Property Matters – Tax Facts part two

property-tax
Further details on property tax are needed to understand the process and possibilities arising from its implementation. The 2010 estimate of revenue from that tax was $325M, as against a 2017 estimate of $503M, so it seems that there has been some allowance for inflation and new properties.

The innate effectiveness of this tax is that property is an immovable asset, so those persons and companies which are now evading other taxes will be unable to escape this new tax on the various properties in their ownership.

Property owners will be required to provide details of their properties to the Ministry of Finance so that the valuation process can be started. Owners who fail to provide details will have their properties valued without their input. The only efficient method of completing that number of valuations is by a mass-valuation approach which uses software to analyse details from owners, along with transaction details, to estimate the correct figures.

Once the valuations are completed, the assessment rolls will be published as a database which will show the taxes due on each property and owners will then be entitled to appeal against those assessments. The grounds of appeal will be defined in the regulations to the Property Tax Act, so as to restrict time-wasting or mischievous appeals.

The issue of false details or erroneous valuations will be handled by the open database which provides enough detail of each property and its assessment to allow for corrective reports. So if you live in a street of similar homes, it will be easy to see what details the system has on neighbouring properties. You can make a report if your neighbour’s property, which was greatly extended or improved, has the identical assessment as yours. In that respect, the new system will devolve to the citizenry the important work of detecting false data or erroneous valuations.

When such reports are received, the owners who have made false returns will be liable to penalties, but the property itself will have to be inspected to verify the alleged discrepancies to determine if the valuation must be revised.

Given the high levels of blatant tax evasion and the ongoing deep political divisions with which we are beset, I would not be surprised if some sort of protest movement emerged. One can expect objections that the new system will disclose previously undisclosed details of property. The question of security and the fear of kidnapping is likely to be invoked, so what is a reasonable response to those concerns?
Firstly, we need to be clear that the new system will only be efficient and effective if it is significantly self-correcting, so anyone must be able to report errors or fraud, which must then be decisively tackled. Apart from the issue of false returns, this approach will also reduce, if not eliminate, the scourge of corrupt assessments, which can easily occur in the present defunct system.

Transparency is the very cornerstone of the new system and it cannot be compromised if it is all to work properly. Persons who own substantial property in the first world jurisdictions can have a great level of details searched from anyplace in the world, by anybody at any time, that is the information age we live in. That means that those persons’ foreign assets are readily searchable, just type into your search engine the name of a prominent person in say Florida or New York and all the details are there. This has been so for years and no one has to ask permission. What is more, some of the best websites are private ones run by various real estate services. The age of transparency and its effects are now driving the way we live, invest, educate ourselves and plan our business. There is simply no escape from the Information Age at this stage.

The creation of the property tax database will allow a proper review to be undertaken of the other taxes due on property holdings. It will also give the anti money laundering agencies, both here and abroad, a detailed insight into the true extent of property holdings, and therefore wealth, of individuals.

The property tax database can also show what is the rental income due to particular property owners/taxpayers and compare that to their tax returns. That approach creates the prospect of improving the levels of income tax collected on rentals, which are seldom declared at present.

Finally, property purchasers pay Stamp Duty on either the valuation or the stated price, whichever is the higher figure. Expensive properties are often owned by holding companies which offers substantial advantages when selling property, since saleability is enhanced by the fact that if there is a sale of shares, the stamp duty payable is a small fraction of what would be due if the property itself is sold. The time is ripe to review this approach, which is effectively a substantial concession, along with other aspects of how stamp duty is levied.

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