the transaction values that would be shared with the fiscal and legal cadasters in support of local property valuation offices, local tax administrations, and central revenue administrations tasked with capital income taxation.
  - Apply a CAMA approach for evaluating numerous properties without the need for site-inspection.
  - Evaluate the potential of introducing value banding for the residential property tax and consider the option of residential property owners self-declaring the band they believe corresponds to the market value of their property. For most developing countries, this is a more affordable and immediate solution for establishing valuations for the recurrent property tax.
  - Ensure there are sufficient taxation bands so that property owners can place their properties in an appropriate valuation band with confidence and adopt credible and effective anti-undervaluation measures.
  - Establish a Sales Price Register within the national statistical office.

- Billing and enforcement:
  - Split between national and subnational levels of government the shared administration of property taxes, which includes central cadastral property registration, sharing cadastral information with decentralized fiscal cadasters, and central management, coordination, and supervision of periodic country-wide revaluations, but with local billing, collection, and enforcement.
  - Assign unique property identification numbers to all land parcels and ensure the interoperability of the various property registries.
  - Require a property tax payment-clearance certificate that ensures that all outstanding property taxes have been paid before a new property title registration can be certified.
  - Consider issuing property tax bills monthly or arrange for more frequent installment payments of property taxes.
  - Develop strategies to deliver property tax invoices to property owners, and follow-up on undelivered or returned tax invoices.
  - Payments should be discharged through the banking system or mobile networks with a minimum of compliance burdens for taxpayers.
  - Before modernizing property tax design, adopt a high priority collection-led strategy for property tax mobilization by improving tax administration through billing and invoicing to the correct address; improving collection using information and communications technology; and maintaining continuous follow-up and enforcement actions.
  - In the short run, focus the administrative reform efforts on collecting from the relatively small number of high-end residential and commercial properties.

### Conclusions
- Recurrent property taxes should feature more prominently in domestic resource mobilization.
- Levied on a broad base, they have the potential to contribute 1 to 2 percent of GDP in revenues, significantly more than in many countries currently.
- Taxing immovable property is optimal from a redistributive perspective as it enables local governments to capture the wealth generated by construction-intensive urbanization, which is capitalized in rising land values.
- Using the revenues to finance improved local public services enhances local authorities’ accountability and political acceptability of property taxation, if properly communicated.
- Advances in information technologies for property identification and simplified valuation options can be leveraged to facilitate property tax administration in capacity-challenged countries.
- This note provides a guide to successfully implementing and administering property tax reforms, focusing on recurrent taxes on immoveable property and the real estate transfer tax or stamp duty. It addresses the fundamental policy choices regarding the property tax base and tax rate, and the key functions of the tax administration for managing collections – valuation, billing, and enforcement.

*Source: Lessons from IMF technical advice to member states; Kelly 2013b, Table 6.2; and Kelly, R. White, and Aanchal 2020.*

---


_Source: https://www.imf.org/-/media/files/publications/howtonotes/2024/english/htnea2024006.pdf_