Improvement of Local Property Tax Administration in South East Europe

Guidelines on local property tax administration

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Local governments’ fiscal autonomy is very much defined by the scope of our own source revenues. Our own revenues limit the dependence of municipalities on the intergovernmental transfers and shared revenues received from the national budget. Local taxes, user charges and fees empower municipalities to develop their own policies by tapping these potential revenue sources: local tax autonomy makes the collection more effective and authorizes municipalities to introduce their own social policy measures. These sources of revenue also increase the local governments’ accountability: taxpayers usually control municipal spending decisions more carefully when expenditures are financed through local taxes.

Among the various fees, charges and tax revenues, the property tax became an important source of financing local expenditures. In most cases the various taxes on real estate – together with other forms of property related taxes – have been established within the new fiscal framework of modern local governments. In the countries of former Yugoslavia, property related taxes and fees were significant revenue sources for local governments.

Based on the principle of “self-financing” not only the taxes on private property, but also the charges on the usage of public and social property were always important revenue sources for local governments. This has maintained a business-like attitude towards real estate and other types of property even during the communist era. This tradition is a good basis for wider usage of property taxes as an independent source of revenue for financing local government budgets.

Countries of South-Eastern-Europe gradually developed their own sources of revenue for fiscal decentralisation. The basic laws on local property taxes were formulated during the past decade in the region. The national and local governments have already accumulated knowledge and experience about tax policy design. Now the main task is to increase local property tax revenues through more efficient tax administration and to deal with the social consequences of a higher local tax burden. Therefore these guidelines focus more on the administrative issues related to local property taxation.

The overall goal of these guidelines is to improve local government financial management and independent source revenue and raise capacity by increasing the efficiency of municipal tax administrations in NALAS member associations of local governments. Our aim is to compile the standard methods of the property tax cycle, which would serve as references for the future in-country capacity development for NALAS members.

These guidelines aim to initiate further in-country capacity development in countries of the NALAS members. However, it is not a manual, to be used for helping to solve all the possible problems of property tax administration. It is less detailed than a guidebook, but we hope it gives a proper overview of the most critical tasks for improving local tax administration.

The guidelines intend to give practical help to the targeted audience by specifying the (i) methods used for property identification and (ii) assessment of property, and (iii) techniques of local property tax collection and enforcement. Based on an initial (iv) overview of local property tax policies, these guidelines also present (v) good practices on property tax administration within the countries of NALAS members.

The guidelines are based on eight reports prepared by the experts of NALAS member associations. The authors of these reports followed a set of standardised questions that helped to compare and summarise the methods, techniques and practices from various countries. The contributors to these studies met twice during the project implementation, which helped to discuss the common issues of local property tax administration.

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