Experimental design

Ntamere (1982) has identified three principal steps involved in property tax administration; assessment; rate setting and collection. However, Dillinger, (1992) has further broken the steps into five (5) in this sequence; Discovery, Valuation, Assessment, Billing and collection. The ability of taxing authorities to efficiently and fairly administer the property tax should be established. The importance of administrative capacity shows up most clearly in four areas: Monitoring land use, valuation, billing and collection and also appeals.

Ishaya, Dabo and Makama (2012), is of the view that property tax administration is the most crucial stage of property taxation because any error or omission or commission during formulation and assessment shows in the form of objection and non-payment or non collection of tax. It has impact on revenue yield, tax efficiency and equity. The system often involves administrative discretion, so it can fall prey to corruption and abuse. The ability of taxing authorities to efficiently and fairly administer the property tax should be established.

The importance of administrative capacity shows up most clearly in four areas: Monitoring

42 land use, valuation, billing and collection and also appeals and the success of the property tax relies upon the efficiency of each of the components.

Tax administration exists to ensure compliance with tax laws. This has been long recognized by tax administrators, especially those working on tax policy in developing countries (Bird, 1989; Bird and Casangera de Jantscher,1992).

2.3.4.1 Property Identification

Property information should be available to enable the tax authorities identify property and determine ownership. The ability to determine the existence of each parcel of taxable property is fundamental for proper functioning of any property tax system. The success of tax administration largely depends on proper land registration and adequate documentation. In developed countries, identification of taxable property is facilitated with highly organized land regulatory systems. Cadastral systems in those countries are well developed, information on property ownership could be obtained from the land registry offices. In some countries like Denmark, Sweden, and Netherlands, all land related information is integrated into the computerized national cadastre. There is extensive coordination between land and property tax agencies providing for full tax coverage of all properties.(Youngman and Malme,1994). The collection of property information could also be done through field surveys or by self declaration as submitted by property owners.

Bird and Slack (2002) in their study of property tax around the world observed that the process of property identification is often more difficult in developing and transitional economies due to fragmented property information between the central and the local government, poor system of monitoring and recording land transfers, lack of funds to maintain a good record of property identification data resulting to non collection of tax on some taxable properties and lastly, non computerization of property records. Nuhu (2008)

43 reported thus, Nigeria is endowed with a vast land mass of about 924,768sq.km but only three percent ( 3%) of the total land area can be tied to well documented record of the use and the user. Property tax administration in developing countries is largely hampered by the failure to develop and keep property records. Inadequate records result in difficulties in valuing taxable property and billing the taxpayers. Subsequently, property tax jurisdictions find it difficult to collect property tax as they lack sufficient information about the taxable properties as well as property owners who constitute the taxpayers.

2.3.4.2 Valuation and Assessment

Valuation for tax purposes provides the basis for distributing the burden of property tax (Dillinger, 1998). Tax assessment is seen as the most critical aspect of the administration of the property tax. Most often, the assessment is identified as biased and criticized for the inequities it creates. It should be transparent for the tax to gain public acceptance. Land and property can be taxed on its capital value, annul rental value, or based on property attributes In many countries property tax is based on market value of a property determined using the traditional methods of valuation and other developed appraisal techniques. Sales comparison method is mostly used in estimating market value while depreciated replacement cost and income approaches are used in some cases. The depreciated replacement cost method is usually employed to value properties where a property market does not exist or not active.

Most developing countries adopt market value (capital value) as a basis of property tax with high reliance on the cost approach in determining the taxable property value. This is a result as inactive or less developed property markets. The Depreciated Replacement Cost (DRC) is also used in some provinces in Canada, in South Korea and for some property types in Netherlands and Sweden.(Youngman and Malme,1994) .The valuation function in developing countries is faced with problems of finance and technical expertise and also

44 limited property information. According to Mbadiwe (1998), the replacement cost method should only be applicable in cases where no rent is passing on the property or there is no evidence of rents. Ogbuefi (2004) opined that it should only be used for a new building in a nearly stagnant economy. Revaluations are also necessary to absorb the effects of inflation.

Fair and productive property tax requires a good initial assessment and also periodic revaluation to reflect changes in value. This is most times forestalled by lack of finance. It is most times difficult to keep assessments up to date due to lack of integration between different governments that are involved in property administration. For instance a property is sold and recorded in the land registry, notification should be sent to the fiscal cadastral system. If there is a change in land use or a building permit is issued, notification should be sent to the property tax department. Such processes are almost non-existent in developing countries like Nigeria.

2.3.4.3 Property Tax Collection and Enforcement.

Revenue production depends a lot on the billing and collection of the tax. Property tax collection involves sending out tax bills, either by mail or by hand, collecting the taxes or ensuring payment. In many countries property tax collection is the function of the local government while in some countries, the central government assumes the responsibility. In Britian , France, Isreal, the Netherlands and the United Kingdom the payment obligation rests with the occupier but in Nigeria, it rests with the owner of the property. If the property tax is not paid within a specified period after a due date, then interest and a late fee are generally charged. In cases of long term delinquency, the property might be sealed or sold to satisfy the tax obligation. Tax arrears reduce the revenues generated from the tax. Although tax arrears as a proportion of taxes collectible are low in most developed countries (for example three to four percent in Japan and U.K), they can be very large in developing countries (for example, fifty percent in Kenya, Nigeria, and Philippines .Tax arrears tend to be higher in countries

45 that do not have sufficient resources or expertise to administer the property tax and where enforcement is weak .As stated by Abdulrazaq (1985):

“The problems of assessment are matched by difficulties of collection.

Those who suffered a poor year economically, and who believe that the assessment was too high (at least in comparison with their neighbours), those who believe there is no need for fear, those who believe the taxes are being mis-spent, those who generally resent government-and especially those who belong to two or more of these groups will delay paying taxes as long as possible. Frequently, they succeed in avoiding paying at all-either by moving away or otherwise successfully avoiding the tax collector……”

Kelly (1999) suggested that a comprehensive collection and enforcement system needs to rely on a combination of three mechanisms, firstly, incentives to pay, secondly, sanctions and thirdly, penalties. The buoyancy of the tax system will be negatively affected if the tax assessment machinery no matter how efficient is not equally matched by an effective organization and procedure which ensures that the tax is collected promptly.

2.3.4.4 Appeals

An essential element in public acceptance of the property tax is the appeal process.

There is no tax system that is perfect either in design or implementation. Errors must creep into the best databases. Mistakes will happen, information could be entered into a computer incorrectly, or it becomes outdated. Tax administrators could make incorrect assumptions or judgments. Taxpayers can also make errors that would reflect on the tax system. Whenever, a taxpayer needs to correct some errors or respond to perceived unfairness, there must be a process available to taxpayers to seek redress by the tax system. One of the ways for resolving such appeals is to involve an independent panel of taxpayers who are not employed by the government. Normal courts are not used because judicial proceedings are always slow and expensive for the parties. The panels can objectively evaluate the claims of the taxpayer and the evidence of the tax authority. The decisions of the local panel can also be appealed in

46 the courts if either party so chooses. In Nigeria, most of the rating laws provide for the establishment of an assessment appeal tribunal.