When it comes to developing countries, every is complicated. Setting up a system and administering it is not an easy job. Most developing countries have a problem when it comes to population density, which complicates the issue further.
Property tax administration is no exception to this rule. Developing countries face rampant corruption and bureaucratic nightmares. The concept of Black money, commonly termed so in countries like India and other parts of Asia, is especially prevalent in property investment transactions. Black money is the concept of money on the table that is not revealed to government officials so as to avoid taxation.
Let us assess the current scenario. Property tax is a difficult tax structure to govern and administer, unlike more straightforward cases like income taxesor sales taxes for a chiropractor in virginia beach. It depends on three factors to function – Decentralization, administration and visibility. Property taxes function best when they have a high degree of decentralization and are independent in nature, something that is not the case in most developing nations.
In terms of administration, property taxes are expensive to maintain and difficult to modify. It is closely related to visibility, wherein once after you introduce a modification it is not so easy to track the effects of such a modification. It is hard to punish delinquency as there aren’t many “fair” punishments. If you seize a land, this becomes an extreme form of punishment that can be met with political retaliation. Cutting of utilities, something that has been tried in some nations, doesn’t work well as well.
At the same time, abolishing or replacing property tax doesn’t make sense for a government. They are revenue generating and fair means of jurisdiction. They create a sense of equity and fairness. Wealthier people who own multiple properties pay more tax to prevent them from purchasing even more and driving up home prices.
Which means the only solution is efficient reform. In countries where manpower is not available or not efficient, technology is the safest bet. There is an immense initial task of identifying and tagging each property or land space that is present. This is being done currently in Bangalore, India, where unique property identification numbers are linked to tax records.
While technology is a good starting point, there needs to be a concerted effort from elected officials and tax officials. Central governments should ensure that the administrative process is not complicated, incentivize local officials to collect tax and not engage in bribery or other forms of corruption.
And finally, incentivize citizens to pay tax by reducing bureaucratic hassles. Payment in post offices, banks, selected convenience stores and online means are good starting points.