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Proposed changes in real estate tax valuation.
submited on 06.10.2005 in category Political stability | Fiscal affairs | Regulated markets | Political stability | Fiscal affairs | Monetary policy | Regulated markets | Privatisation | Macroeconomic developments
submited on 06.10.2005 in category Political stability | Fiscal affairs | Regulated markets | Political stability | Fiscal affairs | Monetary policy | Regulated markets | Privatisation | Macroeconomic developments
The Ministry of Finance (MoF) proposed an average 20%-increase of tax valuation of real estate property for 2006. The ‘tax value’ is used to calculate annual property tax, garbage collection municipal fees and property transaction tax. The change will probably be accepted by the government and consequently the parliament. There are several political reasons to support such a decision:
- Tax valuations have not been changed since 2001 (applied after 2002). At the same time, average housing prices in regional cities have 2.2 times higher prices in Q2 2005 compared to 2002. Even in cities with the slowest appreciation the price growth exceeded 65%.
- Such revaluation will be seen as a means to increase municipal revenues. This in turn is considered a necessary condition for fiscal decentralization and more autonomy for local and regional policy-making.
- When property tax valuation is constant, owners pay an in fact fixed tax, while labor income is taxed progressively, i.e. economically active people pay a growing tax burden. In this manner, property taxation can be used as a tool of a “left” social policy.
- An important argument that can stand against the change is the broad home ownership (above 91%), which makes the tax visible for a large number of taxpayers (and voters).
The revaluation will affect specific locations in a different manner. Still, tax valuation for most attractive property will be significantly below market prices. At the same time, there is a growing tendency towards convergence of actual transaction prices and values that are recorded in the title. Therefore, the increased burden of the transaction property tax will have a minimal impact on the market. Municipal budget will be able to collect additional BGN 26 million (based on our forecast) from transaction property tax.
We expect much more significant impact on households’ budgets and disposable income. The increase will have relatively high effect in locations were real estate appreciation is occurring at a slower pace while at the same time expensive locations where average income levels are in general higher will suffer less. Additionally, current expenditures will be increased to meet the probable change in garbage collection fees. It is possible to observe a growing number of property sales in the low-end segment even in big cities, especially if the property is not used as a primary home by the owner.
- Tax valuations have not been changed since 2001 (applied after 2002). At the same time, average housing prices in regional cities have 2.2 times higher prices in Q2 2005 compared to 2002. Even in cities with the slowest appreciation the price growth exceeded 65%.
- Such revaluation will be seen as a means to increase municipal revenues. This in turn is considered a necessary condition for fiscal decentralization and more autonomy for local and regional policy-making.
- When property tax valuation is constant, owners pay an in fact fixed tax, while labor income is taxed progressively, i.e. economically active people pay a growing tax burden. In this manner, property taxation can be used as a tool of a “left” social policy.
- An important argument that can stand against the change is the broad home ownership (above 91%), which makes the tax visible for a large number of taxpayers (and voters).
The revaluation will affect specific locations in a different manner. Still, tax valuation for most attractive property will be significantly below market prices. At the same time, there is a growing tendency towards convergence of actual transaction prices and values that are recorded in the title. Therefore, the increased burden of the transaction property tax will have a minimal impact on the market. Municipal budget will be able to collect additional BGN 26 million (based on our forecast) from transaction property tax.
We expect much more significant impact on households’ budgets and disposable income. The increase will have relatively high effect in locations were real estate appreciation is occurring at a slower pace while at the same time expensive locations where average income levels are in general higher will suffer less. Additionally, current expenditures will be increased to meet the probable change in garbage collection fees. It is possible to observe a growing number of property sales in the low-end segment even in big cities, especially if the property is not used as a primary home by the owner.
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