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Lithuania Case Study

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Lithuania Case Study Europe and Central Asia Property Valuation and Taxation for Improving Local Governance in ECA (P152456) Lithuania Case Study Richard Almy Draft of 16 May 2015 Contents Acknowledgments..................................................................................................................... iv Abbreviations and Acronyms ................................................................................................... iv 1. Background ........................................................................................................................ 1 2. Government, Public Finances, and Fiscal Relationships ................................................... 3 2.1 Governmental Structure .............................................................................................. 3 2.2 Governmental Finances and the Tax System .............................................................. 4 3. Land and Property Institutions ........................................................................................... 6 3.1 Land Reform and Tenure ............................................................................................ 6 3.2 Property Markets ......................................................................................................... 7 3.3 Property Valuation Profession .................................................................................... 8 3.4 Cadastral System and Register Structure .................................................................... 9 4. Taxes on Property ............................................................................................................ 12 4.1 Recurrent Taxes on Immovable Property.................................................................. 12 4.1.1 Land Tax ............................................................................................................ 12 4.1.2 Immovable Property (Building) Tax .................................................................. 13 4.2 Other Taxes on Property ........................................................................................... 14 5. Administrative Arrangements for Valuation and Taxation ............................................. 15 5.1 Center of Registers .................................................................................................... 15 5.1.1 Valuation Department ........................................................................................ 16 5.1.2 Information Technology .................................................................................... 16 5.2 State Tax Inspectorate ............................................................................................... 17 6. The Valuation System ...................................................................................................... 18 6.1 Introduction ............................................................................................................... 18 6.2 Data ........................................................................................................................... 19 6.2.1 Indicators of Value ............................................................................................. 20 6.2.2 Property Attributes ............................................................................................. 20 6.3 Valuation Methods and Models ................................................................................ 22 6.3.1 Approach ............................................................................................................ 22 6.3.2 Buildings and Premises ...................................................................................... 22 6.3.3 Land ................................................................................................................... 23 6.4 Standards and Quality Assurance .............................................................................. 25 6.5 Public Information and Assistance ............................................................................ 25 6.6 Appeals and the Defense of Values........................................................................... 25 7. Conclusions ...................................................................................................................... 28 References ................................................................................................................................ 30 ii Appendixes .............................................................................................................................. 33 1: Total Taxes (including Social Security Contributions) as a Percent of GDP .................. 33 2. Taxes on Property as a Percent of GDP ........................................................................... 34 Figures Figure 1: Percent Change in Nominal GDP from Previous Year: 1994-2013 ........................... 2 Figure 2: Lithuanian Municipalities and Counties..................................................................... 3 Figure 3: Trends Government Revenues and Taxes: 2001-2010............................................... 5 Figure 4: Trends in Total General Government Taxes and Total Local Government Taxes: 2001-2010 .................................................................................................................................. 5 Figure 5: Total Number of Transactions .................................................................................... 7 Figure 6: Number of Building Transactions .............................................................................. 7 Figure 7: Number of Land Transactions .................................................................................... 8 Figure 8: Land Prices in Euros per Hectare ............................................................................... 8 Figure 9: Land Values in the City of Vilnius in 2013 - The Year of the Introduction of the Market Value-Based Land Tax ................................................................................................ 13 Figure 10: Land Values in the Republic of Lithuania in 2013 - The Year of the Introduction of the Market Value-Based Land Tax ...................................................................................... 13 Figure 11: Geographic Organization of the Center of Registers ............................................. 15 Figure 12: Schematic of the Lithuanian Mass Valuation System ............................................ 19 Figure 13: Fragment of a GIS Map .......................................................................................... 21 Figure 14: Excerpt of a Land Value Map and Accompanying Imagery .................................. 26 Figure 15: Indices of Land and Buidling Inventories, Average Values, and Average Taxes: 2006-2014 ................................................................................................................................ 29 Tables Table 1: How Structures Are Classified for Valuation & the Primary Valuation Approach .. 23 Table 2: How Land Is Classified for Valuation ....................................................................... 23 Table 3: Appeal Statistics ........................................................................................................ 27 iii Acknowledgments I am deeply indebted to Albina Aleksienė, Roberta Navickaite, Arvydas Bagdonavičius, Bronislovas Mikūta, and their colleagues in the Lithuanian State Enterprise Center of Regis- ters. I also am indebted to the cooperation shown me in Lithuania since my first visit there in 1995 and to the organizations that made my visits possible: the Organisation for Economic Co-operation and Development and the Lincoln Institute of Land Policy. Finally, the report benefitted from a careful review by Richard Grover, for which I am grateful. The references list other works that I consulted. Opinions and any errors are my responsibility. Abbreviations and Acronyms AVM Automated valuation model CAMA Computer-assisted mass appraisal CTI County tax inspectorate (a regional office of the STI) EU European Union EULIS European Land Information Service FIG Fédération Internationale des Géomètres (International Federation of Surveyors GDP Gross domestic product GIS Geographic information system IAAO International Association of Assessing Officers IPTI International Property Tax Institute IVS International Valuation Standards IVSC International Valuation Standards Council LTL Lithuanian litas NCSS Number Cruncher Statistical Software PIT Personal income tax REGIA A regional (municipal) geographic information environment STI State Tax Inspectorate TEGoVA The European Group of Valuers’ Associations VAT Value-added tax iv 1. Background This case study traces developments in immovable property valuation and taxation in Lithua- nia following its declaration of independence from the Soviet Union in 1990.1 It systematical- ly examines the development of policies and institutions that support mass valuation and property tax administration. It focuses on the State Enterprise Center of Registers (the Center of Registers), a state-owned corporation charged with the cadastre and associated registers. As an outsider, I have relied extensively on recent materials prepared by Lithuanian col- leagues and organizations, as well as studies prepared by others (see “References”). Howev- er, I was fortunate to visit Lithuania several times between 1995 and 2006 to see the situation firsthand. I
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