Download Property Taxes in Poland

Property Taxes in Poland
and other transition countries
W. Jan Brzeski
Innovations in Local Revenue Mobilization
World Bank, June 23-24, 2003
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Some Data on Poland
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Population almost 40 million people
4.5 million buildings and 11 million dwellings
92 cities with population over 50,000
property tax constitutes 14% of municipal revenues
property taxation raises 1.8 billion USD revenue
5.5 million real property taxpayers
2 million agricultural taxpayers
1.2 million forest taxpayers
largest property tax revenue in post Soviet economies
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Strong Political Decentralization
COUNTRY
France
Germany
Italy
Spain
United Kingdom
POLAND
# Regions # Counties # Municipalities
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96
36.559
16
426
16.121
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108
8.104
17
50
8.082
135
319
16
373
2.489
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Pros and Cons of Decentralization
• ADVANTAGES OF DECENTRALIZATION:
– Better match supply/demand of public services
– More efficient provision mechanism
– Increased political stability
• DISADVANTAGES OF DECENTRALIZATION:
– Aggravations of spatial disparities
– Less efficient budgetary macro-economic management
– Higher fixed costs of territorial administration
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Weak Fiscal Decentralization
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Sub-national gov’t share in GDP only 8% vs. 15% in EU
Sub-national gov’t debt 1% vs. 10-20% in EU
Current problems with growing public finance deficit
Governments committed to lower income taxation
VAT is already very high at 22%
Cutting public expenditures through sector reforms
Need for greater role of real property taxation
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Significant Role of Property Taxation
COUNTRY
Poland
Average for the CE
Average for the EU
Property taxes Property taxes: Property taxes: Property taxes:
relative to the
share of
share of total
share of local
economy: GDP
government
local revenues
autonomous
revenues
revenues
1,2 %
0,6 %
0,9 %
3,0 %
1,7 %
2,2 %
13,9 %
8,1 %
7,3 %
31,8 %
15,3 %
32,5 %
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Contemporary History of Property Tax
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1985 agricultural property tax introduced
1986 real estate tax introduced
to expand non-income tax base in crumbling economy
capture wealth diverted to this untaxed area
lack of markets forced the use of area tax basis
1991 Solidarity gov’t assigned the tax to municipalities
1992 forest property tax introduced
1997 amendments to close loopholes, more exemptions
2001 rationalization of tax, broader tax base coverage
2003 further amendments to existing regulations
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Present Framework of Property Taxation
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National budget stipulates max / min property tax rates
Law on Local Taxes and Fees - real estate tax
Law on Agricultural Tax
Law on Forest Tax
Real estate (urban based) property tax yields over 80%
Agricultural property tax yields 15%
Forest property tax yields 2%
Municipalities set their rates and additional exemptions
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Focus on Real Estate Taxation
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Tax base: land and floor area, book value
Tax liability: natural and legal persons
Tax payable by owners or users/leaseholders
Land tax differentiates rates by categories
Building tax differentiates rates by categories
Structures tax on depreciable business assets
Exemptions granted by nat’l laws and local ordinances
Government properties usually not exempted
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Real Estate Tax Rates
TAX BASE
TAX RATE CEILING (USD)
Residential building usable area
0.11
Business building usable area
3.69
Seed related building usable area
1.72
Other building usable areas
1.23
Book value of depreciable structures
2.00 %
Business use land area
0.13
Non-farm cropland area
0.01
Land under lakes, reservoirs, and power
0.72
Residential and other land
0.02
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Real Estate Tax Administration
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Most administrative work by local government
Fiscal cadastres are taxpayer (subject) based
Different procedures for natural and legal persons
Legal persons do self-assessment and pay monthly
Natural persons are billed and pay quarterly
Taxpayers pay on property portfolio
Enforcement: tax lien, foreclosure, seizure, garnishment
Several appeals instances possible through admin. code
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Evaluation of the Present System (1)
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Simple, transparent and easily understood
Many taxpayers, administrators and politicians like it
Economists and public finance reformers want change
Discriminates business occupiers vs residential
Discriminates industrial occupiers vs commercial
Discriminates buildings vs land
Discriminates taxpayers with low value property
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Evaluation of the Present System (2)
• Residential tax kept at minimal levels:
– home 120 m2 on 400 m2 parcel pays 21 USD in 4 installments
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Business tax 35 times higher than residential
Political economy: “business are rich, people are poor”
Business buildings yield 50% revenue, but store 5% value
Residential buildings store 70% value, but yield 10% rev.
Tax revenue contributions in small cities:
– residential land 7.8%, business land 23%
– residential buildings 3.4%, business buildings 36%
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Evaluation of the Present System (3)
• Effective taxation in ad valorem equivalent:
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business use buildings: 7.8% of capital value
business use land: 1.4% of capital value
residential use buildings: 0.062% of capital value
residential use land: 0.046% of capital value
• Land use efficiency is low and riddled with speculation
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spatial misallocations
functional misallocations
locational misallocations
user mismatch
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Ad Valorem Reform Efforts
• Parliamentary resolution in 1994 requesting ad valorem
• Ad valorem included in governmental Strategy for Poland
• In 1995 inter-ministerial group adopted basic premises:
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unified taxation replaces real estate, agricultural and forest taxes
the need for fiscal cadastre to be used for ad valorem taxation
the ad valorem assessment will produce “cadastral values”
ad valorem will induce better market and housing finance
central agency to manage cadastres and general valuation
• Task force at Finance Ministry prepared package of 5 Acts
• The process stopped by intra-government disagreements
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Ad Valorem Reform Efforts (2)
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negative publicity incited by oponents of ad valorem
1997 new government interested in more decentralization
return to idea of gradual ad valorem property tax reforms
international institutions advocated/supported ad valorem
Ministry set up Department of Local Taxes and Cadastre
reformers took study tours in F, D, USA, Cdn, NL
1999 CEE conference - International Property Tax Institute
strategy to modify rather than discard area based system
linking property tax with fiscal decentralization reforms
new emphasis on tax zoning of land in 2002/03
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Ad Valorem Reform Efforts (3)
• Modification of area based towards ad valorem:
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replacing three taxes with one
possibility for local governments to select “taxation zones”
taxation zones would simulate land value zones
each taxation zone could carry different land tax rates
special rates could apply to vacant serviced building lots
business use buildings would be taxed on book/market values
• Longer-term ad valorem strategy:
– residential buildings taxed on book values, later capital value
– land tax using more value based coefficients
– finally, capital value on whole properties
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Ad Valorem Reform Efforts (4)
• Political economy constraints / innovations:
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revenue neutrality of the initial stage – structural change
self-financing of the subsequent stages of the reform
discovery of more properties can bring extra revenues - cadastre
elimination of some exemptions can bring extra revenues
do not bring new system – modify the existing one
emphasize the need to shift from subject based to object based
tie in changes with other larger reforms – local finance
Enable municipalities and create incentives
Run strong public relations and taxapayer education campaign
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Future Prospects and Challenges (1)
• Economic and technical feasibility of gradual strategy
• Political economy a crucial element: recent refusal
• Other own revenues of local governments diminish:
– central government transfers
– real estate asset sales and rents
– taxing local businesses
• Growth in property taxes cannot use present formula
• Ad valorem property tax can grow with local economy
• Balancing of budgets with property tax, not investments
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Future Prospects and Challenges (2)
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Acceptance of recurrent wealth taxation a political issue
Newly enfranchised ownes of valuable assets opose
Politicians not craving for accountability/transparency
Territorial inequity financing of local basic services
“Income-poor and asset-rich” property owners issue
High potential costs of information support and valuation
Searching for mitigating instruments for taxpayers
Searching for cost efficient methods for administrators
Searching for politically safe modification of tax system
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Future Prospects and Challenges (3)
• Chief beneficiaries - local gov’ts cling to present system
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technical simplicity, inexpensive admnistration
easy to understand, to verify by taxapayers
politically less risky, easier to spend central gov’t money
low residential rates allow to ignore equity arguments
• Strong forces are mounting for property tax reforms:
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looming public finance crisis calling for more robust revenues
increased difficulty to tax incomes in “virtual new economy”
the need to stimulate SME sector through lower income taxes
higher property taxation should shift the focus to ad valorem
valuation and cadastral professional interests
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All Land Types
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