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Download Article Market Value-Based Taxation of Real Property JOSEPH M C NIFF Public officials from Lithuania and Lincoln Institute faculty members met at Lincoln House in February to learn from each other about market value-based taxation policy and plans for introducing property taxation in Lithuania. Delegates from Lithuania: Arturas Baksinskas, Vice-Minister of Finance; Dalia Bardauskiene, Advisor to the Prime Minister on Rural and Urban Development and Planning; Algirdas Butkevicius, Member of Parliament on Budget and Finance Committee; Rimantas Ramanauskas, First Deputy Director, SLCR; Albina Aleksiene, Advisor to the General Director on Property Valuation, SLCR; Arvydas Bagdonavicius, Deputy Director, SLCR; Algimantas Mikenas, Deputy Head of Property Valuation and Market Research Department, SLCR. Lincoln Institute Faculty: Joan Youngman, Senior Fellow and Director, Lincoln Institute Tax Program; Jane Malme, Fellow, Lincoln Institute Tax Program; Dennis Robinson, Vice President, Lincoln Institute; Richard Almy and Robert Gloudemans, partners, Almy, Gloudemans, Jacobs and Denne, LaGrange, Illinois; John Charman, Consultant Valuation Surveyor, London; David Davies, Director of Information Technology, Massachusetts Department of Revenue; Jeffrey Epstein, Consultant, Quincy, Massachusetts; Sally Powers, Former Director of Assessment, City of Cambridge. Jane H. Malme local government, and all must adjust their erty permits an independent local revenue tax systems to account for emerging markets source. Times of fiscal stringency at na- ver the past decade of transition for land and buildings at a time when state tional government levels dramatize the from communist to market econ- administrative capacity is challenged by importance of such revenue for local gov- Oomies, property taxation has the introduction of new income and con- ernmental autonomy. Moreover, the goal taken on economic, political and legal sumption taxes. There is often strong sup- of eventual international integration importance as the countries in Central and port for retaining a public interest in land through the European Union and other Eastern Europe have developed new fiscal as a fixed, nonrenewable element of the trade arenas encourages development of policies and new approaches to property common heritage which, once sold, cannot taxes not subject to international com- rights. Taxes on land and buildings have be reproduced. This sentiment coexists petition. served not only as revenue instruments but with an equally strong impetus for develop- Two primary difficulties confront also as adjuncts to decentralization and ment of private business and private owner- efforts to implement land and building privatization. In spite of the complex and ship of property. Each of these concerns taxes in these countries. First, in the varied national differences in this region, raises special questions with regard to the absence of developed property markets, a number of common issues have emerged role of land and building taxes in the the tax base requires a choice among for- in regard to property-based taxes. transition. mulary values, price approximations, and A period of transition places a pre- Such taxes on land and buildings have non-value means of allocating the tax bur- mium on revenue sources that impose a already been designated as local revenue den. Second, times of financial hardship minimum burden on the functioning of sources in many nations of Central and present special problems in imposing taxes nascent market economies. Many of these Eastern Europe. As a tax base that cannot on assets that do not produce income with postcommunist nations seek to strengthen relocate in response to taxation, real prop- which to pay the tax. This dilemma has LINCOLN INSTITUTE OF LAND POLICY8 LAND LINES • MAY 2001 left many property taxes at nominal levels. ings and other property (not including land) eration and Development (OECD), in the These problems are closely related owned by corporate entities, enterprises Lithuanian capital of Vilnius in Decem- because the lack of reliable market prices, and organizations. Taxable values are cur- ber 1997, for government officials from together with the legacy of officially deter- rently set by the SLCR through application Estonia, Latvia and Lithuania. Recogniz- mined price levels, can encourage legislation of varying “coefficients” that adjust base ing the importance of this year’s program that assigns specific, sometimes arbitrary prices to reflect land use and location. The to Lithuanian public policy, the United values to various classes of property for tax resulting values do not reflect current Nations Development Programme (UNDP) purposes. Given these difficulties, it is par- market prices. The tax rate of 1.5 percent provided support for the delegation’s ticularly significant that many of these of the taxable value for land and 1 percent travel to Cambridge. nations have either adopted or are serious- of the taxable value of property yielded The program offered a policy-oriented ly considering some form of value-based represent approximately 7 percent of local analysis of issues relating to market-based taxation of immovable property as a source budgets and 2.5 percent of the national tax systems. It included guidance in devel- of local government finance. budget in 2000. oping a strategic plan and a legal and ad- Lithuania’s growing demand for mar- ministrative framework for a computer- The Case of Lithuania ket-based property valuation data requires assisted mass appraisal (CAMA) system Since declaring its independence from the an increase in professional appraisal skills suitable to Lithuania. Technical subjects USSR in 1991, the Republic of Lithuania and experience with assessment adminis- were presented in the context of larger has made rapid strides in economic reforms, tration. To address these needs, an Associ- economic and political issues in land and privatization and government reorganiza- ation of Property Valuers and a system of property taxation. The course combined tion. Its plans for market value-based professional certification were established lectures, discussions with experienced taxation of land and buildings reflect the in the mid-1990s, in collaboration with practitioners, case studies, and field visits country’s transition to a market economy to state and local agencies in Massachu- and private ownership of property. Muni- setts. Lectures addressing introductory, cipalities will receive the revenues from the policy-focused subjects were supplemented Estonia new tax and will have the power to choose Russia by more specialized presentations covering the tax rate, subject to an upper limit set Sweden market value appraisal techniques, mass by the national government. The Lithu- BALTIC Latvia appraisal, CAMA and tax law. anian Parliament has recently prepared SEA The Lincoln Institute will offer simi- Lithuania draft legislation for this tax which assigns lar courses to public officials from other responsibility for developing a valuation • VILNIUS transition countries, and is continuing to system to the State Land Cadastre and Poland develop other educational programs with Register (SLCR). Belorussia Lithuania and its Baltic neighbors. The SLCR was created in 1997 to consolidate a number of functions: regis- Czech Ukraine Jane H. Malme is an attorney and a fellow Rep. tration of property rights, maintenance of Slovakia of the Lincoln Institute in the Program on a cadastre of property information, and Taxation of Land and Buildings. She has valuation of real property for public pur- developed and taught courses on property poses, including taxation. Since then the other international valuation associations. taxation and has been a legal advisor to agency has organized a central data bank Lithuania has also joined Estonia and public finance officials in Central and Eastern for legally registered property rights, land Latvia in publishing periodic reviews of Europe. She is co-editor with Joan Youngman and building information, and Geographic real estate markets in the Baltic states. of The Development of Property Taxation in Information System (GIS) maps. The data Information regarding market activity is Economies in Transition: Case Studies, a bank currently holds information on more posted on the SLCR’s website book being published in 2001 by the World than four million land parcels and struc- (www.kada.lt). Bank. Contact: [email protected]. tures, and it is linked to mortgage and other related registers and to branch offices Lincoln Course throughout the country. The Lincoln Institute has taught courses The proposed market value-based real on property taxation in transition coun- property tax will replace two existing taxes tries for nearly a decade, and in February on real property commonly found in post- the Institute collaborated with SLCR to Soviet systems: a land tax on privately develop a curriculum for seven senior owned land and a property tax on build- public officials from Lithuania. The week- long program was based on the course that the Institute presented, in cooperation with the Organisation for Economic Coop- LAND LINES • MAY 20019 LINCOLN INSTITUTE OF LAND POLICY.
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