Designing appropriate valuation model for sustainable property tax system in developing countries

Abstract

PurposeThis study seeks to contrive a sustainable valuation model for developing countries: a model that reasonably combines simplicity with equity, cost effectiveness, transparency, and the peculiarities of the local market place for improved revenue yields.Design/methodology/approachThe study draws from theory, experiences of other nations and international best practices to arrive at what should be the most appropriate tax base, valuation basis, valuation method, and the most expedient valuation approach for developing countries.FindingsUsing Lagos State, Nigeria to demonstrate the application of the contrived conceptual framework, the study, among others, recommended for her urban areas, a combination of modified mass appraisal technique, modified UK's “property banding” technique, and discrete valuation to reflect the diverse distribution of her property stock. Others include a ten‐yearly comprehensive revaluation and indexation for the annual or periodic adjustments during the intervening periods.Social implicationsProperty tax remains, among known local taxes today, the most viable, stable, predictable, progressive, and veritable source of own revenue for a truly independent local government administration. However, while developed countries have been able to tap these potentials to a good advantage for both fiscal and non‐fiscal goals; it is regrettable that the experience of most developing countries has not been equally satisfactory. Inappropriate valuation process, among others, remains a component of the tax system that is misguided and surrounded with much misgiving; hence a revisit.Originality/valueGiven the peculiar characteristics of the property valuation environment of developing countries, the highly simplified but pragmatic valuation model proposed is expected to birth a sustainable property tax system anchored on equity, cost effectiveness, ease of administration, and enhanced valuation ratio, with potentials for improved compliance and tax revenue yields.

An Evaluation of Factors Causing Variance in Property Assessment

“…The factors have also been identified in the emerging property markets of Malaysia, Zambia and Tanzania (Kelly & Musunu, 2000;Nasir, 2006;Achu, 2013;Munshifwa et al, 2016). Moreover, the factors identified in this study are in agreement with some of the factors identified in studies such as Akinjare et al (2013), Babawale (2013), Atilola (2013), Effiong (2015) and Adegoke (2016) in Nigeria on other purposes of valuation.…”

“…It was concluded that lack of quality control and sanctions for wrong assessment could be attributed to the lapses observed in the 1993 assessment. Other studies that have commented on the likely causes of variance in property tax assessment are by Babawale and Nubi (2011), Oni and Ajayi (2011), Atilola (2013) and Babawale (2013). These authors attributed the causes of variance in rateable values to non-robustness of the law in terms of its comprehensiveness and explicitness.…”

“…From the review of relevant studies on valuation variance, it can be concluded that the aspect of rating valuation has not been explored in Nigeria as most of the earlier studies focused on valuation inaccuracy relating to nonstatutory valuations in Nigeria. In addition, the contributions of Babawale and Nubi (2011), Atilola (2013) and Babawale (2013) were not on property rating law but on other property taxes in Nigeria.…”

Mobilising sustainable local government revenue in Ghana: modelling property rates and business taxes

“…It has also been argued that the strength of a property-based tax is dependent on the robustness of the valuation system (Babawale, 2013). According to Bahl and Martinez-Vazquez (2007), the valuation of property is one of the key problems with effective use of property tax in developing countries.…”

University for Development Studies

“…The ability of property taxation and business licensing to generate sufficient revenues for local governments depends largely on the valuation and classification of properties and businesses. It has also been argued that the strength of a property-based tax is dependent on the robustness of the valuation system (Babawale, 2013). According to Bahl and Martinez-Vazquez (2007), the valuation of property is one of the key problems with effective use of property tax in developing countries.…”