## tarea2024074-print-pdf ## Source details **Canonical URL:** [tarea2024074-print-pdf](https://www.imf.org/-/media/files/publications/tar/2024/english/tarea2024074-print-pdf.pdf) ## Other formats - [Markdown version](/-/media/files/publications/tar/2024/english/tarea2024074-print-pdf.pdf.md) - [Structured JSON version](/-/media/files/publications/tar/2024/english/tarea2024074-print-pdf.pdf.json) --- ### Mission and acknowledgements - FAD technical assistance mission visited Colombo during February 7th – February 21st, 2024. - Mission led by Sebastian Beer (FAD); external experts Riël Franzsen and William McCluskey. - Meetings with: Department of Fiscal Policy, Finance Commission, Ministry of Provincial Councils and Local Government Affairs, Chief Valuer’s Office, Surveyor Department, Registrar’s General Department, Land Commissioner General Department, several municipal councils and Pradeshiya Sabhas. - Mission received by Secretary of the Treasury Mr. K. M. Mahinda Siriwardana; support from Director General Mr. Kapila Senanayake and Tax Advisor Ms. Thanuja Perara. - Appreciation for cooperation and hospitality, notably Mr. Darshana Wijesiriwardane. ### Fiscal context and central government revenue priorities - Key fiscal targets and context: - IMF board approved an Extended Fund Facility (EFF) of about USD 3 billion (March 20th, 2023). - Primary balance estimated at -3.7 percent of GDP in 2022; program aims to reach 2.3 percent by 2025 (increase of 6 percentage points). - Country team estimates additional central government revenue of about 1 percent of GDP will be necessary in 2025 to achieve consolidation path. - Total tax revenue estimated to have increased from 7.3 percent of GDP in 2022 to 9.8 percent of GDP in 2023. - Additional revenue gains of around 2.6 percent of GDP anticipated for the current year (mainly from VAT rate increase to 18 percent and other indirect tax reforms). - Current property-related tax revenue allocation: - Property-related tax revenue currently amounts to around 0.2 percent of GDP and fully accrues to subnational governments. - Stamp duties 0.14 percent of GDP (collected by IRD 0.04 percent of GDP; collected at subnational level 0.09 percent of GDP). - Rates 0.07 percent of GDP. - Potential short-term reduction in transfers from subnational to central government: less than 0.05 percent of GDP. - Long-term revenue potential of related reforms estimated at around 1.2 percent of GDP (Klemm and others, 2022). ### Imputed Rental Income Tax (IRIT): rationale, design, and revenue simulations - Rationale and scope: - IRIT taxes imputed rental income from owner-occupied and vacant residential property under the Inland Revenue Act to accrue to central government without breaching constitutional allocation of property taxes. - Imputed rental income can be defined as a fixed percentage of a property’s market value (example benchmark "3 to 4 percent"). - Recommended to exclude commercial property and property currently rented out. - Short-run administrative approach: - IRIT taxed separately under a new schedule of the Inland Revenue Act with progressive tax brackets; imputed rental income aligned with rental income rules allowing deemed maintenance costs of 25 percent and local assessment rates deduction; no deduction for mortgage interest. - Basis initially self-declared estimated capital value, submitted annually in the income tax return; immediate priority to compile a database of estimated current capital values as audit-selection tool and taxpayer guidance. - Anti-avoidance and scope details: - Anti-avoidance provisions to counter use of “residential property” companies and discretionary trusts. - Residential property company rules: residential property must comprise more than 50 percent of aggregate market value of company assets; taxable market value equals shareholder’s proportional share; in valuation of shareholding, no account taken of lease or loan liabilities. - Definition inclusions for residential property and exclusions (VAT-registered enterprises, potential hospitality-sector exclusions). - Simulated revenue yields and scenarios (data and assumptions preserved): - Dataset: around 300 thousand AVs for 10 municipal councils; observed AVs multiplied with municipality-specific adjustment factor so median monthly rental value equals LKR 40 thousand; missing values of around 800 thousand properties imputed; GVD assessed values of around 3.4 million properties; sample assumed representative of 1.1 million properties. - One-rate IRIT examples: - Flat rate of 30 percent applied on imputed rental income above exemption of around LKR 400 thousand → yield 0.5 percent of GDP; covers 55 percent (around 600 thousand properties). - Flat rate of 50 percent applied on values exceeding LKR 800 thousand → yield 0.5 percent of GDP; applies to top 30 percent (330 thousand properties). - Graduated IRIT scenarios: - Reform 1: flat rate 25 percent above threshold LKR 480 thousand (50 percent of in-scope properties). - Reform 2: rate 31.25 above exemption threshold LKR 600 thousand, and 56.25 on excess above LKR 900 thousand (top 25 percent); chosen so market values taxed at 1.25 percent assuming capitalization ratio 25. - Under the graduated schedule: tax collections from top decile amount to 0.45 percent of GDP (three quarters of estimated total tax revenue of 0.6 percent of GDP); 60 percent not paying tax; 30 percent paying less than LKR 300 thousand annually; top decile (around 110 thousand properties) contribute average LKR 1.3 million per household. - Under the flat schedule: top decile contributes about 0.2 percent of GDP (60 percent of total 0.35 percent of GDP); ninth decile pays less than LKR 250 thousand annually; top decile less than LKR 750 thousand. - Capital-value equivalent schedules (Table 4 equivalents preserved): - Imputed rental base thresholds and rates: 1st threshold 600 (LKR thousands) rate 31.25%; 2nd threshold 900 rate 56.25%. - Market value base (cap ratio 25): 1st threshold 15000 (LKR thousands) rate 1.25%; 2nd threshold 22500 rate 2.25%. - Market value base (cap ratio 30): 1st threshold 18000 rate 1.04%; 2nd threshold 27000 rate 1.875%. - Sensitivity example preserved: - If actual median value LKR 30 thousand (vs assumed LKR 40 thousand) and in-scope properties 840 thousand (vs 1.1 million), revenue collections would be 50 percent lower. - Caveats: - Given limited market value information, IRIT revenue yield is uncertain and likely to fall short of optimistic expectations; IRIT commonly excludes commercial property; estimations rely on strong assumptions and incomplete information. ### Data, valuation, and administrative infrastructure priorities - Immediate data priorities (short term): - Digitize Annual Values (AVs) for all municipal councils; Department of Fiscal Policy to collect assessed AVs, property type, and ward number. - Determine capital values of representative standard properties: GVD to assess representative sample (around 50 valuations per municipal council may suffice) to estimate capital values via adjustment coefficients to AVs. - Introduce a digital Sale Price and Rents Register (SPRR) as soon as possible; provisional SPRR to start capturing transactions this year; full development ~18 months. - Expand income tax return reporting to include property situation, date of acquisition, cost, market value, size (m2), property type, and common identifiers (GVD roll number, cadastral number, CEB account number). - GVD and valuation facts: - GVD determined around 3.5 million Annual Values (AVs); largely not digitally recorded; some municipalities’ valuations up to 10 years old; GVD determined AV for around 120 thousand properties in last two years. - Sample-based implication: average AV in sample outside Colombo implies monthly rental value around LKR 2400 (7.5 USD). - Suggested conversion approach: compute property-specific ratios of capital values relative to AVs and construct Ward-specific average ratios; yearly valuations of standard properties required to update estimates. - E-Valuation and digitization: - Accelerate completion of GVD E-Valuation System. - Digitize rating valuation records (several million documents) — digitization may take ~two years. - SPRR linkages: notaries to provide cadastral number, buyer TIN and ID, GVD assessment roll number; link SPRR to cadaster and land information system. - Use of CEB database: - CEB 2022: more than 6.93 million accounts; 5.97 million residential accounts; 911,126 commercial and industrial accounts; more than 600,000 high-use residential accounts (in excess of 180 kWh per month). - Sharing CEB database with IRD, Surveyor General, GVD, and local authorities recommended. ### Subnational property taxation reform: short-term and medium-term measures - Short-term guidance for local authorities: - Introduce a nationwide minimum value threshold to exempt low-value residential property; municipal councils may increase threshold locally. (MT) - Introduce hardship relief mechanisms (means-tested rebates, deferral schemes); consult municipal councils for guidelines. (MT/ST depending on action) - Avoid discrete jumps in tax liability by adjusting tax base or tax liability between assessments. (ST) - Interim adjustments: adjust tax rates yearly or index bases to exogenous variable; preference for base-indexing to avoid legal constraints on rates. - Stamp duties and transaction taxes: - Stamp duties account for 30 percent of local authorities’ own revenue in 2023; recurrent property taxation accounted for 25 percent. - Short-term stamp duty reform: introduce zero-percent threshold aligned with IRIT and CGT thresholds; above threshold levy 4 percent on sales and donations; consider further threshold with 6 percent rate for high values. - Medium-term: reduce reliance on stamp duties as recurrent assessment-rate revenues increase. - Current central stamp duty collections in 2022: LKR 9.1 billion (about 0.04 percent of GDP). - Medium-term tax base changes and valuation: - Municipal councils: shift residential property taxation from annual/rental values to market (capital) values; commercial property retain annual value basis. - Urban councils and Pradeshiya Sabhas: adopt simplified assessment (formulaic/unit-area based) methodology. - Expected duration for fundamental reforms: 5 to 7 years; transition to capital values for municipal councils in region of 3 to 5 years. - GVD to develop automated valuation models and a five-year rolling program for revaluations and annual supplementary valuations. ### Hardship relief, deferral, and design examples - Relief design principles: - Prefer value thresholds and targeted relief (means-tested rebates, deferral for “asset rich-cash poor”) rather than broad exemptions. - Example relief computation (preserved figures): - Residential property value LKR 50,000,000; value threshold LKR 25,000,000; taxable value LKR 25,000,000; statutory tax rate 1.0% → LKR 250,000; rebate (above 65) 10% → LKR 25,000; tax amount 225,000; discount for early payment 5% → 11,250; final payment 213,750; effective tax rate 0.4%. - Examples from South Africa (preserved tables and conversion): - City of Tshwane rebate schedule (ZAR thresholds and percentage rebates) and City of Cape Town rebate schedule (ZAR thresholds and percentage rebates). Note: USD 1.00 = ZAR 18.90 = LKR 312.50 (as provided). ### Alternative revenue options and distributional considerations - Electricity usage tax: - Fixed-fee scenario examples preserved: - LKR 100,000 per year applied to 600,000 high-use residential consumers plus 911,126 general-purpose/hotel/industrial accounts (total 911,126 accounts?) would raise LKR 151 billion (0.5 percent of GDP). - Scenario excluding small- and medium-sized non-residential enterprises (547 non-residential accounts added) would raise LKR 61.25 billion (0.2 percent of GDP). - If levied only on more than 600,000 high-usage residential accounts, raises more than LKR 60 billion. - Better designs: ad-valorem surcharge above exemption threshold; specific charge per kWh to account for environmental considerations (more than 50 percent of total energy production from coal or oil). - Mansion tax observations: - Proposed mansion definition (preserved): constructed on or after April 1, 2000; area not less than 10,000 square feet; value not less than LKR 150 million; fixed LKR 1 million per property payable in 4 installments; administrative concerns and regressivity noted. - Recommendation: remove area threshold; use credible value threshold; tax as percentage of value, not fixed amount. - CGT and VAT complementary reforms: - CGT current features: concessionary rate 10%; exemptions for gains less than LKR 50,000 per asset and LKR 600,000 per year; fully exempt for gains from shares listed on Colombo stock exchange; principal residence exemption for continuous ownership three years and inhabited two years. Transaction levy 0.3 percent on both buyer and seller of shares in lieu of CGT for shares. - CGT recommendations: replace primary residence exemption with appropriate value threshold; remove exemption for listed companies. - VAT recommendation: align VAT treatment by taxing first sale of residential property; renting treated consistently; practical constraint may justify resales being exempt in short term. ### Implementation, institutions, and timeline - Project timeline and institutional setup: - Entire property tax reform project expected to take around five years (roadmap spans 2024–2029). - Establish a Change Management Unit (CMU) to lead implementation; appoint project director; include multi-agency membership. - Roadmap activities: develop Implementation Plan, SPRR, automated mass valuation integrated with GIS, public information campaign, revenue impact analysis, draft property tax legislation, design valuation methods and data standards. - Legal and regulatory amendments required (preserved list): - Amendments to Inland Revenue Act of 2017 (introduce IRIT); Value Added Tax Act of 2002; Municipal Council Ordinance 17 of 1947; Notaries Act 1 of 1907; Pradeshiya Sabhas Act 21 of 1987; Stamp Duties Act of 1982 and Stamp Duties (Special Provisions) Act 12 of 2006; Rating and Valuation Ordinance 30 of 1946; Urban Authorities Ordinance 61 of 1939; new/revised notary forms. - Short-term implementation priorities (selected, ST = short term, MT = medium term as in source): - 1.2 Introduce IRIT with value threshold and separate rate schedule in the Inland Revenue Act by 2025. ST - 1.2 Include anti-avoidance provisions in the 2017 IRA to counter residential companies and trusts. ST - 2.1 Replace CGT exemption for primary residence with appropriate value threshold. ST - 2.2 Remove exemption of capital gains for listed companies. ST - 2.3 After review, consider increasing stamp duties on leases of land from 0.1 percent to 0.2 percent. ST - 2.5 Share the CEB database with IRD, Surveyor General, and GVD. ST - 3.1 Introduce SPRR as soon as possible. ST - 3.2 Digitize GVD rating valuation records. ST - 3.4 Immediately assess market values of representative sample of standard properties and design annual re-estimation. ST - 4.1 Introduce a zero-percent threshold for stamp duties aligned with IRIT and CGT. ST - 5.1 Avoid discrete jumps in tax liability by adjusting base or liability between assessments. ST - 6.1 GVD should develop automated valuation models. MT - 6.3 For Municipal Councils, shift from annual value to capital value. MT ### Key numeric estimates and data points (preserved) - EFF approved about USD 3 billion (March 20th, 2023). - Primary balance estimated at -3.7 percent of GDP in 2022; target 2.3 percent by 2025 (increase of 6 percentage points). - Total tax revenue: 7.3 percent of GDP in 2022 → 9.8 percent of GDP in 2023. - Additional revenue gains anticipated: around 2.6 percent of GDP (current year). - Property-related tax revenue: around 0.2 percent of GDP. - Potential short-term reduction in transfers: less than 0.05 percent of GDP. - Long-term reform potential: around 1.2 percent of GDP. - IRIT revenue estimations: around 0.4 to 0.6 percent of GDP (design dependent). - GVD Annual Values: around 3.5 million AVs. - Representative sample suggestion: around 50 valuations per municipal council. - Dataset used in simulations: around 300 thousand AVs; sample assumed representative of 1.1 million properties. - Simulated rental distribution: - 50 percent of rental values below LKR 480 thousand (LKR 40 thousand per month). - 80 percent yield less than LKR 1 million per year. - Top ten percent of Colombo’s residential properties: rental value estimated LKR 4 million. - Capitalization ratio examples: 25 (median capital value LKR 12 million; 80 percent under LKR 25 million); Numbeo.com suggests cap-ratios 30–45; cap-ratio 25 suggested by local valuation professionals. - Stamp duty current central collection in 2022: LKR 9.1 billion (about 0.04 percent of GDP). - Electricity accounts (CEB 2022): more than 6.93 million accounts; 5.97 million residential; 911,126 commercial and industrial; more than 600,000 high-use residential accounts. - Electricity usage tax fixed-fee scenarios: LKR 100,000 per year could raise LKR 151 billion (0.5 percent of GDP) under broad coverage; alternative scenarios LKR 61.25 billion (0.2 percent of GDP) or > LKR 60 billion if only high-use residential accounts taxed. *IMF Technical Assistance Report | Preface and Executive Summary (excerpt) — tarea2024074-print-pdf* ### Preface _________________________________________________________________________ 6 ### Preface ### Mission and acknowledgements - A Fiscal Affairs Department (FAD) technical assistance mission visited Colombo during the period February 7th – February 21st, 2024. - Mission led by Sebastian Beer (FAD) and comprised Riël Franzsen and William McCluskey (both external experts). - Mission received by the Secretary of the Treasury, Ministry of Finance Mr. K. M. Mahinda Siriwardana; benefited from support of Director General of the Department of Fiscal Policy, Mr. Kapila Senanayake and staff, notably Ms. Thanuja Perara, Tax Advisor, Ministry of Finance. - Meetings held with officials from: Department of Fiscal Policy, Finance Commission, Ministry of Provincial Councils and Local Government Affairs, Chief Valuer’s Office, Surveyor Department, Registrar’s General Department, Land Commissioner General Department, several municipal councils and Pradeshiya Sabhas. - Mission expresses appreciation for support, cooperation, and hospitality, notably Mr. Darshana Wijesiriwardane. ### Executive summary — central government revenue - Meeting commitments under the EFF will require new central government taxes. - IMF board approved an Extended Fund Facility (EFF) of about USD 3 billion on March 20th, 2023. - Program aims to increase the primary balance (estimated at -3.7 percent of GDP in 2022) by 6 percentage points over 3 years to reach 2.3 percent by 2025. - Country team estimates a revenue increase of about 1 percent of GDP will be necessary in 2025 to achieve the fiscal consolidation path. - Under the constitution, property-related tax revenue (around 0.2 percent of GDP) currently fully accrues to subnational governments. - Potential reduction in transfers to central government from increased subnational property-related tax revenues is severely limited (less than 0.05 percent of GDP) in the short term. - Introducing an imputed rental income tax (IRIT) on owner-occupied and vacant residential property raises central government revenue by taxing imputed rental income under the Inland Revenue Act. - Imputed rental income: deemed income homeowners could earn if they rented out their homes; for tax purposes can be defined as a fixed percentage of a property’s market value. - Difference from a property tax is legal characterization (income vs asset); both use market value and face similar valuation challenges and distributional opportunities. - Revenue yield uncertainty and expected range: - Given limited market value information, the IRIT revenue yield is difficult to gauge and will likely fall short of expectations. - IRITs commonly exclude commercial property, reducing revenue potential. - Estimations leveraging municipal council information suggest IRIT could be highly progressive and yield around 0.4 to 0.6 percent of GDP, depending on design aspects. - These estimations rely on strong assumptions and incomplete information and should be interpreted with great caution. - Immediate data priorities: - Digitize Annual Values (AVs) for all municipal councils. Department of Fiscal Policy to collect assessed AVs, property type (residential, commercial, government), and ward number. - Determine capital values of standard properties: valuation department to assess capital value of representative sample of standard properties in all municipal councils (around 50 valuations per council may suffice) to estimate capital values via adjustment coefficients to AVs. - Introduce a digital Sales Price and Rents Register (SPRR) as a key resource for assessing property values; foundation for IRIT, capital gains taxation, stamp duties, and local recurrent property taxes. - Complementary central tax changes needed if IRIT revenue is lower than required: - Reform capital gains tax (CGT) to replace exemption of the first home with a value threshold. - Remove exemption of capital gains from sale of listed shares. - Align VAT treatment of owner-occupied housing with international best practice, including taxing the first sale of residential property. - Increase stamp duties on lease contracts and vehicle registration fees to reduce transfers to local governments (vehicle registration fee increase effective only once import ban abolished). - If main tax improvements insufficient, consider an electricity surcharge as an easily administered but weakly targeted and less equitable option. ### Executive summary — subnational property taxation - Shift reliance toward recurrent property taxation over medium term; stamp duties are volatile and can induce under-declaration. - Unlocking potential from recurrent property taxation will require fundamental reforms taking 5 to 7 years. - Short-term actions for local authorities: - Adjust recurrent property tax liabilities more continuously and introduce hardship relief mechanisms. - Address problem of constant tax rates, outdated AVs, and lack of relief mechanisms; re-valuations can be smoothed by adjusting tax rates or tax base yearly, leveraging data captured for IRIT. - Medium-term tax base changes: - Municipal councils: tax residential property based on market values; commercial property can retain current rental values. - Urban councils and Pradeshiya Sabhas: use a simple formulaic (simplified assessment) approach. - Move reduces pressure on valuation department and enables more accurate and timely assessments. - Transfer authority for timing of valuations to the central government. ### Data and valuation - GVD has determined around 3.5 million Annual Values (AVs) — estimates of annual rental yield — largely not digitized, outdated, and unrelated to market rents. - Immediate priorities reiterated: - Digitize AVs for all municipal councils. - Assess market values of representative sample of standard properties throughout the country and design an annual re-estimation process. - Use assessed market values with municipal AVs to establish a first database of estimated current market values to (i.) design the IRIT and (ii.) provide guidance to taxpayers. - Introduce SPRR as soon as possible. ### Policy trade-offs and sequencing - Nationwide property taxation revenue likely lower than expected; additional central tax changes needed to meet fiscal goals in 2025. - Medium-term objective: reduce reliance on stamp duties as assessment-rate revenues increase. - Wealth transfer taxation (inheritance/estate taxes) not immediate priority for 2024 due to severe data and capacity constraints; deliberations to commence in 2025 once immediate property taxation priorities addressed. ### Key numeric estimates and fiscal context - EFF approved about USD 3 billion (March 20th, 2023). - Primary balance estimated at -3.7 percent of GDP in 2022; target 2.3 percent by 2025 (increase of 6 percentage points). - Total tax revenue estimated to have increased from 7.3 percent of GDP in 2022 to 9.8 percent of GDP in 2023. - Additional revenue gains of around 2.6 percent of GDP anticipated for the current year (largely from VAT rate increase to 18 percent and other indirect tax reforms). - Existing property-related tax revenue fully accruing to subnational governments: around 0.2 percent of GDP. - Potential short-term reduction in transfers from subnational to central government: less than 0.05 percent of GDP. - Long-term revenue potential of related reforms estimated at around 1.2 percent of GDP (Klemm and others, 2022). - IRIT revenue estimations around 0.4 to 0.6 percent of GDP (design dependent). - GVD Annual Values: around 3.5 million AVs. - Representative sample suggestion: around 50 valuations per municipal council. ### Recommendations (selected, with timing) - Imputed rental taxation - 1.2 Introduce an imputed rental income tax (IRIT) with an appropriate value threshold and separate rate schedule in the Inland Revenue Act (IRA) by 2025. ST - 1.2 Include anti-avoidance provisions in the 2017 IRA that counter the use of “residential” companies and discretionary trusts to avoid IRIT. ST - Complementary central tax changes - 2.1 Replace the capital gains tax (CGT) exemption for a primary residence with an appropriate value threshold aligned with IRIT. ST - 2.2 Remove the exemption of capital gains taxation for listed companies on the stock exchange. ST - 2.3 After a review as regards lease amounts and affordability, consider an increase of stamp duties on leases of land from 0.1 percent to 0.2 percent. ST - 2.4 Consider the introduction of an electricity usage tax. ST - 2.5 Share the CEB data base with IRD, the Surveyor General, the Government Valuation Department (GVD), and eventually local authorities. ST - 2.6 Align the VAT treatment of residential property transactions with international best practice by exempting resales and rental contracts but taxing all first sales. MT - Building fit-for-purpose data infrastructure - 3.1 Introduce a Sale Price and Rent Register (SPRR) as soon as possible. ST - 3.2 Digitize the rating valuation records held by the GVD. ST - 3.3 Revise information provided by notaries on land and property transactions to include cadastral number, buyer TIN and ID numbers and the GVD assessment value roll number. ST - 3.4 Immediately assess market values of representative sample of standard properties throughout the country and design annual re-estimation. ST - 3.5 Use assessed market values with AVs to establish a first database of estimated current market values to design IRIT and guide taxpayers. ST - Subnational taxation — stamp duty reform - 4.1 Introduce a zero-percent threshold to alleviate burden on the poor — in line with threshold for IRIT and CGT. ST - 4.2 Introduce a further threshold at an appropriate level to introduce progressivity and account for revenue loss resulting from zero-rating. ST - 4.3 Reduce stamp duties over the medium term as revenue from assessment rates increases. MT - Subnational taxation — enabling recurrent taxation - 5.1 Avoid discrete jumps in tax liability by either adjusting the tax base or the tax liability between assessments. ST - 5.2 Introduce a nation-wide minimum value threshold for residential property to exempt low-value residential property from assessment rates; municipal councils may increase this threshold based on local circumstances. MT - 5.3 Ministry responsible for local government to consult municipal councils to determine criteria and provide guidelines for hardship relief programs. MT - 5.4 Amend the Municipal Council Ordinance to allow municipal councils to introduce deferral schemes to assist “asset rich-cash poor” taxpayers. MT - 5.5 Local authorities should regularly review all exemptions to audit continued eligibility and to report on the revenue foregone. MT - 5.6 GVD should develop a five-year rolling program for undertaking local authority revaluations and annual supplementary valuations. MT - Subnational taxation — valuation reforms - 6.1 GVD should develop automated valuation models. MT - 6.2 Accelerate completion of the GVD E-Valuation System. MT - 6.3 For Municipal Councils, shift from annual value to capital value. MT - 6.4 For Urban Councils and Pradeshiya Shabha, shift to the simplified assessment methodology. MT - 6.5 Design and develop the ICT system to administer the simplified assessment methodology. MT ### Introduction (key context and sequencing) - Reform timing and political context: - Major structural reforms of all major taxes implemented since 2022. - Total tax revenue estimated to have increased from 7.3 percent of GDP in 2022 to 9.8 percent of GDP in 2023. - Additional revenue gains of around 2.6 percent of GDP anticipated for the current year mainly from VAT rate increase to 18 percent, removal of majority of VAT exemptions, increase in excise tax rates, increase in sugar tax. - Recent personal income tax reforms prompted protests in 2022; presidential elections upcoming. - Policy changes need careful design, timing, and communication. - Report builds on July 2023 mission (Beer and others, 2023) recommendations: - Change valuation basis of residential property from rental values to capital values for municipal councils. - Introduce simplified assessment system for local government property taxes in rural councils and Pradeshiya Sabhas. - Increase stamp duties in the short run (this recommendation no longer appears viable given new information). - Devise mechanism to ensure increased property taxation revenue benefits central government budget to meet IMF program commitments. - Scope: - Focuses on real property taxation at national and subnational levels. - Inheritance and estate taxation deferred to medium term (not immediate priority for 2024) due to data and capacity constraints; reforms on data and digitalization will ease future wealth transfer tax introduction. - Deliberations on wealth transfer taxation to commence in 2025 after immediate property taxation priorities addressed. *IMF Technical Assistance Report | Preface and Executive Summary (excerpt)* ### 5. Property-related tax revenue currently amounts to around 0.2 percent of GDP and, in ### tarea2024074-print-pdf - 5. Property-related tax revenue currently amounts to around 0.2 percent of GDP and, in ### Current revenue allocation and structure - Property-related tax revenue currently amounts to around 0.2 percent of GDP and, in accordance with Sri Lanka’s constitution, fully accrues to subnational governments. - Revenue sources: - Stamp duties 0.14 percent of GDP - Collected by IRD 0.04 percent of GDP - Collected at subnational level 0.09 percent of GDP - Rates 0.07 percent of GDP - Total 0.20 percent of GDP - Stamp duties on lease contracts are collected by the central government and transferred to provincial councils; all other stamp duties and local Assessment Rates are collected at the subnational level. - Constitutional note: the 13th amendment clarifies property-related tax revenues accrue to subnational governments; amendments to subnational law require agreement of all nine provincial councils, so revenue allocation could in principle be changed. - Central government can increase revenue within constitutional constraints: - Indirectly, through reduction in transfers (the central government provides grants amounting to 1.3 percent of GDP to provincial councils). - Directly, through new central government taxation that does not infringe the constitution (either taxes not directly levied on property or seeking provincial council approval to change allocation). - Administrative constraint: any new taxes must keep administrative burden manageable given current resource constraints at IRD. ### Data constraints and valuation issues - Accurate and comprehensive information is essential for property taxation design, liability determination, and compliance verification. - Existing comprehensive information: Annual Value assessments by the Government Valuation Department (GVD). - GVD has determined around 3.5 million Annual Values (AVs). - Valuations are: - largely not digitally recorded; - reflect historic valuations that, in some municipalities, can be 10 years old; - due to a lack of common identifiers, are not linkable to taxpayers; - unrelated to actual market rental values. - The Government Valuation Department has determined the AV for around 120 thousand properties in the last two years (prior delays due to Covid and resource constraints). - Sample-based rental implication: average AV in a sample of residential properties located in municipal councils outside of Colombo implies a monthly rental value of around LKR 2400 (7.5 USD). - Table 2: Average Annual Values by Property Type and Municipality (as provided) - Outside of Colombo - Commercial: Number of properties 25054; Average Annual Value (in LKR) 130244 - Residential: Number of properties 109524; Average Annual Value (in LKR) 29335 - Colombo - Commercial: Number of properties 41918; Average Annual Value (in LKR) 304881 - Residential: Number of properties 127494; Average Annual Value (in LKR) 34563 - Reasons for undervaluation: - Technical: around 80 percent of residential property is owner-occupied, producing thin empirical rental evidence. - Institutional and political constraints: - Valuations are done infrequently due to GVD capacity constraints and because local governments must request re-valuation. - No interim adjustments of tax payments between valuations; adjustment of rates is politically difficult and can be legally challenged. - Taxpayers’ limited willingness to accept discrete tax hikes exerts downward pressure on valuations; re-valuations directly impact tax liability and are influenced by local governments’ spending needs and perceptions of taxpayer support. ### Overview of recommended reform (principles) - Property taxation should be viewed holistically: focus on combined tax burden across local and national governments. - Desirable system features: - Strong reliance on major income taxes; remove existing exemptions rather than introduce more taxes. - Recurrent taxation favored over transaction-based taxes because transaction taxes reduce transaction volumes and incentivize under-declaration. - Limited taxation of productive assets: balance between not distorting business decisions and pricing service provision where costs are related to property values. - Reform timelines: implementation will take time; change valuation techniques toward automated mass valuation and construct linkable databases. A phased, incremental implementation approach is recommended, driven by fiscal consolidation needs. ### Central government priorities and recommendations - Introduce an imputed rental income tax (IRIT) under the Inland Revenue Act to avoid constitutional constraints; IRIT would naturally accrue to the central government. - Recommendation: levy the IRIT only on owner-occupied residential property and not on commercial property. - Expectation: restricted application implies revenue expectations should be lower than for a full national property tax. - Complementary tax reforms to compensate for limited recurrent property tax revenue at the national level: - Reform capital gains tax (CGT): replace exemption of the first home with a value threshold. - Remove exemption of capital gains from the sale of listed shares. - Align VAT treatment of residential property, including owner-occupied housing, with international best practice by taxing the first sale of such property. - To reduce transfers to local governments, increase stamp duties on lease contracts and vehicle registration fees (note: increase in vehicle registration fees will only raise revenue once the import ban is abolished). - Medium-term recommendation: avoid reliance on stamp duties as a revenue source. - Data and administrative investments required: - Digitize GVD information and introduce a provisional digital Sales Price and Rents Register (SPRR) to automatically record information on notarized property contracts. - A comprehensive register of current market values could inform multiple taxes (IRIT, CGT, stamp duties, local recurrent property taxation). ### Improving local government taxation - Reduce reliance on stamp duties on property transfers; shift toward more stable and efficient local recurrent property taxes. - Short-term measures (to reduce pressure on valuation efforts and protect taxpayers): - Introduce a nationwide value threshold below which property is exempt. - Introduce targeted hardship relief measures. - Introduce interim tax assessments or adjust tax rates or the tax base on a yearly basis to reduce pressure from outdated AVs and fixed tax rates. - Stamp duties on property transfers: consider a progressive rate schedule as recommended in the 2023 TA report: - Introduce a zero percent threshold aligned with thresholds for IRIT and CGT. - Above this threshold, levy a 4 percent rate on sales and donations. - Consider a further threshold above which a 6 percent rate should be levied. - Purpose: compensate revenue loss from exempt threshold and target high-value properties. - Medium-term change in tax base: - Municipal councils: tax residential property based on property market values; commercial property can retain current rental values. - Urban councils and Pradeshiya Sabhas: tax using a simple formulaic assessment approach. - Transfer authority for timing of valuations to the central government and the GVD to enable more accurate and timely assessments. - Expected duration: fundamental reforms to unlock recurrent property taxation potential will take 5 to 7 years. ### Implementation timeline, legal changes, and next steps - Legal, regulatory, and administrative changes required (major items listed): - Inland Revenue Act of 2017: Chapter to introduce IRIT; amendments to CGT. - Value Added Tax Act of 2002: Change in property treatment. - Municipal Council Ordinance 17 of 1947: Changes to assessment rate chapter and ancillary sections. - Notaries Act 1 of 1907: Sharing of data with various government departments. - Pradeshiya Sabhas Act 21 of 1987: Changes to assessment rate chapter and ancillary sections. - Stamp Duties Act of 1982 and Stamp Duties (Special Provisions) Act 12 of 2006: Schedule of rates. - Rating and Valuation Ordinance 30 of 1946, Urban Authorities Ordinance 61 of 1939: Changes to assessment rate chapters and ancillary sections. - Regulations under the Notaries Act and new or revised forms (e.g., Form No. – Asmt_IIT_003_E: Statement of Assets and Liabilities – Individuals) to capture more property identification data. - Guidelines on hardship relief to be designed and published by the ministry responsible for local government. - Data collection priorities for IRIT design: - Obtain a current list of annual value assessments of all residential buildings in all municipal councils. - Obtain actual market values of representative buildings in all municipal councils that can be linked to annual value assessments. - Start collecting information from contracts (sales and rents) in an SPRR. - Medium-term planning: detailed project planning for transition to a capital value basis for municipal councils and a simplified assessment methodology for Urban Councils and Pradeshiya Sabhas; research on valuation and assessment models, likely tax rates, and financial impact on taxpayers. - Implementation institutions and roadmap: - Establish a Change Management Unit (CMU) to provide sustained leadership and support for legal and administrative changes. - CMU responsibilities and initial tasks: - Appoint a project director with overall responsibility. - Include members from multiple ministries and agencies with relevant expertise. - Develop a road map focusing on: - Development of the Implementation Plan for the project; - Development of the SPRR; - Development of automated mass valuation methodology integrated with a GIS system; - Creating a public information campaign; - Undertaking revenue impact analysis; - Drafting new comprehensive property tax legislation; - Development of future valuation methods, assessment methodology, data standards and data sources; - Appoint outside experts as needed while retaining necessary in-house expertise. *IMF Technical Assistance Report* ### 24. There is an expectation that the entire property tax reform project will take around five ### Property tax reform timeline and Imputed Rental Income Tax ### Roadmap and timeline - The entire property tax reform project is expected to take around five years. - Key implementation milestones: - Appointment of the project team. - Public establishment and announcement of the CMU, with periodic public updates. - Transparency in goals and methods to gain public support. - Roadmap activities span 2024 through 2029 and include: - Collect information on market values. - Establish database of current market values. - Determine IRT design and amend legislation. - Introduce imputed rental income tax. - Establish CMU. - Establish data sharing protocols. - Design SPRR. - Complete E-Valuation System. - Develop simplified assessment project. - GVD records digitization project. - Introduce simplified methodology. - GVD to begin capital value project. - Introduce capital value rating. ### Imputed Rental Income Tax (IRIT): economic rationale and context - Definition and precedent: - Imputed rental income is the income homeowners could earn if they rented out their homes; it can be defined as a percentage of a property’s market value. - Example benchmark: "3 to 4 percent" of a property’s market value may give a reasonable estimate of rental return. - Sri Lanka previously levied such a tax under the Inland Revenue Act No. 10 of 2006; primary residences were exempt and assessed values for rating purposes were used as the base. - Rationale: - Owner-occupied housing receives implicit subsidy because returns to owner-occupation are not taxed, unlike returns to productive assets. - Fully neutral taxation of owner-occupation requires full taxation of imputed rents, of capital gains on housing, and deductibility of mortgage interest payments. - Distributional role: - An IRIT can resemble outcomes of a recurrent property tax on capital values. Example calculation: if imputed rental income equals 4 percent of capital value, then a property tax of 1 percent on capital value is equivalent to an IRIT of 25 percent on imputed rental income (because 0.04∗0.25=0.01). - Taxation of property addresses concentration of capital and capital income. ### Design: basics and safeguards - Proposed tax base: - IRIT should be levied on imputed income from owner-occupied and vacant residential property above a generous exemption threshold. - Exclude commercial property used for housing and any property currently rented out (rental income is captured under PIT). - This base differs from Sri Lanka’s Assessment Rates where 70 percent of revenue comes from commercial property and no exemption threshold is foreseen. - Link with comprehensive income: - A comprehensive income definition including employment-, investment-, and imputed rental income would improve progressivity, but requires redesigning tax brackets and robust income data. - Short-run practical approach: - Until linkable information is available, imputed rental income should be taxed separately under a new schedule of the Inland Revenue Act (IRA). - The new schedule should apply progressive tax brackets; design depends on revenue targets and distribution of property market values (currently unknown). - Tax base alignment: imputed rental income should align with rental income rules allowing deduction of deemed maintenance costs of 25 percent of the gross amount and local assessment rates, but providing no deduction for mortgage interest (such deduction existed before but was removed with effect from 1st January 2023). - Hardship relief measures: - Include robust hardship-relief because the tax base will be, at least in the short term, unrelated to taxpayers’ ability to pay. - Options: - Tax only above some threshold or after a basic allowance. - Apply a graduated schedule above the threshold. - Provide automatic relief via capping IRIT obligations relative to a multiple of other income tax obligations to avoid forced sales (automatic approaches reduce administrative costs but may produce unfair outcomes). - Provide case-by-case relief on request with evidence. ### Anti-abuse measures - Exemption for rented-out property only if reported rental income reflects market outcomes; IRD must collect information on actual market rentals and additional property data (e.g., size in m2). - Address avoidance techniques such as "corporatization" where residential property is transferred to companies or trusts: - Taxable market value is the proportional share of the market value of property held by the company attributable to the shareholder’s shares or rights. - In determining taxable value of shareholding, no account is taken of any lease on the property or loan/debt liability. - The residential property must comprise more than 50 percent of the aggregate market value of the company’s assets. - Definition inclusions for "residential property" (for purposes of defining “residential property company”): - (1) A dwelling-house, holiday home, apartment, or similar abode; - (2) Improved or unimproved land zoned for residential use; - (3) Any real right (e.g., usufruct or fideicommissum) pertaining to the above. - Exclusions: - Properties held by business enterprises liable to be registered for VAT. - Potential hospitality-sector exclusions: (1) aparthotel complex, hotel, guesthouse, or similar of more than, for example, five units rented to five or more unconnected persons; (2) immovable property of a vendor forming part of an enterprise for VAT purposes. - Note: If trusts can be used to avoid IRIT in the Sri Lankan context, an anti-avoidance mechanism must be included in the Inland Revenue Act. ### Administrative aspects and data requirements - For the foreseeable future, IRIT basis will be self-declared estimated capital value of residential property, made annually in the income tax return (no comprehensive capital value database exists yet). - Immediate priority: compile a database of estimated current capital values to provide IRD with an audit-selection tool and guidance to taxpayers. - Required expansions to income tax return: - Individuals already must annually submit a summary of assets and liabilities; additional immovable property reporting should include: - Situation (physical address); date of acquisition; cost; market value. - Additional variables for risk indicators: size (m2) and residential property type (single family home, apartment, row house, etc.). - Common identifiers to enable linking: GVD assessment roll number, cadastral number, and if using CEB data, the CEB personal electricity account number. - Compliance measures: - Voluntary compliance encouraged via penalties and automatic verification of history of self-declared values upon sale. - Sale information should automatically feed into a digital SPRR available to IRD; if recorded sales price deviates by a certain percentage from an average of the two latest self-assessed amounts, taxpayers should be liable to penalties and additional IRIT. ### Rate structure, data used in simulations, and potential revenue yield - Data and assumptions used for illustrative simulations: - Dataset of around 300 thousand AVs determined by the GVD for 10 municipal councils was used as the basis. - Observed annual value assessments were multiplied with a municipality-specific adjustment factor so that the median monthly rental value amounts to LKR 40 thousand in all municipalities. - Missing values of around 800 thousand properties were imputed assuming these follow the same distribution as the observed data. - The valuation department has assessed values of around 3.4 million properties. The received sample of 300 thousand properties is assumed to be representative of 1.1 million properties (all municipal councils plus 25 percent of the remaining properties). - Simulated rate structures and international comparators: - The calculations consider taxing property progressively at rates between of 1 and 2.2 percent of the property’s market value. - International examples referenced: - Netherlands: progressive schedule between 0.35 and 2.35 percent. - United States (states): average tax rates between 0.32 and 2.23 percent. - Caveats: - More data on actual market values is needed to determine an adequate IRIT design for Sri Lanka; the presented simulations provide a rough indication of distributional effects and potential revenue yields but are insufficient to finalize rate structure design. *IMF Technical Assistance Report* ### 42. Figure 2 (upper panel) illustrates the simulated distribution of annual rental values. By ### tarea2024074-print-pdf - 42. Figure 2 (upper panel) illustrates the simulated distribution of annual rental values. By ### Simulated distribution of annual rental values and implied capital values - 50 percent of rental values are below LKR 480 thousand (LKR 40 thousand per month). - 80 percent of properties yield less than LKR 1 million per year. - Rental value of the top ten percent of Colombo’s residential properties is estimated at LKR 4 million. - Rental value of the top ten percent outside of Colombo is roughly half that amount. - Applying a capitalization ratio of 25 implies: - Median household’s residential property approximate capital value: LKR 12 million. - 80 percent of houses worth less than LKR 25 million. - Annual rental values of the top ten percent in Colombo translate into average capital values of LKR 100 million. - Nationwide, the top ten percent properties would be worth around LKR 80 million with a capitalization ratio of 25 (and LKR 96 million with a cap-ratio of 30). - Note: Numbeo.com suggests capitalization ratios between 30 and 45 in Sri Lanka, depending on the location of the property. The capitalization ratio of 25 was suggested by valuation professionals in Sri Lanka. ### One-rate IRIT structures: revenue yield and coverage examples - A system with one rate above some exemption threshold could potentially generate around 0.5 percent of GDP for a wide range of parameter combinations. - Examples: - Flat rate of 30 percent applied on imputed rental income above an exemption of around LKR 400 thousand would yield 0.5 percent of GDP and would cover 55 percent, or around 600 thousand properties. - Flat rate of 50 percent applied on values that exceed LKR 800 thousand would yield 0.5 percent of GDP and would apply to the top 30 percent (330 thousand properties). ### Graduated IRIT schedules: two reform scenarios and distributional consequences - Reform 1: - Applies a flat rate of 25 percent above a threshold of LKR 480 thousand (50 percent of in-scope properties). - Reform 2: - Applies a rate of 31.25 above an exemption threshold of LKR 600 thousand, and a rate of 56.25 on the excess of annual values above LKR 900 thousand (or the top 25 percent). - Footnote: The rate is chosen so that market values would be taxed at a rate of 1.25 percent, assuming a capitalization ratio of 25. - Revenue and distributional outcomes: - Under the graduated schedule: - Tax collections from the top decile would amount to 0.45 percent of GDP, or three quarters of estimated total tax revenue of 0.6 percent of GDP. - Tax burden low for bottom 90 percent: 60 percent not paying tax; 30 percent paying less than LKR 300 thousand annually. - Top decile (around 110 thousand properties), with average values estimated to lie between LKR 80 to 100 million, contribute an average of LKR 1.3 million per household. - Under the flat schedule: - Tax collections from the top decile amount to about 0.2 percent of GDP, or 60 percent of the total (0.35 percent of GDP). - Tax payments exceed those under the graduated schedule up to the 8th decile, resulting in a less progressive system. - Ninth decile would pay less than LKR 250 thousand annually while the top decile would pay less than LKR 750 thousand. ### Alternative tax base: imputed rental income versus market (capital) values - Using capital values rather than imputed rental income as the base is preferred in practice because taxpayers better understand potential sales prices. - Table 4 shows equivalent graduated schedules if capitalization ratio is 25 or 30: - Base: Imputed rental income - 1st threshold (in LKR thousands): 600 - Rate above 1st threshold (in percent): 31.25 - 2nd threshold (in LKR thousands): 900 - Rate above 2nd threshold (in percent): 56.25 - Base: Market value (cap ratio of 25) - 1st threshold (in LKR thousands): 15000 - Rate above 1st threshold (in percent): 1.25 - 2nd threshold (in LKR thousands): 22500 - Rate above 2nd threshold (in percent): 2.25 - Base: Market value (cap ratio of 30) - 1st threshold (in LKR thousands): 18000 - Rate above 1st threshold (in percent): 1.04 - 2nd threshold (in LKR thousands): 27000 - Rate above 2nd threshold (in percent): 1.875 - Lower rates (remaining below 2 percent if the capitalization ratio is 30) and higher thresholds (in the millions rather than thousands) of market-value based system likely easier to communicate. ### Sensitivity of revenue estimates and operational implications - Two key parameters driving revenue estimates: median rental value across municipalities and number of potentially covered residential units. - Example sensitivity: - If actual median value were LKR 30 thousand (rather than LKR 40 thousand) and only 840 thousand properties were in-scope (rather than 1.1 million), revenue collections would be 50 percent lower. - Importance of collecting information on property market values in the short term emphasized. ### Recommendations (specific) - Introduce an IRIT with an appropriate value threshold and separate rate schedule in 2025. - Insert anti-avoidance provisions in the 2017 IRA that counter the use of “residential property” companies and discretionary trusts to avoid IRIT. ### Complementary tax design changes — capital gains tax (CGT) - Current CGT: - Applies a concessionary rate of 10 percent, assessed upon realization. - Gains exempt if gain is less than LKR 50,000 per asset and LKR 600,000 per year. - Fully exempt if gain derives from shares listed on the Colombo stock exchange. - Gains on disposal of an individual’s principal place of residence are exempt if owned continuously for three years and inhabited for at least two years. - Footnote: In lieu of capital gains tax, a transaction levy is imposed at a rate of 0.3 percent on both the buyer and seller of shares. - Recommendations: - Capital gains on sale of taxpayers’ primary residence should be taxable above some threshold (replace exemption with fixed allowance so gains only taxable above threshold). - Remove incentives granted to companies listed on the stock exchange that distort competition and reduce CGT yield. - Once CGT applied broadly on alienation of all property, stamp duty on property transfers should be phased out because transaction taxes are inequitable and distort disposal decisions. ### VAT on real property - Recommendation: VAT should apply uniformly on all consumption of residential property, regardless of whether property is rented or bought. - International practice: Tax newly built residential properties; ideally resales should be subject to VAT with input VAT crediting, and renting treated the same (all rent contracts subject to VAT). - Practical constraint: Taxing resale and owner-occupier resales is impractical due to administrative capacity; therefore resales are generally exempt worldwide and exemption of rental contracts can be justified. - Current Sri Lanka treatment (summarized): - Sales: Commercial properties — Taxable; Residential properties — New sale: Exempt (consolidated statement: Condominiums taxable; others exempt). - Leasing: Commercial properties — Taxable; Residential properties — Exempt (but current practice in Sri Lanka shows residential leasing is taxable). - Recommendation: Align Sri Lanka’s VAT treatment with international best practice by imposing tax on the first sale of all residential property and removing distortions that penalize renting and result in multiple taxation of condominiums. ### Alternative options: stamp duty and electricity usage tax - Stamp duties: - Only a few stamp duties collected by central government. - Stamp duty on leases of government land (about 80 percent of all land) payable at 0.1 percent upfront. - In 2022, stamp duty collected centrally was LKR 9.1 billion (about 0.04 percent of GDP). - Proposal: Increase stamp duties for commercial and industrial leases to 0.2 percent (payable upfront) for next few years; revenue potential may be 0.04 percent of GDP. - Electricity usage tax: - CEB 2022: more than 6.93 million accounts; 5.97 million residential accounts; 911,126 commercial (including hotels) and industrial accounts; more than 600,000 high-use (in excess of 180 kWh per month) residential accounts. - An electricity usage tax would be simple to administer but weakly targeted at wealth. - Revenue scenarios: - Scenario using a fixed fee of LKR 100,000 per year: - If applied to 600,000 high-use residential consumers plus all general purpose, hotel and industrial accounts (911,126 accounts total), could raise LKR 151 billion (0.5 percent of GDP). - Scenario 2 excluding small- and medium-sized non-residential enterprises (only 547 non-residential accounts added) would raise LKR 61.25 billion (0.2 percent of GDP). - If levied only on the more than 600,000 high-usage residential accounts, it still raises more than LKR 60 billion. - Better design options: - Ad-valorem surcharge on total electricity cost above an exemption threshold to better differentiate households and increase marginal cost of consumption. - Specific charge per kWh could differentiate between fuel sources and address environmental concerns (more than 50 percent of total energy production currently from coal or oil). - Ancillary benefit: CEB database (covers over 80 percent of households) includes consumer addresses and GPS coordinates and could be a useful resource for IRD, Surveyor General, GVD, and local authorities. *Source: valuations data, IMF-staff computations* ### 61. The mansion tax was included in the Finance Bill after the 2015 Interim Budget, but not ### The mansion tax was included in the Finance Bill after the 2015 Interim Budget, but not introduced. ### Mansion tax: design, thresholds, and concerns - Proposed levy: annual tax from April 1, 2015, on every owner of a “mansion” constructed on or after April 1, 2000. - Mansion definition: - residential building constructed on or after April 1, 2000; - area not less than 10,000 square feet; - value on April 1 of any year not less than LKR 150 million. - Original proposal (later changed): minimum area 5,000 square feet and value LKR 100 million. - Value determination: must be determined by the GVD. - Scope: condominium units are specifically included. - Tax amount and administration: - fixed amount of LKR 1 million per property; - payable to IRD in 4 installments; - revenue to be remitted to local authorities. - Key concerns raised: - Base narrowed and arbitrary by increasing area and value thresholds. - Exclusion question: if GVD determines value, why exclude mansions constructed prior to April 2000? - Area threshold of 10,000 square feet (about 929m2) excludes many high-value apartments. - A flat LKR 1 million charge is regressive relative to property value: - effective tax rate on a mansion of LKR150 000 is 0.67 percent; - on a LKR250 million mansion it is 0.4 percent; - on a luxurious house of LKR 95 million it is close to zero percent. - If the goal is to tax wealth, a fixed tax amount is unfair. - Constitutional note: If enacted, the mansion tax would be a sub-national tax and thus not benefit the central government budget directly. ### Mansion tax: alternatives and recommendation - Remove the area threshold; apply only a credible value threshold determined from GVD databases and, later, the SPRR index. - Tax design: tax should be a percentage of value, not a fixed amount per property. ### International examples of luxury property taxes - Turkey: luxury house tax on residential property valued at more than TRY 9 967 000 (USD 321,250) at progressive rates of 0.3 to 1.0 percent. - British Columbia, Canada: additional property transfer tax payable on residential properties worth more than CAD 3 million; rate is 2 percent on the value exceeding CAD 3 million. - Note: In 2023, a proposal to introduce a recurrent mansion tax in the city of Vancouver was shut down. ### Recommendations (selected from the chapter) - Replace the CGT exemption for a primary residence with an appropriate value threshold aligned with the value threshold for the IRIT. - Remove the exemption of capital gains taxation for listed companies on the stock exchange. - After a review as regards lease amounts and affordability, consider an increase of stamp duties on leases of land from 0.1 percent to 0.2 percent. - Consider the introduction of an electricity usage tax. - Share the CEB data base with IRD, the Surveyor General, GVD, and eventually local authorities to assist them in improving their own data bases on properties and taxpayers. - Align the VAT treatment of residential property transactions with international best practice by exempting resales and rental contracts but taxing all first sales. ### Designing fit-for-purpose data infrastructure — Immediate data needs for the IRIT - Priority: establish a database of approximate current capital values of residential properties to: - guide IRIT design and estimate taxpayer impact and revenue yield; - provide a basis for audit selection (capital values will be self-declared); - inform taxpayers on reasonable capital values. - Data source and approach: - Use digitized AV assessments from municipal councils as the first step. At minimum include property type (residential or not), Ward number, and ideally size (m2). - Convert AVs into market values by valuing a representative sample of standard properties in each Ward (maybe 30 to 50 per Ward). - GVD to compute property-specific ratios of capital values relative to AVs and construct Ward-specific average ratios to apply across AVs. - Maintenance: - Yearly valuations of standard properties required to update estimated capital values. - GVD to continue providing AV assessments; a dedicated team of valuers needed for IRD and the department of fiscal policy. ### Building data for the medium term — Digitizing market transaction evidence (SPRR) - Need to capture and store market transactions in a digital Sale Price and Rent Register (SPRR). - Current limitations: no systematic collection; sale prices and rentals sourced manually from notarized contracts and rental registrations. - SPRR design objectives and steps: 1. develop the database; 2. collect at least 2 years of historic transactions (largely manual); 3. provide a module for calculation and payment of stamp duty on property transfers; 4. identify parts of the SPRR for public viewing; 5. create digital links with notaries public; 6. build spatial links with the land cadaster. - Timeline: full development ~18 months, but adopt a provisional SPRR to start capturing transactions this year. - Linkage requirements: - Transaction evidence should be linkable to the land information system and national cadaster. - Notaries’ information should include cadastral number, buyer personal identification (ID) or Tax Identification Number (TIN), and local authority assessment rates roll number to enable spatial joins with GVD data. - Data availability trade-offs: public access can improve transparency (examples: Republic of Ireland, Netherlands, British Columbia) but must respect personal data confidentiality. ### Digital inventory of all properties - Need to digitize granular property information (size, age, condition, utilities) currently recorded in valuation report cards by GVD. - Scale and risk: - Information held in large files with drawings; several million documents estimated; - Digitization may take ~two years and preserves critical records from loss (fire, flooding). - E-Valuation system: - GVD’s E-Valuation system is a proto-type that records field inspection data digitally and could support mass valuation; completion should be accelerated. ### Recommendations on data infrastructure (selected) - Introduce a Sale Price and Rent Register as soon as possible. - Digitize the rating valuation records held by the GVD. - Revise the information provided by notaries on land and property transactions to include the cadastral number, buyer TIN and ID numbers and the GVD assessment rates roll number. - Immediately assess market values of a representative sample of standard properties throughout the country and design a process to re-estimate such samples annually. - Using assessed market values combined with AVs from municipal councils, establish a first database of estimated current market values to (i.) design the IRIT and (ii.) provide guidance on market values to taxpayers. ### Subnational property taxes — Stamp duty and recurrent property taxation - Stamp duty on property transfers: - Central revenue source for local authorities (municipal councils, urban councils, Pradeshiya Sabhas). - Current tax rates for sales agreements: 3 percent on the first LKR 50,000 and 4 percent above that amount. - For donations: 1 percent on first LKR50,000 and 2 percent thereafter. - Stamp duties accounted for 30 percent of local authorities’ own revenue in 2023; recurrent property taxation accounted for 25 percent. - Issues with recurrent property taxes: - GVD mandated to provide extensive valuations and solely responsible for determining AVs and re-assessments for most of the 340 local authorities on a 5-yearly revaluation cycle. - Local tax rates range between 5 and 35 percent. - Underperformance drivers: - dearth of open market rental evidence, especially for residential owner-occupation; - delays in 5-year valuation cycle—many local authorities have very out-of-date AVs (e.g., 43 out of 47 local authorities in Central Province very out-of-date; 23 local authorities not revised for more than 11 years); - non-comprehensive tax base coverage—newly developed properties not valued between revaluations; in Pradeshiya Sabhas only properties within demarcated developed serviced areas liable to assessment rates. - Stamp duty reform suggestions: - Consider introduction of progressive rate schedule in the short term with a zero percent threshold aligned with IRIT threshold. - Proposal: above the zero percent threshold, levy 4 percent on sales and donations; consider a further threshold above which rate is 6 percent to target high-value properties. - Medium term: as recurrent taxation revenue rises, reduce stamp duties. - Improving recurrent property taxation — continuous liabilities: - Problem: rate changes tied to service provision and require provincial council approval; most local governments have not changed rates in decades. - Two ways to reduce revaluation pressure: - Rate adjustment: set local property tax rates yearly to reflect spending needs and/or inflation. - Base adjustment: adjust tax base yearly using interim (or temporary) valuations. - Preference in Sri Lanka: index tax bases to an exogenous variable (e.g., municipality-specific price indices developed from IRIT representative sample) rather than rate adjustments because of legal ties of rates to service provision. - Hardship relief design principles: - Address hardship via properly designed tax relief schemes (rebates or deferment), not through base exclusions, area-based thresholds, or blanket exemptions. - Relief should be targeted, time-limited where appropriate, and not undermine property tax integrity or revenue potential. - Prefer broad tax base, consistent valuation of all taxable objects, uniform tax rate where possible; exemptions/rebates or discounts/deferrals can be used to reduce tax burdens for targeted groups. - Example impact of tax relief (Table 7): - Residential property value 50,000,000 - Value threshold 25,000,000 - Taxable value 25,000,000 - Statutory tax rate: 1.0% -> 250,000 - Rebate (above 65): 10% -> 25,000 - Tax Amount 225,000 - Discount for early payment: 5% -> 11,250 - Final payment 213,750 - Effective tax rate 0.4% *Source: https://www.imf.org/-/media/files/publications/tar/2024/english/tarea2024074-print-pdf.pdf* ### 85. A measure that could provide general (“blanket”) relief, is a threshold that forgives ### tarea2024074-print-pdf - 85. A measure that could provide general (“blanket”) relief, is a threshold that forgives ### Blanket relief: area vs value thresholds - A threshold can forgive property tax for properties below a stated area (m2) or value threshold. - Rationale: the poor often live in areas with limited public services and low assessment values; exemptions/thresholds can accord rough justice where tax collection costs may exceed revenue. - Value threshold preferred to area threshold: - Value threshold examples: Cambodia, Egypt, Indonesia, South Africa. - Area threshold example: Pakistan. - Area thresholds are regressive because they give the same relief to luxury-apartment and -home owners in high-value locations as to modest owners in poor locations. - Market-value based property tax can use a value threshold to target relief. ### Limitations of value-based blanket relief - Property value is generally a good proxy for service levels, but not for a taxpayer’s ability to pay. - A blanket/value threshold is crude for “asset rich, but cash poor” taxpayers and must not be set too high because it also benefits the wealthy. - Unintended consequences arise if a single threshold is applied country-wide. ### Determining appropriate value thresholds — South Africa example and numeric ranges - South Africa: law prescribes a nominal minimum value threshold of ZAR 15,000 (KLR 248,000 or USD795) which applies country-wide, but local authorities can determine a higher threshold (no maximum). - Across South Africa, the 2024 threshold varies between the minimum of approximately USD 795 (in some poor rural local authorities) and USD 23,800 (in the City of Cape Town). - Mechanism: the value threshold amounts to a deduction from the taxable value; it is impermissible to tax the value below the threshold of residential properties, so wealthier residential taxpayers receive some benefit. - Example: a Cape Town residence valued at USD 30,000 will only be taxed on USD 6,200 (i.e., the amount exceeding the threshold). ### Hardship relief schemes (targeted) - Well-designed hardship relief targets only those in need; relief ranges from partial rebate to full exemption (100 percent relief). - Common eligibility features: pensionable age, disability, and means-testing (not all elderly/disabled are necessarily poor). - Administrative requirement: taxpayers generally required to annually apply in writing and submit proof; relief should apply only to a taxpayer’s primary residence. - Policy design: central government can publish guidelines, but local authorities should design jurisdiction-specific schemes; scheme presupposes administrative capacity. ### South African city examples — rebate schedules and numeric thresholds - Relief is means-tested and considers total household income; percentage rebates determined by schedule; gross monthly household income rounded to nearest rand. - City of Tshwane (Property Rates Policy, 2023-2024) rebate table: - Minimum gross monthly household income ZAR 0 — Maximum gross monthly household income ZAR 8,950 — Percentage rebate 60 - ZAR 8,951 — ZAR 10,050 — 50 - ZAR 10,051 — ZAR 11,150 — 40 - ZAR 11,151 — ZAR 12,250 — 30 - ZAR 12,251 — ZAR 13,900 — 20 - ZAR 13,901 — ZAR 16,775 — 10 - Note: USD 1.00 = ZAR 18.90 = LKR 312.50. - City of Cape Town (Property Rates Policy, 2023-2024) rebate table: - ZAR 0 — ZAR 7,500 — 100 - ZAR 7,501 — ZAR 10,000 — 95 - ZAR 10,001 — ZAR 14,000 — 90 - ZAR 14,001 — ZAR 15,000 — 80 - ZAR 15,001 — ZAR 16,000 — 70 - ZAR 16,001 — ZAR 17,000 — 60 - ZAR 17,001 — ZAR 18,000 — 50 - ZAR 18,001 — ZAR 19,000 — 40 - ZAR 19,001 — ZAR 20,000 — 30 - ZAR 20,001 — ZAR 21,000 — 20 - ZAR 21,001 — ZAR 22,000 — 10 - Note: USD 1.00 = ZAR 18.90 = LKR 312.50. ### Fiscal trade-offs: exemptions, rebates, and deferred liability - Exemptions and rebates for hardship are well-targeted but cause permanent local government revenue forgone and can be hard to quantify. - Alternative: defer tax liability of a cash-strapped taxpayer until the property is transferred. ### Tax deferral (mortgaging of property tax liability) - Purpose: assist “asset rich, cash poor” taxpayers or temporarily unemployed; taxpayers can go into arrears without penalties but with interest charged on outstanding amounts. - Repayment triggers: - For the unemployed, arrears become payable when they return to gainful employment, with suitable phasing. - In all cases, arrears become due in full when the property is alienated (sale, donation, inheritance); deferred tax collected with interest. - International practice: deferral schemes typically reserved for exceptional circumstances due to potential cash-flow impact on municipalities; clear guidelines needed to define “exceptional circumstances.” - Empirical note: some studies show low take-up; OECD (2022) — elderly households may prefer to leave property to heirs without tax obligations. - Design risks: - Too generous eligibility or low interest can significantly impact jurisdiction’s current revenues. - Targeted deferrals pose administrative and equity challenges in defining/identifying qualifying taxpayers. - Automatic deferral rights are simpler but poorly targeted and can lead to significant short- and medium-run revenue shortfalls. - Administrative precondition: local authorities need capacity to design and manage deferral programs. - Example statistic: By June 2018, about 3 percent of British Columbia’s property taxpayers had approved tax deferrals; the deferred amount was about CAD 970 million—approximately 13 percent of the total potential revenue. ### Recommended package for Sri Lankan municipal councils - Three relief mechanisms to consider: 1. A residential value threshold that applies to all residential property. 2. An on-application relief scheme providing rebates on the basis of a “means test.” 3. A tax deferral scheme. - Municipal councils could be allowed to increase the value threshold above a nationally prescribed minimum based on local circumstances and market evidence. - Caution: thresholds are blanket approaches benefiting both poor and wealthy; levels must be carefully selected. - Rebate scheme and tax deferral should narrowly target “cash poor” individuals through a means test. ### Best practices for exemptions and administrative transparency - Review exemptions periodically (e.g., every three or five years); renewal dependent on evaluation; terminate exemptions that no longer support original purpose. - If capacity allows, record all exempt properties on valuation list, require periodic revaluation, and publish results to monitor forgone property tax revenues. - Communicate tax expenditure to all taxpayers so beneficiaries view relief as a privilege, not a right. ### Improving tax base assessments — mass valuation and automation - GVD responsibilities and constraints: - GVD should be responsible for timing revaluations. - GVD capacity affected by other national government requests and insufficient professional valuers, causing delays for local authorities. - Local authorities must request revaluation approved by provincial administration, leading to non-five-year cycles and resource planning uncertainty for GVD. - Current practice in Sri Lanka: valuations for assessment rates rely on manual approaches and processes. - Benefits of automation and mass valuation: - Improves valuation efficiency and results in significant time savings. - Mass valuation found in Hong Kong, Netherlands, several states in Australia, Slovenia, Republic of Korea. - Case for mass valuation: efficiency (low implementation costs for many properties), equity/fairness, link to fiscal necessity to apply recurrent property tax, and ability to increase revenues by applying estimated market values. - Mass valuation models often achieve more accurate and efficient price analyses than traditional appraisal techniques. - Mass valuation process steps: 1. Identifying properties to be valued. 2. Defining the market area in terms of consistent behavior of property owners and buyers. 3. Identifying characteristics of supply and demand affecting value in the market area. 4. Developing a model structure reflecting relationships among characteristics affecting property value. 5. Calibrating the model to determine contributions of individual property features. 6. Applying model results to the characteristics of the properties being valued. 7. Validating the adopted mass valuation model through quality assurance techniques and ratio analysis. 8. Re-calibrating the model if required. ### Change in basis of taxation — Municipal councils, timeline, and steps - Recommendation: adopt capital (market) value for assessment of residential property within the 24 municipal councils. - Advantages of capital value: 1. Availability of market evidence. 2. More transparent value basis. 3. Easier for ratepayers to understand. 4. Consistency with national property-related taxes (stamp duty, CGT, and potentially imputed rental income). - Definition of market value typically: “The amount that the property would have realized if sold on the date of valuation in the open market by a willing seller to a willing buyer.” - Commercial property: retain annual value basis due to availability of rental evidence; GVD can require occupiers to furnish lease/rent information; SPRR used to collate market rents. - Transition timeline: in the region of 3 to 5 years. - Key activities for transition to capital values: 1. Establishing the SPRR. 2. Adopting mass valuation methodologies. 3. Drafting supporting legislation. 4. Undertaking pilot projects to demonstrate methodologies. 5. Analysis of revenue impact from the change. 6. Developing an effective communication strategy to inform the taxpaying public. ### Simplified assessment option — Urban Councils and Pradeshiya Sabhas - Urban Councils and Pradeshiya Sabhas could use a simplified assessment methodology not based on property “value.” - Simplified approach recommended for these local governments due to opaque property markets, lack of accurate information on capital/rental values, insufficient valuation capacity, and incomplete title registration. - Simplified methodology rationale: - A few adjustment coefficients determine tax liability across all properties (residential and commercial). - Reduces pressure on the GVD to provide rating valuations, important because GVD will be allocated additional tasks under the IRIT. - International precedents: - India: several cities abandoned annual rental value and introduced simplified methodology. - Sierra Leone: Freetown and small towns adopted simplified valuation. - Mzuzu, Malawi: simplified system introduced in 2013; revenues increased by 700 percent between 2013 and 2018. - Typical simplified approach: area-based assessment (size of land and buildings) with adjustments for characteristics (location, urban/rural zone, municipality population, building condition, property use, depreciation) to proxy market value and enhance fairness. - Administration: structure of assessment should be centrally developed while giving local authorities full control of administration; GVD could support initial calibration using available data. - Adjustment factors can be calibrated to local environments; because this is not a value-based tax, GVD will not have direct input into ongoing assessment beyond initial support. *IMF Technical Assistance Report | Excerpt from pages 42–47* ### Box 2. India's Simplified Assessment System ### Box 2. India's Simplified Assessment System ### Historical background and rationale - Property tax system originally introduced by the British colonial administration; tax base defined as the annual rental value of land and buildings. - Annual rental value method was one of the most prevalent systems in India but in a considerable number of municipalities it was non-transparent and not capable of self-assessment. - Government recommended adoption of a formula-based system to minimize discretion at field level and enable self-assessment. - Reform objective: make property tax a revenue productive tax instrument given poor financial condition of local authorities. ### Adoption of unit area method and experience - Patna Municipal Corporation’s successful demonstration of the unit area method in 2002 led other municipal authorities to transition gradually (including Ahmedabad, Bangalore, Chennai, Delhi and Surat). - Under the unit area method: - Properties are classified using criteria such as location, actual use, and construction type. - Allowances are provided for age of a building and occupancy (owned or rented). - Reported advantages: objectivity, transparency, fairness, and lower compliance costs for taxpayers and government. - Caveat: adoption of area-based system does not automatically produce higher tax yields and better compliance; sustained efforts to build efficient tax administration are required. ### Transition requirements and timeline - Transition to the simplified methodology will take in the region of 2-3 years. - Key activities required to support the methodology: - (1) establishing the ICT to support the system; - (2) collection of the required data; - (3) development of the assessment methodology; - (4) drafting the supporting legislation; - (5) undertaking pilot projects to demonstrate the methodologies; - (6) analysis of the revenue impact as a consequence of the change; - (7) developing an effective communication strategy to inform the taxpaying public. - Administrative and ICT considerations: - Each local authority will be responsible for collecting and maintaining necessary property data. - Administration to support this must be developed along with the ICT to manage the system. - Ideally, a single national uniform ICT system should be designed and developed to avoid multiple fragmented systems; a centrally developed, standardized solution could be completed more quickly and more cost effectively. ### Policy recommendations (as listed) - Introduce a zero-percent threshold to alleviate the burden on the poor – in line with the threshold for IRIT and CGT. - Introduce a further threshold at an appropriate level to introduce further progressivity and to account for the revenue loss resulting from the zero-rating. - Stamp duties should be reduced over the medium term as the revenue from assessment rates increases. - Avoid discrete jumps in tax liability by either adjusting the tax base or the tax liability between assessments. - Introduce a nation-wide minimum value threshold for residential property to exempt low-value residential property from assessment rates. Municipal councils should be allowed to increase this threshold on the basis of their own peculiar circumstances. - The ministry responsible for local government must in consultation with municipal councils determine criteria and provide guidelines for the introduction of hardship relief programs. - Amend the Municipal Council Ordinance to allow municipal councils to introduce a deferral scheme to assist “asset rich-cash poor” taxpayers. - Local authorities should regularly review all exemptions to audit continued eligibility and to report on the revenue foregone. - The GVD should develop a five-year rolling program for undertaking local authority revaluations and annual supplementary valuations. - The GVD should develop automated valuation models. - Accelerate the completion of the GVD E-Valuation System. - For Municipal Councils, shift from annual value to capital value. - For Urban Councils and Pradeshiya Shabha, shift to the simplified assessment methodology. - Design and develop the ICT system to administer the simplified assessment methodology. ### Valuation data and impacts (Annex A summary) - Valuations sample: around 420 thousand valuations; 70 percent conducted for residential property; average residential valuation of LKR 31 thousand. - Commercial properties: represent 20 percent of the sample but contribute 70 percent, or around 5 billion LKR, of total tax recorded in the dataset due to higher values and higher tax rates. - Table A.1 key figures (preserve exact values): - Commercial: 81809 properties; 19.5 (Number in percent of total); 17477 (Value in millions); 214 (Average value in thousands); 60.6 (Value in percent of total); 5082 (Tax in millions); 0.017 (Tax in percent of GDP); 29.1 (Tax rate in percent) - Other: 45304; 10.8; 2407; 53; 8.3; 651; 0.002; 27.0 - Residential: 293111; 69.8; 8974; 31; 31.1; 1430; 0.005; 15.9 - Total: 420224; 100.0; 28857; 69; 100.0; 7163; 0.024; 24.8 - Market evidence contrast: lankapropertyweb.com reports houses in 2023 sold for an average price of LKR 62 million; assuming ratio of market value to yearly rental price is 30 to 35, this translates to an annual rental payment of around 2 million. - Numbeo.com average rental values range between LKR 408 thousand (1-bedroom outside city centers) to LKR 2.25 million (3-bedroom in city centers). - Valuation data are adjusted by multiplying AVs with municipality specific adjustment ratios so that the median property rental value in each municipality equals LKR 480 thousand (monthly payment of LKR 40 thousand). - Across the sample, the ratio of the median residential property value relative to the assumed value is 31. - Table A.2 selected entries (values in LKR thousands; adjustment factor computed as 480/median value): - Batticaloa: Number of residential properties 25615; AVs 3.5; 5th percentile 12.0; Median value 42.1; 95th percentile 16.3; Mean 40.0 - Colombo: 127494; 2.9; 16.3; 123.0; 34.6; 29.4 - Galle: 22321; 2.5; 11.8; 41.5; 15.7; 40.8 - Hambanthota: 10381; 1.0; 3.5; 18.8; 5.9; 137.9 - Jafna: 21672; 1.0; 16.8; 63.0; 22.7; 28.6 - Kandy: 17722; 5.1; 32.0; 113.2; 42.4; 15.0 - Kurunegela: 6704; 17.1; 112.5; 341.2; 136.8; 4.3 - Matale: 12756; 1.0; 9.9; 44.0; 14.5; 48.3 - Polonnaruwa: 7337; 0.5; 12.0; 43.4; 18.2; 39.9 - Sri Jaya: 41109; 1.1; 17.9; 97.9; 30.6; 26.8 - All: 293111; 1.525; 15.6; 107.5; 30.6; 30.8 - Coverage and affected properties: - GVD assessed AVs for 945 thousand properties in municipal councils, 1.8 million properties in Pradeshiya Sabhas, and 600 thousand properties in urban councils. - Assuming 70 percent residential share, there exist around 2.4 million residential properties in Sri Lanka. - Assumption for imputed income tax scope: all residential properties in municipal councils (662 thousand) and 25 percent of residential properties outside municipal councils (440 thousand properties) are potentially affected = up to 1.1 million residential properties may be affected. Remaining 1.3 million properties are not expected to be captured. - Weighting for simulated distribution: - Properties in Colombo assigned weight 1.5; properties outside Colombo assigned weight 5.5; weighted number of properties equals 1.1 million. ### Simplified assessment methodology (Annex B) - Basic formula: - Tax Liability = {Area(m2) x LKR/m2} x {LOCATION x AGE/CONDITION x PROPERTY USE x RESIDENTIAL USE} - Notes: - Number of adjustment factors should be kept to a minimum; example uses four factors. - Adjustment factors can be revised every 5 years. - Location Factor example (proximity to road factors, Table B.1): - Main Road 2.50 - Secondary Road 1.50 - Tertiary Road 0.90 - Unpaved Road 0.50 - Age/Condition of Building Factor (Table B.2): - Modern, Excellent< 10 years 1.50 - Good>10 to 20years 1.25 - Average>20 to 30 years 1.00 - Poor>30 to 40years 0.60 - Dilapidated>40 years 0.25 - Type of Residential Building Factor (Table B.3): - Apartment 1.75 - Individual House 1.50 - Row House 1.00 - Other 1.00 - Type of Commercial Building Factor (Table B.4) — factor values listed as given: - Hotels, Restaurant, Entertainment Places, Open-air theatre, Service station, Cinema, 10 - Retail malls, shops 8 - Offices, Bank, Central Government office, State Government office, Post-office, Commercial and / or industrial office 7 - Dish antennae, Antenna towers, Signboard, hoarding, Mobile phone towers 6 - Dispensary, Hospital, Clinic, Maternity home, Laboratory 4 - Industrial (light and heavy); storage warehouses 4 - Private Nursery, Private and Govt. Schools, Private and Govt. Colleges, University campus, Museum, Community halls, Social institutes run by public charitable trust and non-grantable schools. 0 - Temple, Mosque, Derasar (Jain Temple), Church, Roza, Tombs, Gurudwara (Sikh Temple), Graveyard, Kabrastan, crematorium, well, public bath. 0 *IMF Technical Assistance Report | Box 2. India's Simplified Assessment System* --- _Source: https://www.imf.org/-/media/files/publications/tar/2024/english/tarea2024074-print-pdf.pdf_