Introducing Value Based Property Taxation in Slovenia Neva Žibrik, M. Sc. Ministry of finance Slovenia
Slovenia in transition Slovenia declared its' independency at 25 th of June 1991 and transformed the political system from socialist to social democratic capitalism. Administratively Slovenia has two levels of government: central government and local government (212 municipalities of which 11 are city municipalities). In previous system private ownership was allowed but for some types limited (nationalization at the end of II. World war: agricultural land over 10 ha, building land, business at large scale, etc.)
From the previous system we inherited: • Complete land book • Complete land cadastre • Real estate tax system (both taxes are revenue of municipalities but collected by TA): - Property tax - Charge for the use of building land In socialist system ownership was neglected and discouraged. So databases were not maintained and updated systematically and there were no records on data about buildings. Tax system was more playing a role of communal duty. The system needed a reform.
In new political system Slovenia carried out some major processes: • Privatization : Enforced in 1991 law on denationalization (the law was also the base for privatization of all building land in benefit of holders of the use rights) and new Housing act (enables that in next few years most of the apartments in multi-apartment houses (over 160.000 apartments) in a public ownership were privatized with being bought by their users or tenants under very favorable prices (app. 10 % of the market prices). • Update the system to protect private property: adopt new Land Register Act in 1995, Real-Estate Recording Act in 2000 (which established the base for building cadastre) and Law of Property Code in 2002. • Adopted first Mortgage Bond and Municipal Bond Act in 2005.
Most of this changes based on a results of national projects, supported financially and professionally by the World Bank, International Bank for Reconstruction and Development to Finance, International Monetary Fund and Food and Agriculture Organization of the United Nations: • (FAO project (1996-1998) for developing a modern system of agricultural land classification and valuation, and • two projects of the World bank (ONIX from 1996 to 2000 and Real Estate Registration Modernization Project from 2000 to 2005)
Real estate tax system: Property tax Annual duty levied on private ownership of buildings and parts of buildings. • Taxpayer: individual who is the owner or usufructuary of the premises • Tax object: properties registered in a register at Tax Authority • Tax base: the value ascertained according to criteria issued by the government (to set no. of points) and local communities (to set the value of a point) • Tax rates: for dwellings from 0.10% to 1%, for the premises used for rest and recreation from 0.20% to 1.50% and for business premises from 0.15% to 1.25% (for not used business premises tax rate is increases by 50%. • Exemptions: - Residential buildings of less than 160 square meters - Buildings used for agricultural purposes; - Business premises used by the owner or user for business activity - Cultural or historical monuments - Temporary exemption for 10 years for newly constructed or renovated building, • - Tax decreas by 10% for the fourth and every additional family member
Real estate tax system: Charge for the use of building land Duty on using the building land • Tax payer: actual user (owner , tenant or user) • Tax object: builded and unbuilded building land, evidenced in registers of municipalities • Tax base: for builded land (area of residential or business premises), for unbuilded land (area of a parcel) – us unbuilded land the law defines only the parcels on which building of residential and business premises is actually possible • Tax rates: the amount of duty sets every municipality independently by their own criteria based on pointing system and the value of a point, that can be changed every year • Exemptions: - Land and buildings used by army, - Embassies and international organizations, - Buildings used for religious purposes, - Building land, planned for public infrastructure and public buildings - Developed building land under public infrastructure. • Municipalities can also grant temporary five year exemption for new residential properties and partial or full exemption for people with low incomes.
Reasons for the reform of real estate tax system • Duality of a system for natural persons • Incomparableness among the systems • Incomparableness among the level of taxation between the municipalities • Arbitrariness of ‘valuation’ in municipalities • Limitation of the taxation to only certain types of real estate • The understanding of a system as nontransparent and unfair • Unconstitutional solutions as determined by Constitutional court • The most common reason for tax complains (50 % of all tax complains). • Relatively low income (0,6 % of GDP, 15,5 % of total tax revenue of municipalities) • Obsolescence of both systems according to economic and real estate market development
Development of new system The reform started within ONIX project in 1997 (based on municipal registers): • Proposal for unification of land classification for the valuation purposes among municipalities • First analyses of market data and proposal of a system for collecting market data (data collected at TA through real estate transfer tax from 1997) • Proposal for the data on real estate to be collected Actual development of mass appraisal and real estate tax system started within the World Bank supported Real Estate Registration Modernization Project (2000-2005): • Digitalization of land cadastre • Establishment of cadastre of buildings and real property register • Development of mass valuation system • Proposals for real estate tax system • Result: - Real Property Mass Valuation Act, adopted in 2006 - New Real-Estate Recording Act, adopted in 2005 - First proposal on real estate tax act.
Real estate valuation in Slovenia • Certified Real Estate valuer, Auditing Act: obliged to follow IVS • Court valuer, Courts Act: recommended to follow IVS With Real Property Mass Valuation Act in 2006 valuation service was established at Surveying and mapping authority: • experts from different field of work (geodets, civil and agricultural engineers, economists, computer experts etc.) – no expert valuer but obliged to follow IVS and mass valuation methods, obligatory regular training.
Mass valuation system • Mass valuation act established database for recording market data (prices, rents). • Regulation specifies which valuation methods are to be used according to the market data available: - Sale comparison approach: for residential properties, shops, offices and all empty land (agricultural, forest, undeveloped building land etc.). - Problem with lack of data on detailed planned use of undeveloped land results in simplified models. - Combination of sale comparison approach (for evaluating land) and cost approach (for evaluating buildings): for industrial, agricultural and other building (for the public use). - Income approach: for special real estates, like buildings and land for energy (electricity) production, buildings and land for mineral exploitation, ship ports and service stations.
First mass valuation In January 2010 experimental valuation was completed and approximately 1.2 million notices to property owners of approximately 6.5 million properties were sent out. For about 550,000 properties, owners filed objections, 1/3 on the properties’ values(70% of this on agriculture and forest land, about 10% on houses, 10% on apartments and 10% on other types of properties). Based on these complaints some models were modified or updated. From January 2012 valuation models are approved by the Government. With 2012 Generalized market value (GMV) was annotated to all real estate in real property register (all land and all registered buildings). GMV is considered as the information about real estate and is public. In 2013 first indexation was executed while the market dropped significantly due to the economic crises. Second indexation followed in 2014. The system needs new reassessment (by the law it has to be performed every 4 years).
Enforcement of Real estate tax act in 2014 • In 2009 first realistic attempt of introducing Real estate tax occured. It was refused in principle by laic and professional public and especially by municipalities. Early election interrupted procedure and postponed it for next four years. • Next attempt, which ended in constitutional dispute, began in 2013. • The main goal was to introduce comparable, transparent and controllable system, which would allow to use tax as an real estate policy instrument at local level (through determining the tax base on market value). • Due to economic and fiscal crisis the law proposal followed the idea to rise the revenue for 100 % due to including all real estates in taxation, leaving the tax on business real estate at the existing average (0,7 %), raising the tax for residential properties (twice of average effective tax rate 0,08 %) and redirect half of the revenue to the state budget, leaving to the municipalities same revenue as in a previous system. • In spite strong and wide opposition Real Property Tax Act was adopted in a Parliament at the end of 2013 and was introduced with 1. 1. 2014.
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