The controversial property tax is now expected to be implemented in the fiscal year 2017 and is estimated to raise $503 million. That is a mere 1.7% of the total revenue estimate of $29.93 Bn from taxation. So why is it so controversial? How will it be implemented? How much can we expect to pay?
The property tax being proposed will tax the fixed assets and income streams of persons who are currently avoiding any payments of tax to our Treasury. It is relatively tiny in size, yet it can unlock disproportionate benefits in the public interest.
Our taxation system has done a poor job at levying on the self-employed and companies, as stated so often in the past. The proposed implementation of the Trinidad & Tobago Revenue Authority (TTRA) is expected to create a structure which can effectively tackle this widespread pattern of tax evasion. The previous attempt, during 2009, met with stiff opposition, so it remains to be seen if the current economic downturn will foster a different reaction.
SIDEBAR: HOW MUCH PROPERTY TAX WILL YOU HAVE TO PAY?
The amount due is charged on the Annual Taxable Value (ATV).
Residential Properties are to be taxed at 3% of the ATV.
- For a home with an estimated monthly rental value of $3,500, the Annual Rental Value is $42,000.
- After deducting 10% for ‘voids’, the ATV is $37,800.
- At 3%, the annual property tax liability is $1,134.
- A monthly sum of $94.50
Commercial properties are to be taxed at 5% of the ATV.
- For a property with an estimated monthly rental value of $10,000, the Annual Rental Value is $120,000.
- After deducting 10% for ‘voids’, the ATV is $108,000.
- At 5%, the annual property tax liability is $5,400.
- A monthly sum of $450.00
Agricultural property is to be taxed at 1% of the ATV.
- The ATV is calculated to be 2% of the estimated market value of the property.
- In the case of an agricultural property with a market value of $600,000, the Annual Taxable Value would therefore be $12,000.
- At 1%, the annual property tax liability is $1,200.
- A monthly sum of $100.00
Industrial – A figure of 6% of the ATV is being proposed.
- The ATV is calculated to be 6% of the installed cost of the plant and machinery, plus the cost of the structures within which they are housed.
- In the case of an industrial property with a total installed cost of $3.0M, the ATV is $180,000.
- At 6%, the annual property tax liability is $10,800.
- That is a monthly bill of $900.00
The reality is that our limited landmass, relatively high levels of wealth, lax controls on physical development and extremely light taxation on the sector have acted in concert to make property one of the most favoured investment classes. Quite apart from those families in owner-occupied homes, wealthy persons in our society have earned substantial money from buying and selling property, ‘fixing-up’, ‘renting-out’, ‘flipping’, buying lands and cutting out lots for sale, and so on. Dealing in property is a proven method of making, and hiding, great sums of money.
The preliminary estimates must be done on a ‘mass-valuation’ basis to carry out such a large number of assessments in the limited time available. The 2017 fiscal year began on 1st October 2016, so we are already behind the curve, so to speak. This will be implemented in accordance with The Property Tax Act 2009, which specifies taxation rates as shown in the sidebar.
Although I support the long-overdue implementation of this system of taxes, the one detrimental aspect is that the funds raised are to be directed to Central Government. That approach will only further dilute the authority of local government, as they would be denied even the limited degree of financial autonomy which could come from allowing them to receive and spend the property tax collected in their districts.
Most importantly, the new system will require an open, searchable database showing all the properties in the country with details of owners, land and building sizes, facilities, rentals and so on.
Already one can imagine the protests about confidentiality, the fear of crime and so on. Those are not issues to be ignored, but in my view the greater fear will be that the true wealth and income of those persons who have more than an owner-occupied home, would be revealed. That fear of being taxed is likely at the root of the major opposition to the property tax.
The property tax system will greatly advance other important work such as land-use planning; land management both at State and private-sector levels; economic planning and market research, to name just a few areas. Further points on property tax will be in upcoming columns.