ConRTR in a home care setting

Buoyancy refers to the relationship between the revenues collected and the broader economic trends in the society. In general, a good tax system is considered to have a revenue growth that keeps pace with but does not exceed growth in the broader economy. It should be able to produce enough revenue without placing intolerable burdens on a particular group of people. One tax with the potential of raising sufficient revenue in developing cities is the property tax (Bahl and Martinez-Vazquez, 2007) .Increased revenue is mostly the major objective for taxation especially in developing countries and this is obtainable if tax

36 authorities are accountable. Total tax revenue is determined by government tax policies and effective administration of the tax. The ability of the property tax to record increased revenue largely depends on the tax base, tax rates and administration, (Bird and Slack, 2002).

Dillinger (1998) said it is a combined product of four factors, namely the completeness of the fiscal cadastre, level and accuracy of valuations, tax rate, exemption schedule and efficiency of collections .The importance of administrative capacity shows up most clearly in four areas:

Monitoring land use, valuation, billing and collection and also appeals. Effective Administration can also be identified by a simple revenue potential model (Kelly,1994).

These predictive variables whose cumulative performance ultimately determines the buoyancy of revenue yields as follows:

Tax Revenue--- Tax Base x TR x CVR x VR x CLR Where TR= Tax Rate

VR= Valuation or Assessment Ratio CLR= Collection Ratio

CVR= Coverage Ratio.

The assessment or valuation ratio is defined as the value on the valuation rolls divided by the market value of properties on the valuation roll. It measures the accuracy of the overall valuation level which is the percent of the market value being captured through the valuation process. It is used to induce acceptability of the tax system and reduce complaints about the assessment criteria, because it gives the taxpayer the impression that he is not being taxed for the full value of his property.

The collection ratio is defined as the tax revenue collected over the total tax liability billed for that year, measuring the collection efficiency. The collection ratio is affected by the collection of both current liability and tax arrears. The amount of tax collections should be identical to the tax liabilities.

The value of the collection ratio can be interpreted as a measure of the observance of the tax law and the ability of the authorities to enforce it through fines or even jail sentences.

37 According to Bahl and Martinez-Vazquez (2007), a normal value for the collection ratio in developing countries is around fifty percent (50%),which is explained mainly due to inadequate tax enforcement and can be as low as twenty percent(20%) in some cases.

Lastly, the coverage ratio is defined as the amount of taxable property captured in the fiscal cadastre, divided by the total taxable property in a jurisdiction. it is the proportion of all properties legally liable for the property tax that actually appear on the fiscal cadastre and have tax bills generated from them. It measures the accuracy and completeness of the valuation roll information.

This model shows that tax base is defined in government policy and varies between countries. The potential tax revenue is a function of the accuracy and level of the coverage ratio, the valuation ratio, the tax ratio and the collection ratio. These four ratios which are closely linked together establish the level of success of a tax system. It determines the effective tax rate and tax burden for each property, thereby affecting the revenue yield, economic efficiency and overall equity.

2. 3.3 Property Tax Features of a Property Tax System 2.3.3.1 The Tax Base

Real or immovable property is the basic taxable object in all countries levying property tax. It includes land, improvements to land and buildings. However, what is taxed depends on the country as established in the law governing property taxation. The base of the property tax is the value that will be used to allocate the tax burden to individuals, households and businesses. The choice of tax base is basically whether to adopt a value based approach or one that is not based on an estimate of property value (Youngman and Malme ,1994). The necessary policy questions in deciding the base of the property tax include:- What is to be taxed? Will the base include land only, immovable improvements only or both? What

38 categories of property will be treated differently or exempted? It has been observed that high levels of exemptions tend to reduce the property base and should be discouraged. How are property rights defined and registered? What will be the basis of tax assessment? The central government usually defines the tax base definitions, although the local governments are sometimes given limited options to offer special exemptions and relief. In countries like Kenya, New Zealand, Bermuda and Jamaica, only land is taxed, in Tanzania and Ghana, only buildings are taxed. In Nigeria, in countries of South America, Western Europe, South Asia and others, both land and buildings are taxed. In South Africa, some local governments tax only land while some tax both land and buildings. According to Lincoln Institute of Land policy (2015), the tax base is the monetary values placed on taxable property by the tax authority. It is also given as the aggregate valuation of all taxable property less exemptions.

Some countries tax only land and others tax both land and buildings (or “improvements”).

Some countries also have other assets such as industrial machinery, business equipment and so on included in the tax base (Bird and Slack, 2002; Youngman and Malme, 1994). Most developing countries levy property tax on the value of land and buildings (or improvements) with minor variations in the classification of type of property such as „agricultural and non-agricultural‟, „urban and rural property‟, residential, commercial and industrial. Countries like Estonia, Ukraine, Kenya, and Jamaica tax land only, while in Tanzania for example only buildings or improvements are subject to taxation. (Bird & Slack, 2002; and Kayuza, 2006).

The environment in which the tax is levied provides guidance on the tax base to adopt (land only or improvement only or land &improvement). It has been argued that land tax or site value taxation is best where the tax objective is to ensure efficient use of land, since a land tax will not affect the profitability of making investment on the land. But when site value taxation is considered for revenue generation, it is argued that the tax can only produce reasonable revenues only at very high rates of tax than a tax on land and buildings together.

39 This is because the base for land tax is smaller when compared to the value of land and improvement treated together. In the area under study, both land and improvements are taxed.