Tag: property tax

Property Tax Facts

Property Tax is back and the controversy has naturally returned since the ‘Axe the Tax‘ movement was a signal moment of unity in the anti-PNM campaigns of 2009/2010.

In my opinion, the anti-Property Tax movement was an important measure of the extent to which our national discourse is now irrational and baseless.  The disenchantment with the Manning administration and the thirst to have them removed seemed to occupy more time than any substantial discussion as to the merits of the proposed Property Tax.

Now, as then, I hold the view that our nation’s Property Tax regime is long-overdue for reform and updating.  I support the proposals to do so and we will have to wait for more detail to analyse these proposals further.

Here are a few of the basic facts on Property Tax.

The size of the Property Tax Take – Proportionally

The Estimates of Revenue disclose that in 1995 property tax was 2% of tax revenue and in 2009 it was expected to be a mere .18%.  Property tax, when last collected, contributed a small fraction of the amount it did 15 years ago.  The official projections for the Property Taxes proposed by the PNM were for that revenue to increase to $325M in 2010 – even at that level, the contribution would have barely exceeded 1% of the national tax revenue.

The Draft Estimates of Revenue (2014) published in the recently-approved budget are unclear and I have requested an official clarification before making any detailed comments on those.  As an example the Total Tax Revenue 2014 is estimated (at p. vii) to be $46.8Bn, with ‘Taxes on Property’ comprising $3.914M, which is a tiny proportion of the total, about 100,000th of 1%.  The accompanying chart, on that very page, shows Property Tax at 1% of the total.  There is more to say, but I am awaiting the requested information, hopefully before next week’s deadline.

The key point here is that property is a vibrant engine of wealth in our country and has been so for many decades, every successful person knows that.  Given that fundamental, it is obvious that property has to be properly taxed if any kind of economic justice is to emerge. The historically paltry percentage of revenues raised via Property Taxes is solid justification for a comprehensive mapping of who owns what and the where.  This is a flourishing sector of the economy, so proper taxes are long-overdue.

The size of the Property Tax Take – Absolutely

property-tax_93-09
Total Property Tax 1993-2009. Click image to see expanded version. category_expand

*The PNM’s 2009 proposal was to abolish both the L&B Taxes and the House Rates, with the replacement Property Tax anticipated to earn $325M in the year 2010 – from Ministry of Finance, Estimates of Revenue 2010 (at pg v )

The figures tell a story, since they depict an unexplained decline in Property Tax revenue from $132.16M in 1994 to $83.44M in 1995 and modest increases to $95.08M in 2001, before restoration to $129.65M in 2002.  L&B Taxes were payable outside of Municipalities, while House Rates were payable within the 5 Municipalities – POS, San Fernando, Arima, Point Fortin and Chaguanas.

According to the official records, the real decline in Property Tax income in that period occurred in non-Municipal areas, with L&B Taxes falling from $109.38M in 1994 to $60.38M in 1995, never rising above $64M, before restoration in 2002 to $94.08M.  In clear contrast, House Rates in the corresponding period rose steadily from $22.78M to $35.97M.

I am an outsider examining these aspects of the Property Tax challenge from the published record and one wonders just who is responsible for this level of sheer recklessness.  After all, 45% of the revenue from L&B Taxes vanished in a mere 12 months and in any properly-managed organisation that would send alarm bells ringing.  Over the seven fiscal years 1995-2001, an annual average of $50M in Land & Building Taxes went unpaid – which makes a total of about $350M in missing revenue, at a minimum. What was the reaction within the Board of Inland Revenue?  What steps did they take to identify and eliminate this leakage?  Was there any tax evasion?  Was anyone charged for that criminal offence?

These are essential questions to be resolved if we are to master the challenge of the proposed Property Tax  system.

The Local Government element

mc-funding-chart_2009
2009 Municipal Corporations funding. Click image to see expanded version. category_expand

Both PNM and Peoples Partnership proposed to send the Property Taxes direct to the Consolidated Fund.  The effect of that would be to reduce Municipalities to having just over 2% of their funding free from Central Government controls.  That critical element must form part of any discussion on Local Government reform.

Next week, I delve into the question of income tax on rental income and the likely levels of tax on your property.

Some considerations on Property Tax

At this point in time, the nation’s budget is running at a deficit for the third successive year and the Minister of Finance is tasked with developing new sources of revenue.  I think it is time to return to the question of property tax.

According to a recent statement by the Minister, if all the taxes due were paid, we would not have any budget deficit.  The ‘tax gap’ is the difference between the total taxes owed and the actual taxes collected.  While the notion of total compliance by taxpayers would be somewhat unrealistic, the goal of closing the ‘tax gap‘ is certainly one worth pursuing.

As I wrote on 19th September in this space –

…consider that rental income is also subject to income tax.  Not many people who own rental property actually pay income tax on that rental income – if you don’t believe me, just ask a few friends or relatives who own rental property.  This seems to me to be an area in which the Finance Minister can easily collect the data and increase the State’s revenue by staying within the ‘No New Taxes’ promise and implementing the laws which are already on the books…”

I am returning to the subject in this article.

When one considers how wealth accrues in our society, it is obvious that property forms a significant part of the nation’s assets.  A great portion of the wealth of our successful citizens flows from rentals, buying blocks of land to sub-divide and sell-off lots, development or just flipping (buy low, sell high).  There is no doubting that property dealings are a significant wealth-creating engine in our society.

The property sector is lightly taxed, with no real capital gains taxes, very little income tax collected on rentals and very low rates paid for Lands & Buildings Taxes/House Rates.  Only in the case of Stamp Duty is there a somewhat modern system in place, but even that has been effectively neutralized by the real traders.

The widespread and varied protests against the PNM’s Property Tax proposals seemed to me to be divided into two types.

  1. Firstly, the general mood of protest against paying any further monies to a wasteful and corrupt government.
  2. Secondly, we were fed the notion of inequity, with many examples about pensioners and the less well-off families being heavily promoted.

In saying so, it is striking to me that the position of the serious property dealers remained concealed in that campaign, which was effective in seeking after sympathy-support.  Almost reminds me of the Clico Policyholders Group.

The first class of objection is practically dead, given the strong mandate given to the PP in the General Election.  That said, it would be literally playing with fire for them, having achieved office by campaigning against the PNM proposals, to bring forward a new property tax in a similar mode.

The second class of objection is interesting in that it could be instantly invoked to play on our natural sympathy for the ‘underdog’.

I am proposing that the Minister of Finance consider targeting rental income for taxation.

So, what are the merits of this proposal?

  1. Firstly, the information could be easily gathered in the upcoming national census, for which enumerators have already been trained.  All that is required is three simple questions –
    1. Do you rent your home/business? – Yes or No?  If the answer is no, the other questions are omitted.  If the answer is yes, the next two questions apply.
    2. Who is your landlord?/To whom do you pay rent?
    3. How much rent do you pay?

    Given the natural tension between landlords and tenants, it is difficult to imagine many tenants concealing or distorting facts for the benefit of their landlords.  The simple fact is that there is plenty of information just waiting to be collected.

  2. Secondly, the legislation is already in place, so there is no need to get any law changed or go to Parliament for any discussion.  I am proposing purely administrative measures, in which our existing laws would be properly enforced, something the public is continually calling out for.
  3. Thirdly, owner-occupiers will be lightly taxed under the present arrangements, while only the landlords will pay income tax on their rental income.  That will negate the sympathy-objection, as outlined above.

In terms of actual implementation, it would be advisable to get a high rate of participation by offering a tax amnesty to those who filed corrected tax returns within say 3 months.  The waiver of penalties and interest charges on the 6-year tail of liability would be an attractive incentive to sensible investors.

Just to be clear, the payment of income tax on rental income does not set-off or reduce a property owners’ liability to pay property tax, as in the case of Land & Buildings Taxes or House Rates.

There is a substantial pool of untaxed income, together with an inescapable means of gathering the necessary information.

The only question is ‘What are we waiting for?’

SIDEBAR –Property Tax Act 2009 – an update

The closing act of the last PNM regime was the vastly-unpopular property tax, which was assented-to by our President on 29th December 2009, after bruising months of public protest and many, many uninformed statements.  The Property Tax Act 2009 was to be the basis of a complete revision of our country’s property tax system, insofar as the old Land & Building Taxes and House Rates were concerned.

The nationwide protest against the Property Tax proposals was a key factor in coalescing the opposition to the PNM and seemed to me to have paved the way to the electoral victory of the People’s Partnership government in May 2010.  One of the PP’s most distinctive and popular manifesto promises was the repeal of that Property Tax Act.

I was in support of the proposed changes to the Property Tax system as being long-overdue.

As things stand, no Property Taxes have been paid for 2010 and the Minister of Finance has given property-owners a waiver for this year.  That waiver amounted to over $140M and it remains unexplained.

There have recently been advertisements seeking details from property owners to update the database for Lands & Buildings Taxes, so it seems that some further revisions are to take place.

Property Matters: Some comments on the property and construction proposals of Budget 2011

Winston Dookeran, MP and Min. of Finance reading Budget 2010. Original photo courtesy Trinidad GuardianThis was the inaugural budget for both the newly-elected People’s Partnership and its Finance Minister, Winston Dookeran.

The burning question for me in preparing these comments was the big one – “Is the Honeymoon over?”

In my view, the honeymoon for this new government will last about 6 months, given the sheer scale of the mess they have inherited.

There were real expectations aroused in the recent election campaign and the reduced revenues available to the State would have made the budget into a balancing-act, particularly when one considers the repeated promises of ‘No New Taxes’.

The main items on the property and construction aspects were –

  1. PROPERTY TAX
    The Property Tax was ‘Axed’ as promised – “…The Property Tax will be replaced by the old Lands and Building Taxes regime at the old rates and old values. There will be a waiver of lands and buildings tax for the year 2010…”There has been a misleading rebuttal on this from the Opposition Leader, Dr. Keith Rowley, in that the 2011 Estimates of Revenue tell us that the Land & Building  Taxes are expected to increase from $71.4M to $173.8M.  Rowley’s statement would lead one to think that the property tax take would be of the order of $300M, due to the omission of the municipalities. In fact, that is not the case, since the revenue of the five municipalities (POS, San Fernando, Arima, Chaguanas and Point Fortin) are found in the Estimates of Revenue for Statutory Boards and Similar Bodies etc.  Due to the fact that one of the effects of the controversial property tax was to relieve these municipalities of their powers to tax property, the 2011 estimates of revenue need to be properly interpreted.  The municipalities are estimated to raise revenue of nil in 2011, since all their revenue – as well as that of the regional corporations – is collected by the Counties and transmitted to the Central Government.The true picture is that $142.52M was the estimate of revenue from property taxes in 2009 – that is the combined figure for House Rates, paid in municipalities, and Land & Building taxes paid elsewhere.  We are therefore anticipating an increase in revenue from this source of the order of 18%.

    No rationale was given for the waiver of property taxes for 2010, which was an astonishing decision, given the background against which the budget was drawn up.

    Before I leave the property tax topic, it is interesting to consider that rental income is also subject to income tax.  Not many people who own rental property actually pay income tax on that rental income – if you don’t believe me, just ask a few friends or relatives who own rental property.  This seems to me to be an area in which the Finance Minister can easily collect the data and increase the State’s revenue by staying within the ‘No New Taxes’ promise and implementing the laws which are already on the books.  But more on that in a later article.

  2. HOUSING
    The Minister of Finance made strong statements in support of home ownership, he also outlined what appears to be a merger between several State-controlled mortgage companies.  No target numbers of new homes to be built were given. The Housing and Environment Minister, Dr. Roodal Moonilal, recently announced that the Housing Development Corporation’s (HDC) new output target is 6,000 new homes in 2011. The Housing and Environment Ministry have zero allocation of capital funding according to the 2011 Estimates of Expenditure.  There is an allocation of $845M to the Hosuing and Settlements programme shown in the Public Sector Investment Program (PSIP).  Those estimates should cross-reference with each other and the fact that they do not is cause for concern, to say the least. This is the pattern of State spending on new homes, derived from the capital allocations only –

    Year Housing Ministry Capital Allocation ($M)
    2008 $718.70
    2009 $1,342.40
    2010 $860.40
    2011 $845.00

    There was also the revival of an annual tax credit of $18,000 per household for first-time owners for the first five years.  That measure is expected to cost $20M, which implies that just over 1,100 households will benefit from this provision.  To quote – “…This measure will generate significant investment in the private sector housing industry….”  Given the quantity of unsold, privately-built homes and the volume of HDC units soon to be released onto the market, it seems quite unrealistic to expect that this measure could yield ‘significant investment‘.

    What is of greater concern to me is the question of whether we are at the limits of possibility as to home-ownership levels.  76% of our households now own their homes, the comparative figure for the USA is 69% and for the UK it is 68%.  How realisitic is it to keep pushing for increasing home-ownership?

    The HDC’s low-cost ‘Accelerated Housing Program’ stalled, with over 10,000 empty homes as proof, due to a shortage of applicants who could qualify for a mortgage.

    The Minister of Finance spoke of the neglect with which our organisational and institutional infrastructure had been treated and I could not agree more.  On this count, there needs to be proper consideration given to the resucitation of the Rent Control Boards.  Also, the HDC needs to start giving some of those empty homes to people who just want to rent.

  3. Special Purpose Entities (SPEs) – What is their future in this new dispensation

    Mr. Speaker, no coherent, co-ordinated planning or strategy for state enterprises exists. As a result we have begun to rationalize the state enterprises, including the special purpose companies, which will incorporate a new accountability system that goes beyond the presently operating company ordinances. It is these loopholes in public accountability that resulted in the UDeCOTT scandal. This must never again happen in Trinidad and Tobago.

    Now that this just not so since there is a Performance Monitoring Guide of State Enterprises, published by the Investments Division of the Ministry of Finance in 2008. (see – http://www.finance.gov.tt/content/pub0DCE11.pdf)

    This issue, as always in our country, is one of implementation.  The provisions  of that guide are not being followed and the wrongdoers are not being called to order.

    The issue for us is to prevent the recurrence of that pattern of mismanagement and disorder in public affairs.  That can only happen if we enforce the present guidelines and systems.

In the next column, I will discuss the attempt to map out a new philosophy in this budget and the CL Financial/HCU bailout.

PODCAST: RICS Americas Interview – 14 January 2010

PODCAST: RICS Americas Interview – 14 January 2010

RICS logo
This is a podcast Afra Raymond did while in New York on Thursday 14th January at the offices of RICS Americas, the regional HQ of the international professional body, the Royal Institution of Chartered Surveyors.

As you will hear, Afra Raymond was speaking from his positions as a Chartered Surveyor, Managing Director of Raymond & Pierre Limited and of course, President of the Institute of Surveyors of Trinidad & Tobago. He focused on 2 matters

  1. the new Property Tax recently passed by our Parliament and,
  2. the Uff Commission of Enquiry into the Public Sector Construction Industry.

He concluded by reminding listeners that the RICS’ principal cause was that of “serving the public interest” and that that was one of the main engines for him as a campaigning surveyor.

  • Programme Date: Thursday, 14 January 2010
  • Programme Length: 0:05:34

Property Matters – Property Taxes 2010

I have included my new series of articles on the proposed property tax here on my website. You can access the articles on it page by clicking the “Property Matters” stub above or by clicking the Title links to retrieve article.

Title Abstract
#1 – An overview The recent proposals for a revision of property taxes have met with a heavy round of criticism. Apart from the government, there have been few supporters for this new tax.

#2 – The Challenge for the TTRA The challenge for the newly-founded Trinidad & Tobago Revenue Authority (TTRA) is considerable, given the depth of criticism against the proposed review of property taxes.

#3 – The proposed 2010 Review This week the actual proposals of the Ministry of Finance are examined. The proposed review is formally set out in the Property Tax Bill 2009, which is to be tabled for debate.

#4 – The Central role of Local Government reform This week I am drawing some conclusions on the property tax proposals, together with a presentation of the corrected data.

Continue reading “Property Matters – Property Taxes 2010” →