2 weeks Ago By Our Correspondents
The International Monetary Fund (IMF) has stated that the world’s governments must raise an additional $3 trillion to achieve sustainable and inclusive economic growth goals this decade. IMF in its latest report indicated that the cost in emerging markets equals 4 percent of gross domestic product—and 16 percent for low-income countries. How can countries finance such staggering price tags? Large cities such as Delhi and Lagos show a way forward: Taxing property more efficiently can play a meaningful role in raising revenue at the local level, allowing countries to invest more in their people, new IMF analysis shows.
Previous IMF research has shown that countries have ample potential to raise more domestic tax revenue if they need it—up to 5 percentage points of GDP over two decades. Of course, the political challenges of such reforms are far from trivial, as recent events in several countries suggest that raising taxes can create social unrest. More efficient real estate taxes have an advantage in this regard: by being locally collected and spent, they may be politically less challenging than increases in broad-base national taxes.
Recurrent taxes on immovable property could help local governments capture the wealth generated through construction-intensive urbanization. Generating such revenue fairly is especially important given the difficulty in developing countries of taxing income and wealth, which can be highly mobile. The appeal of property taxes is clear when we look at revenue raised in advanced economies: more than 1 percent of GDP on average in OECD countries, and nearly 3 percent in some advanced economies.
By contrast, they raise only around 0.1 percent of GDP in emerging Asia and Africa. Achieving such a large growth requires improving property-tax coverage and addressing the capacity challenges in valuing real estate as ways to reverse the current revenue underperformance.
New property identification technologies and simplified valuation methods have become widely available. With policy reforms and better technology, recurrent property tax revenues in developing countries should be at least 10 times higher than current levels. When well designed, property taxes become a reliable and progressive form of municipal financing.
They enhance the accountability of local governments, since proceeds can be used to fund better local public services, and taxes the increase in wealth of those who own real estate that has appreciated due to urbanization and associated public-infrastructure development. The tight link at the local level between revenue and spending shields property taxes from national politics and imposes higher accountability standards on local councils for the effective use of the resources..
