Property Tax Performance in

Jamaica 1993 - 2014

Fay SamuelsTaxation Policy Division

MOFPFebruary 6, 2015

2

Outline of Presentation Introduction & Current Regime

Revenue Performance of the Property Tax

Responsiveness to Growth & Regional Comparisons

Recommendations

Conclusion

Introduction GoJ operating in tight fiscal space.

Fiscal decentralisation: reduction of government transfers to parish councils from FY13/14.

Property taxes a major source of local government financing (approx. 30 %).

Introduction cont’dPros:Usually, the land’s visibilityvisibility & immobilityimmobility makes avoidance difficultCurrently no other tax levied on property

Land valuations:legally required every 5 yrs but actual time averages 10 yrs.Previous: 1974, 1983, 1992, 2002, 2013

Current Regime Effective April 1, 2013: Properties with an unimproved value of up to up to

$100,000 $100,000 are charged a flat rate of $1,000. Those exceeding $100,000 up to $1,000,000 $100,000 up to $1,000,000

are charged an additional 1.5 % for every additional dollar above $100,000.

Properties exceeding $1,000,000 exceeding $1,000,000 attract an additional 2.0 % for every additional dollar.

Current Regime cont’d Property Tax is due and payable on April

1st in each year (annually, biannually or quarterly).

Penalty of 10.0 % for late payments. Constant Spring, Mandeville & Montego Constant Spring, Mandeville & Montego

Bay Bay combined, collected the bulk (≈ 45%) of the revenue.

Darliston, Buff Bay, Annotto Bay & Port Darliston, Buff Bay, Annotto Bay & Port Morant Morant contributed the least (≈1%).

Property Tax Performance 11993-2013

Sources: Compiled using data from Tax Administration Jamaica, Ministry of Local Government and the Statistical Institute of Jamaica.

Property Tax Performance 21996-2013

Sources: Compiled using data from Tax Administration Jamaica, Ministry of Local Government and the Statistical Institute of Jamaica.

National CollectionsTable 1: Property Tax Collection Rates, 2010-2015

_________________________________________________________________________________

Year Target Collections Collection Rate

($M) ($M) (%)

2010/11 3,500.84 2,788.90 79.7

2011/12 3,000.21 2,532.01 84.4

2012/13 2,800.41 2,805.28 100.2

2013/14 7,477.19 5,831.85 80.0

2014/15* 7,477.19 5,367.22 71.8

Sources: Compiled using data obtained from Tax Administration Jamaica and the Ministry of Local Government.

*Up to Jan. 31, 2015

Notes: St. Catherine* excludes the Portmore Municipality which is shown separately based on its impressive compliance rate. Data for Fiscal year 2013/2014.Source: Compiled using data supplied by Tax Administration Jamaica.

Collections by Council

Collection Rates April -January, 2014/15

Collections by Parcel 2009 vs 2013

Collections by Parcel 2 2009 vs 2013

Similar to Sjoquist’s (2004) findings, the fewest collections were found in the lowest valued properties (properties in the middle had relatively higher collections).

Our finding is contrary to that of Sjoquist (2004) in that the “highest valued” group “highest valued” group had the highest overall collection had the highest overall collection (in both 2009 & 2013) compared with Sjoquist’s study where they instead had the 2nd-lowest collection rate (behind the lowest-valued properties).

Collections by Parcel 32013/14

Table 2: Property Tax Compliance Summary for 2013/2014

Taxable Land Value RangeNo. of

PropertiesProperties Paid

in Full

Properties Paying 50% to

99%

Properties Paying less than

50%

Properties Making No

Payment

% % % %

0 300,000 310,159 29 2 1.9 67

300,001 700,000 281,451 38 5 5 52

700,001 1,000,000 98,239 46 5 6 43

1,000,001 2,000,000 71,337 47 5 7 41

2,000,001 5,000,000 29,359 47 6 9 38

5,000,001 10,000,000 4,574 49 8 10 33

10,000,001 and above 2,632 49 10 12 29

Total 797,751 37 4 4 55

Collections by Parcel 42013

The collection rate in 2013/14 (based on the number of parcels fully paid up) was 37 %, same as that recorded for 2002/03 (Sjoquist, 2004).

Low collection rates continue to be a major cause for concern as an increasingly large proportion of land owners (approx. 55 % in 2013, up from 47 % in 2002/03) made no payment on their outstanding property tax liabilities thus placing the overall burden on relatively few landowners.

Quarterly Tax Collections

Responsiveness to Growth 1 1996-2013

Tax Buoyancy: LPT = -12.55 + 1.48 LGDP

The estimate of the tax buoyance coefficient is 1.48 and highly significant. The responsiveness to nominal GDP is elastic (greater than unity).

The coefficient of 1.48 can be interpreted to mean that on average, over the period, “a 1.0 per cent increase in GDP was associated with a 1.48 per cent increase in property tax revenue”.

Responsiveness to Growth 2 1996-2013

Tax Elasticity:LPT* = -3.72 + 0.84 LGDP

Similar to the tax buoyancy estimate, tax elasticity highlights the responsive of the responsive of the property tax to changes in national property tax to changes in national income but abstracting from discretionary income but abstracting from discretionary changes in tax policychanges in tax policy.

PT* represents the adjusted property tax series.

Responsiveness to Growth 3 1996-2013

The estimate of the tax elastic coefficient is 0.84 and is highly significant. The results underscore the fact that property tax responsiveness to GDP is inelastic (less than unity).

0.84 can be interpreted to say that on average over the period, in the absence of discretionary tax policy changes, a 1.0 per cent increase in GDP was associated with a smaller (0.84 per cent) increase in property tax revenue.

Responsiveness to Growth 4 1996-2013 The difference between our buoyancy (1.48)

and elasticity (0.84) estimates highlight the significance of discretionary changes in the Jamaican property tax system.

The main source of growth in Jamaica’s property tax revenue over the period was realized from the rate changes that were implemented over the years.

According to Osoro (1992, p. 413), an elastic tax structure will see tax collections growing automatically with income without requiring politically sensitive tax increases.

Regional Comparisons 1

Year

JamaicaAverage

Share of TTRJamaica

Average Share of GDP

1996 0.5 1.1 0.1 0.3

1997 0.5 1.2 0.1 0.3

1998 0.6 1.7 0.1 0.4

1999 0.8 2.3 0.2 0.5

2000 0.7 3.7 0.2 0.8

2001 0.7 3.0 0.2 0.9

2002 0.9 1.4 0.2 0.4

2003 1.1 1.5 0.3 0.4

Table 2: Regional Property Tax Receipt as a Share of Total Tax Revenue /GDP

Property Tax Liability by Land Use 2013

The “Residential and Sub-divisions” category accounted for the largest share of the overall property tax liability (52.0 %).

After the 2013 revaluation exercise, the percentage of property tax liability borne by percentage of property tax liability borne by each category did not change substantially. each category did not change substantially.

The most obvious alteration was change of change of use use which accounted for less than 1% less than 1% of all registered properties

General Recommendations 1 More Frequent Valuations InfrequentInfrequent valuations cause local property

values to increase sharply. Higher property tax Higher property tax liabilities then shock taxpayers & create liabilities then shock taxpayers & create mistrust & an unwillingness/inability to paymistrust & an unwillingness/inability to pay.

The NLA should be afforded all the financial resources required that will allow it to focus on its core tasks of providing and updating land information.

We recommend the implementation of new We recommend the implementation of new valuation rolls as soon as possible valuation rolls as soon as possible and a simultaneous reduction in rates to counter increased valuations.

General Recommendations 2 Indexing Some researchers have discounted the

use of indexing due to the inability of existing indices to capture changes in property values.

We do not recommend do not recommend that indexing be conducted unless an index specifically suited to the real estate market is developed.

General Recommendations 3 Property Tax AmnestyWe do not recommend do not recommend the implementation

of a property tax amnesty in the short term

Amnesties can negatively affect long term voluntary compliance.

Recoveries from property tax amnesties are usually small and most remain unpaid afterwards.

Rate Recommendations Option A: Potential revenue of $7.44 BFlat rate of $1,000 plus 0.60% & 0.75% respectively, thereafter.

Band Property Tax Liability

Up to $400,000

Greater than $400,000 and less than $4,000,000

Greater than $4,000,000

$1,000

0.60% for each additional dollar

0.75% for each additional dollar

Proportion of land parcels 52% “winners”, 48% “losers”

Rate Recommendations Option B: Potential revenue of $7.47 B

Flat rate of $1,500 plus 0.60% & 0.70% respectively, thereafter.

Band Property Tax Liability

Up to $400,000

Greater than $400,000 and less than $4,000,000

Greater than $4,000,000

$1,500

0.60% for each additional dollar

0.70% for each additional dollar

Proportion of land parcels 38% “winners”, 62% “losers”

Conclusion 1 Descriptive and inferential analyses showed

that the property tax revenue grew property tax revenue grew significantlsignificantlyy in both nominal and real terms over time

The buoyancy estimate indicates that Jamaica’s property tax is elastic property tax is elastic and is in line with previous empirical findings.

Conversely, the elasticity estimate was lower and shows that Jamaica’sJamaica’s property tax is property tax is actually inelastic actually inelastic when the effects of property when the effects of property tax rate changes are removedtax rate changes are removed.

Conclusion cont’d Jamaica’s property tax revenue as a share of

both total revenue and GDP increased significantly over the period.

Nonetheless, regional cross-country comparisons highlighted a general underperformance

The effective rates by property groups found that persons with properties valued under $200,000 had the highest effective property tax rates. Simultaneously, properties valued between $600,000 and $800,000 had the lowest effective rates.

These findings provide useful insights on the extent of horizontal inequity present in Jamaica’s property tax.