Property Matters – Tax Facts

property-taxesThe 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.

Advertisements

8 thoughts on “Property Matters – Tax Facts

  1. Afra,

    Thanks for this easy to understand guide. One question that invariably comes up when discussing the property tax is, why reference the rental value? Why not 0.01% of the value of a residential property, for example?

    1. It is true that there are different approaches which could be taken to the basis of assessment for Property Tax, but just consider that if we were using capital values, the results would be truly onerous as the majority of properties are ‘under-rented’…my own view is that property owners are getting an easier introduction to this tax via a rental value approach.

      Thanks for making that point.

      Afra

  2. tx for simple break down and calculations..

    my concern is the inequity that is likely to happen,, as well as lack of transparency and accountability..& independence in the process of valuation
    The appeals are likely to be as time consuming as all bureaucracy in T&T ..and that is not even considering the perception of political victimisation in rate determination bands and areas…

    I note that developed countries where this system exist usually have well established structured land / taxation monitoring and usage oversight body that si fairly independent of political machinations and the concept of land use/ survey well established with high degree of integrity ( ie good TTCPD type body)
    In T&T TTCPD has lacked both manpower and enforcement teeth for decades … ( evidence squatters( not poor sods they wish us to believe) and unlawful structures) ll

    there is little evidence that any of these system exists properly in T&T ( but afra i am sure you will clarify)

    and what of the excessive squatters ( with no TTCPD approval … be they IDB ( tax payer funds again( regularised or not ) and all those in HDC homes including the well connected in federation park viilas/ long circular ambassador s condos/ victoria gardens and st augustine to name just few of high end HDC homes for politically connected !!

    They should all be paying real taxes after benefiting from ” taxpayer subsidised HDC/NHA homes..”

    very different from true residential sole family home owner who paid high mortgages and building costs for 25 – 30 years.. They should now be enjoying the benefits of home ownership on their non indexed linked govt pensions!! as retirement income..

    I believe a more just taxation should be on sale or inheritance of property as it will reflect market value and an increase in valuation over time … is added income that should be taxed as investment.. and not the orginal home owner whose lives in property ..unless it is part rental .
    \
    in buyers market this taxation will keep the excessive unwarranted inflation in T&T property .( unless one factors money laundering) under control…..

    Taxation in T&T has been ad hoc without the benefits of accountability and transparency ( via auditor general & parliamentary oversight cmttes) and certainly do reflect any improvement of maintained BASIC infrastructure as is seen in developed countries – good roads/ signage/ garbage collection/ recycling efforts/ litter free etc.. well lit streets and roadways/ etc…

    so without due care to fiscal oversight and mismanagement by govt..this taxation is likely to be another corruption stream.. taxing the law abiding only….. .
    and unjust taxation to fill govt coffers is not to be tolerated any more than it was in Robin hood days of greedy kings taxing land owners

    I support property taxation only on sale of property or inheritance of property and on commercial rentals & rentals to expats( US dollars) …
    a local renters rebate will certainly allow govt to track rented property as income without raising cost of renting for locals in need…

    Methodology of all land valuation to be made public .. and be independent ( sure bankers have real good calculation of such value!!) . and appeals process must be swift ( no more than 90 days and not require inflated legal costs to home owner) .

    I believe this new property taxation has great risk of being discriminatory …and in world where integrity and ethics in public life seem a lost cause I fear this will become a political tool for victimisation…..
    pb

  3. Taxation is a very good method of raising revenue,but the Government needs to educate the john public, be transparent and just in its approach..you cannot rush a deadline on the citizens.

  4. Interesting. I however have a serious problem with any government that attempts to take more money from my fixed monthly income that is already impacted by a 25% income tax and 12.5% VAT and an ever-increasing rate of inflation. This is merely another means of raising revenue. I am also not seeing this revenue effectively managed… water and electricity are cut off regularly and roads are almost impassable, health care is in shambles, the criminal justice system does not function corruption is rampant….etc etc. Don’t forget that I have already paid taxes on the purchase of the property and VAT on all materials and services that have been used to upgrade and maintain said property.
    In my opinion, and assuming that the above inefficiencies can be effectively addressed, increased revenues should be linked to a consumption type tax (eg VAT) so that the individual has some level of control in the amount of tax that is paid.
    Axe the tax!.. Trinidadians need to stand up against this arbitrary attack on our incomes that does not ultimately result in tangible improvement in services to the people.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s