report no. 37456-pa paraguay real property...

May 16, 2007

Document of the World Bank

Report No. 37456-PA

ParaguayReal Property TaxKey to Fiscal Decentralization and Better Land Use

(In Two Volumes) Volume II: Technical Annexes

Poverty Reduction and Economic Management UnitLatin America and the Caribbean Region

Report N

o. 37456-PA Paraguay

Real Property Tax

Volume II

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ACKNOWLEDGMENTS

This report was prepared by a team led by Peter M. Hansen (Lead Economist, LCSPE) and comprising Malcolm D. Childress (Sr. Land Administration Specialist, LCSER), Anna Corsi (Land Administration Specialist, LCSER) and Jasmin Chakeri (Young Professional/Economist, LCC7). The analysis o f rural land market values in the Department o f Caaguazu was carried out by the Paraguayan consultant firm Asociacih Tavamba'e under the direction o f Economist Victor Rivarola and comprising Jorge Irala (Technical Coordinator and Cadaster Specialist), Francisco Hernhndez (Geographic Information System Specialist) and Wilfrido Ramirez (Assistant GIS Specialist). Analysis o f municipal finances was prepared by Blas Cristaldo o f the Paraguayan consulting firm COPLANEA, based on data contained in a JICA study, "Construction o f a Data Base o f Municipal Finances" (2004). Ignacio Urrutia (consultant) and Gustavo Saguier (JPA) provided statistical support on the analysis o f fiscal values and central/municipal Government finances, respectively. Florencia Liporaci processed and formatted the final report.

Table of Contents Annex 1 . Existing Real Property Tax Law (Ley 125/91. Book 11). with Annotated Comments .................... 1 Annex 2 . Fiscal Values for Property Taxation, by Department and District, Established by the National Cadaster Service (Servicio Nacional de Catastro), 1993 through 2006, with Annual Percentage Changes .... 8 Annex 3 . Summary of Municipal Finances (Revenues and Expenditures), 1999 - 2003, by Group ............. 35 Annex 4 . Constraints to Improving Property Tax Administration Issues in Municipal Financial Management., ................................................................................................................................................ 43 Annex 5 . Analysis o f Rural Property Values in the Department o f Caaguani (June 2006) .......................... 52 Addendum to Annex 5 - Technical Note on Methodology for Estimating Market Land Values in Caaguaz~ ....................................................................................................................................................... 62 Annex 6 . Summary of Real Property and Land Taxation in Selected OECD and Latin American Countries ....................................................................................................................................................... 77 References ..................................................................................................................................................... 91

List of Tables Table A l . l Annotated Comments on Ley 125/91 . Impuesto Inmobiliario .................................................. 1 Table A2 . 1 Valores Fiscales para Inmuebles Rurales Establecidos por e l Servicio Nacional de Catastro a

traves de Decretos Anuales, 1992-2006 ..................................................................................... 8 Table A2 . 2 Variaci6n en 10s Valores Fiscales Rurales en Porcentaje (%) ................................................... 18 Table A2 . 3 Valores Fiscales en Areas Urbanas .......................................................................................... 28 Table A2 . 4 Minimos y Maximos Valores Fiscales por Hectarea de Inmuebles Rurales para e l 2006 a/ .... 33 Table A2 . 5 Aumento de la Inflacion y del Valor Fiscal, 1993-2006 (en %) ................................................ 33 Table A2 . 6 Increase in Real Terms (YO) ....................................................................................................... 34 Table A3.1 Evolucion de 10s ingresos y gastos para las 58 municipalidades incluidas en e l estudio: JICA-

MH-COPLANEA: Municipios de la Region Oriental del Paraguay d (en millones de G corrientes) ................................................................................................... 35

Table A3.2 Estimacion de 10s ingresos y gastos para las 164 municipalidades no incluidas en e l estudio: JICA-MH-COPLANEA: Municipios de la Region Oriental del Paraguay (en millones de

Table A3.3 Estimaci6n de 10s ingresos y gastos para la totalidad de las 222 municipalidades del interior

Table A3.4 Evoluci6n de 10s ingresos y gastos para la Municipalidad de Asuncion (en millones de G

Table A3.5 Estimation de 10s ingresos y gastos para la totalidad de las municipalidades del Paraguay

Table A3.6 Composition o f Municipal Revenues ........................................................................................ -41 Table A4 . 1 Property Tax Administration Capacity in Caaguani ................................................................. 48

Guaranies corrientes) ............................................................................................................... 36

del pais (en millones de G corrientes) .................................................................... 37

corrientes) ................................................................................................................................ 39

(Interior + Asuncion) ............................................................................................................... 40

Matrix A6 . 1 Comparison of Property Taxes among Sample OECD and Latin American Countries .......... 89

List of Figures Figure A2.1 Comparativo Inflaci6dAumento Valor Fiscal (en porcentaje %) ............................................. 34 Figure A2.2 indices Acumulativos (base 1992 = 100) .................................................................................. 34 Figure A3.1 222 Municipalities omposition o f Municipal Revenues . 2003 ............................................... 41 Figure A3.2 Asuncion Composition o f of Municipal Revenues - 2003 ...................................................... 42 Figure A3.3 All Municipalities, including Asuncion Composition of Municipal Revenues . 2003 ............. 42

iv

Annex 1. Existing Real Property Tax Law (Ley 125/91), with Annotated Comments Page 1 of 7

Annex 1. Existing Real Property Tax Law (Ley 125/91, Book 11), with Annotated Comments

Table A l . l Annotated Comments on Ley 125/91 - Impuesto Inmobiliario

LEY 125791 LIBRO I1

IMPUESTO AL CAPITAL TITULO UNICO

IMPUESTO INMOBILIARIO

Art. 54: Hecho imponible - CrBase un impuesto anual denominado Impuesto Inmobil iar io que incidira sobre 10s bienes inmuebles ubicados en e l territorio nacional.

Art. 55: Contribuyentes - Serhn contribuyentes las personas fisicas, las personas juridicas y las entidades en general.

Cuando exista desmembramiento del dominio, e l usufructuario sera e l obligado a1 pago del tributo.

En e l cas0 de sucesiones, condominios y sociedades conyugales, e l pago del impuesto podra exigirse a cualquiera de 10s herederos, cond6minos o cbnyuges, sin perjuicio de l derecho de repeticion entre 10s integrantes.

L a circunstancia de hallarse en l i t ig io un inmueble no exime de l a obligacion del pago de 10s tributos en las Bpocas seiialadas para e l efecto, por parte del poseedor del mismo.

Art. 56: Nacimiento de l a Obligacion Tributaria - L a configuraci6n del hecho imponible se verificara e l primer dia del aiio civi l .

Art. 57: Exenciones - Estarkn exentos del pago del impuesto inmobil iar io y de sus adicionales:

a) Los inmuebles del Estado y de las Municipalidades, y 10s inmuebles que les hayan sido cedidos en usufiucto gratuito. L a exoneracion n o r ige para 10s entes descentralizados que realicen actividades comerciales, industriales, agropecuarias, financieras o de servicios.

b) Las propiedades inmuebles de las entidades religiosas reconocidas po r las autoridades comuetentes. afectadas de un modo Dermanente a

N o t clear. There should s t i l l be an owner. In principal, the owner should always pay the tax, not the user or renter.

Good point.

N o t clear - possibly applies to property ceded by the central administration to municipalities.

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Annex I. Existing Real Property Tax Law (Ley 125/91), with Annotated Comments Page 2 of 7

un servicio publico, tales como templos, oratorios- publicos, curias eclesihsticas, seminarios, casas parroquiales y las respectivas dependencias, asi como 10s bienes raices destinados a las instituciones de beneficencias y enseiianza gratuita o retribuida.

:) Los inmuebles declarados monumentos histdricos nacionales.

d) Los inmuebles de las asociaciones reconocidas de utilidad publica afectados a hospitales, hospicios, orfelinatos, casas de salud y correccionales, asi como las respectivas dependencias y en general 10s establecimientos destinados a proporcionar auxilio o habitacidn gratuita a 10s indigentes y desvalidos.

e) Los inmuebles pertenecientes a gobiernos extranjeros, cuando son destinados a sedes de sus respectivas representaciones diplomkticas o consulares.

f , Los inmuebles utilizados como sedes sociales pertenecientes a partidos politicos, instituciones educacionales, culturales, sociales, deportivas, sindicales, o de socorros mutuos o beneficencias, incluidos 10s campos de deportes e instalaciones inherentes a 10s fines sociales.

g) Los inmuebles del domini0 privado cedidos en usufi-ucto gratuito a las entidades comprendidas en e l inciso b), asi como las escuelas y bibliotecas, o asientos de asociaciones comprendidas en e l inciso e)

h) Los inmuebles de propiedad del veterano, del mutilado y lisiado de la Guerra del Chaco y de su esposa viuda, cuando Sean habitados por ellos y cumplan con las condiciones determinadas por las leyes especiales que l e otorgan tales beneficios.

i) Los inmuebles de propiedad del Instituto de Bienestar Rural (IBR) y 10s efectivamente entregados a1 mismo a 10s efectos de su colonizacidn, mientras no se realice la transferencia por parte del propietario cedente de 10s mismos

j) Los parques nacionales y las reservas de preservacidn ecoldgicas declaradas como tales por ley, asi como 10s inmuebles destinados por la autoridad competente como asiento de las parcialidades indigenas.

Cualquier cambio de destino de 10s inmuebles

Intention i s understandable, but can lead to excesses, e.g., large sports fields owned by private clubs.

Should be limited to the principal residence. Could be abused in the case o f large landholdings used for production.

Recommend adding natural forests that have an internationally recognized certification o f sustainable management, for purposes o f preserving biodiversity and avoiding loss o f last remnants o f Atlantic forest in Eastern Region and preserving natural forests in the Chaco.

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beneficiados en las exenciones previstas en esta ley, que 10s haga susceptibles de tributacibn, debera ser comunicado a la Administraci6n en 10s plazos y condiciones que Bsta lo establezca.

Art. 5 8 . : Exenciones parciales - Cuando se produzcan calamidades de caracter natural que afecten a 10s inmuebles, e l Impuesto Inmobiliario podra reducirse hasta en un 50% (cincuenta por ciento). El Poder Ejecutivo queda facultado para establecer esta rebaja siempre que se verifiquen 10s referidos extremos. L a mencionada reduccibn se debera fijar para cada aiio civil.

Art. 5 9 - Exenciones temporales - Estaran exonerados del pago del Impuesto Inmobiliario y sus adicionales por e l tBrmino de cinco aiios, 10s inmuebles pertenecientes a 10s adjudicatarios de lotes o fiacciones de tierra colonizados por e l Instituto de Bienestar Rural (IBR) desde e l momento en que se l e adjudique la propiedad correspondiente.

La Administracibn establecera las formalidades y requisitos que deberan cumplir quienes soliciten ampararse a la presente franquicia.

Articulo 60. - Base imponible - L a base imponible la constituye la valuacibn fiscal de 10s inmuebles establecida por e l Servicio Nacional de Catastro.

El valor mencionado sera ajustado anualmente en forma gradual hasta alcanzar e l valor real de

anteriores a1 1 de noviembre de cada aiio civi l que transcurre, de acuerdo con la informacibn que en tal sentido comunique Banco Central del Paraguay o e l

ciento) de dicho valor. En 10s inmuebles rurales, las mejoras o edificaciones - construcciones no formarb parte de la base imponible.

Articulo 61. - Tasa Impositiva - L a tasa impositiva del impuesto sera del 1% (uno por ciento). Para 10s inmue impos (cero punto cincuenta por ciento), siempre que sea unica propiedad destinada a la actividad agropecuaria.

s de 5 hectiireas la tasa

Articulo 62. - Liquidaci6n y pago - El impuesto sera liquidado por la Administracibn, la que establecera la forma y oportunidad del pago.

Power o f granting exemption should be transferred to the respective municipality, since the loss o f revenue i s for the municipality, not the central administration. All such reductions should be approved by municipal ordinance.

Reasonable pro-poor policy. However, the exemption should start f tom the time the property i s e, rather than “adjudicated,” which i s not clear and doesn’t provide the same guarantees or economic incentives to invest in the property and produce as does a tit le.

Reliance on “valuaci6n fiscal” i s THE major weakness o f current law. Should be changed to market value.

Transition to market value should be in a maximum o f five years.

Limitation in valuation adjustment to the consumer price index assures that market valuations w i l l never be reached.

The cap on adjustments in fiscal value i s a second limitation on reaching market valuations.

Same principle o f only taxing land and not improvements should be applied to urban properties. Taxation o f improvements discourages development and maintenance o f existing buildings, leading to urban decay.

Assumes small i s equivalent wi th poor. Small intensive agriculture can be highly profitable and should pay equal rate o f tax. Art. 5 9 already provides an exemption for beneficiaries o f the agrarian reform. Also, a preferential rate may lead to the parcelizatiori o f larger properties. Al l properties should be taxed at the same rate to promote a homogeneous land market.

3


bt. 63: Padr6n inmobiliario - El instrumento para la leterminaci6n de la obligaci6n tributaria lo :onstituye e l padr6n inmobiliario, e l que debera :ontener 10s datos obrantes en la ficha catastral o en a inscripci6n inmobiliaria s i se tratase de zonas aun i o incorporadas a1 regimen de Catastro.

4rt. 64: Contralor - Los Escribanos Publicos y quienes ejerzan tales funciones no podran extender :scrituras relativas a transmisibn, modificaci6n o :reacion de derechos reales sobre inmuebles sin la 3btenci6n del certificado de no adeudar este impuesto y sus adicionales. Los datos del citado :ertificado deberan insertarse en la respectiva :scritura.

En 10s casos de transferencia de inmuebles, e l xuerdo entre las partes es irrelevante a 10s efectos del pago del impuesto, debiendose abonar previamente la totalidad del mismo.

El incumplimiento de este requisito determinarh que :1 Escribano interviniente sea solidariamente responsable del tributo.

La presente disposici6n regira tambien respecto de la obtenci6n previa del certificado catastral de inmuebles, asi como el otorgamiento de titulo de dominio sobre inmuebles vendidos por e l Estado, sus entes autarquicos y corporaciones mixtas.

Art. 65.: Direccibn General de 10s Registros Publicos - El registro de inmuebles no inscribirh ninguna escritura que verse sobre bienes raices sin comprobar e l cumplimiento de 10s requisitos a que se refiere e l articulo anterior.

La misma obligacion rige para la inscripcibn de declaratoria de herederos con referencia a bienes inmuebles.

La Direcci6n General de 10s Registros Publicos, facilitarh la actuaci6n permanente de 10s funcionarios debidamente autorizados, para extractar de todas las escrituras inscriptas 10s datos necesarios para e l empadronamiento y catastro.

En 10s casos de medidas judiciales, de las cuales por cualquier motivo deban practicarse anotaciones, notas marginales de aclaraci6n que contengan errores de cualquier naturaleza y que se relacione con e l dominio de bienes raices. L a Direcci6n General de 10s Registros Publicos hara conocer e l hecho a1 Servicio Nacional de Catastro mediante una comunicaci6n oficial, con la transcripci6n del texto

The prohibition on the transfer (Art. 64) and registry (Art. 65) o f property without the prior payment o f tax i s the only effective enforcement mechanism provided by the law. I t should be complemented with i) an explicit requirement that the tax be paid up to date before any mortgage can be issued (see indirect reference to this in Art. 66) and ii) that the respective municipality can auction o f f any property for back taxes afier a specified period, e.g. two years.

Purpose o f this article i s not evident.

4


de la anotaci6n de la aclaraci6n respectiva.

Art. 66: Gestiones administrativas y judiciales -No

como tampoco la accidn pertinente a la adquisici6n de bienes raices por via de la prescripcibn, s i no se acompafia e l certificado previsto en el Art. 64”.

Art. 67. Contravenciones - Las contravenciones a las precedentes disposiciones por parte de 10s Jueces o Magistrados, Escribanos Publicos y funcionarios de 10s Registros Publicos, deberan ser puestas en conocimiento de la Corte Suprema de Justicia, a 10s efectos pertinentes.

IMPUESTO ADICIONAL A LOS BALDIOS

Art. 68 - Hecho generador - Gravese con un adicional a1 Impuesto Inmobiliario, la propiedad o la posesi6n cuando corresponda, de 10s bienes inmuebles considerados baldios ubicados en la Capital y en las areas urbanas de 10s restantes Municipios del pais.

Art. 69: Definiciones - Se consideran baldios todos 10s inmuebles que carecen de edificaciones y mejoras o en 10s cuales e l valor de las mismas representan menos del 10% (diez por ciento) del valor de la tierra.

El Poder Ejecutivo podra establecer zonas de la periferia de la Capital y de las ciudades del interior, las cuales se excluiran del presente adicional. A estos efectos contara con el asesoramiento del Servicio Nacional de Catastro.

Art. 70 - Tasas Impositivas

1) Capital : 4 o/oo (cuatro por mil) 2) Municipios del interior: 1 o/oo (uno por

mil)

IMPUESTO ADICIONAL AL INMUEBLE DE GRAN EXTENSION Y A LOS LATIFUNDIOS

Art. 7 1 : Hecho generador - Gravese la propiedad o posesi6n de 10s inmuebles ma les con un adicional a1 Impuesto Inmobiliario que se aplicari conforme a la escala establecida en e l articulo 74 de esta ley.

Art. 72: Inmuebles afectados - A 10s efectos del presente adicional se consideraran afectados, no solo 10s inmuebles que se encuentran identificados en un determinado padr6n inmobiliario, sino tambikn

rhis article may provide indirectly for the payment If tax prior to creating any legal documents for the nortgage o f the property, but not fully evident.

rhis article evidently aims to penalize unused land in urban areas. In principle, this i s desirable, but would be unnecessary if land were valued at market prices. [t would be doubly unnecessary if the tax base in urban areas were changed to only land, excluding the improvements (see comments to Art. 60 above).

The additional tax on unused land i s so low that it i s not worth the effort. Indeed, municipal tax collection data show that collection o f the “additional” i s less than 1 percent o f actual property tax collections.

The additional tax on large properties and latfindios evidently aims to penalize large properties in an attempt to redress the highly skewed distribution o f land. Again, conversion to market land values would obviate the need for such additional rates.

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Annex I . Existing Real Property Tax Law (Ley 125/91), with Annotated Comments Page 6 of 7

iquellos que teniendo diferente empadronamiento son adyacentes y pertenezcan a un mismo propietario 3 poseedor. Se considerarh ademas como de un solo dueiio 10s inmuebles pertenecientes a cbnyuges, a la sociedad conyugal y a 10s hijos que se hallan bajo la patria potestad.

Respecto a 10s inmuebles comprendidos en tales circunstancias, e l propietario o poseedor deberh hacer la declaraci6n jurada del aiio antes del pago del impuesto inmobiliario, a 10s efectos de la aplicaci6n del adicional que segun la escala l e corresponda.

Para aplicar la escala impositiva, se deberhn sumar las respectivas superficies a 10s efectos de considerarlas como un solo inmueble.

Art. 73: Base imponible - L a base imponible la constituye la valuaci6n fiscal del inmueble.

Art. 74: Tasas impositivas - El impuesto se determinarh sobre:

a) Inmuebles de gran extensi6n

El tramo de la escala que corresponda a la superficie total gravada, indicarh la tasa a aplicar sobre la base imponible correspondiente a dicha extensibn.

Regi6n Oriental Superficie de 10s Inmuebles en Ha. Ha.

10,000 libre 10.001 - 15.000 15.001 -20.000 20.001 - 25.000 25.001 - 30.000 30.001 y H mas

Impuesto Reg. Occidental Adicional Superficie de 10s

(por ciento) Inmuebles en

20.000 03 20.001 - 30.000 097 30.001 - 40.000 098 40.001 - 50.000 0,9 50.001 - 60.000 1 ,o 60.001 y mas Has.

b) Los latifimdios tendrhn un recargo adicional de un 50% (cincuenta por ciento), sobre la escala precedente.

Art. 75 - Participaci6n en la recaudacibn - A cada Municipalidad l e corresponderh el 50% (cincuenta por ciento) de la recaudacion que perciba e l Estado en concept0 de Impuesto Inmobiliario y e l impuesto adicional a 10s baldios referente a las zonas urbanas sobre la totalidad de lo recaudado por e l Municipio.

3 r s t mention o f such an “auto declaration.” The :xistence o f this legal provision i s propitious for the ntroduction o f an annual auto-declaration o f market .and values by the owner.

Zontinued reliance on fiscal values.

The progressive scale provides an incentive for artificial sub-division, despite the provisions o f Art. 72.

No definition o f “latifundios” which would be subject to this additional rate above that shown in a).

Appears to contradict Art. 169 o f the Constitution which stipulates that the Municipalities w i l l collect the property tax and that their share i s 70 percent o f collections.

6

Annex 1. Existing Real Property Tax Law (Ley 125/91), with Annotated Comments Page 7 of 7

Art. 76: Remision - En todo aquello no establecido expresamente en las disposicion de 10s impuestos adicionales precedentes, se aplicaran las normas previstas en e l Impuesto Inmobiliario creado por esta Ley.

Constitucibn Nacional - Del Impuesto Inmobiliario

Art. 169 - Correspondera a las Municipalidades y a 10s Departamentos la totalidad de 10s tributos que graven la propiedad inmueble en forma directa. Su recaudacion sera competencia de las Municipalidades. El setenta por ciento de lo recaudado por cada Municipalidad quedara en propiedad de la misma, e l quince por ciento en la del Departamento respectivo y e l quince por ciento restante sera distribuido entre las Municipalidades de menores recursos, de acuerdo con la Ley.

7

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22

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24

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32

Annex 2. Fiscal Values for Property Taxation Page 26 of 27

Table A2.4 Minimos y Mhximos Valores Fiscales por Hecthrea de Inmuebles Rurales para e l 2006 a/

Regidn Oriental Concepcidn San Pedro Cordillera Guaira Caaguazu Caazaph Itaplia Misiones Paraguari Alto Paranh Central meembucu Amambay Canindeyu

Regidn Occidental Zonas I a I V Zonas V a X

En Guaranies Mhs bajo

81,010 91,230 12 1,015 131,235 99,580 121,015 144,197 99,580 121,015 107,057 25 1,254 58,700 131,235 99,580

19,567 19,567

M B s alto

144,197 112,665 265,212 171,241 171,241 144,197 183,330 144,197 265,212 175,978 290,762 121,015 183,330 144,197

1 15,408 5 1,223

En US$ M B s bajo

13.5 15.2 20.2 21.9 16.6 20.2 24.0 16.6 20.2 17.8 41.9 9.8

21.9 16.6

3.3 3.3

Mhs alto

24.0 18.8 44.2 28.5 28.5 24.0 30.6 24.0 44.2 29.3 48.5 20.2 30.6 24.0

19.2 8.5

- a/ Fuente: Decreto No 6.899/05 del 29 de diciembre de 2005 por el cuai se f i jan 10s valores fiscales para el ejercicio fiscal del aAo 2006. b/ Tipo de cambio US$ 1 = Gs. 6.000

* Variaci6n de Indices de Precios a1 Consumidor. Fuente: Banco Central del Paraguay * *Variaci6n de Valores Fiscales. Fuente: Decretos del Servicio Nacional de Catastro

33

Annex 2. Fiscal Values for Property Taxation Page 2 7 of 2 7

Single year - 1993 Five years, 1994-98 Five years, 1999-2003 Three years, 2004-06 Fourteen years, 1993-2006

Figure A2.1 Comparativo Inflaci6n/Aumento Valor Fiscal (en porcentaje YO)

Per Period Annum

58.6 58.6 -9.5 -1.9

-10.8 -2.2 0.9 0.3

29.3 2.1

80.0

70.0

60.0

50.0

40.0

30.0

20.0

10.0

0.0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

1 0 Inflacibn afio anterior * Aumento en Valor Fiscal ** 1

Figure A2.2 indices Acumulativos (base 1992 = 100)

I- I n f l a c i h - - - - Valor Fiscal -V. F. en tkrminos reales 1

Table A2.6 Increase in Real Terms (YO)

34

Annex 3. Summary of Municipal Finances (Revenues And Expenditures), 1999 - 2003, by Group Page 1 of 8

Annex 3. Summary of Municipal Finances (Revenues and Expenditures), 1999 - 2003, by Group

Table A3.1 Evoluci6n de 10s ingresos y gastos para las 58 municipalidades incluidas en el estudio: JICA-MH-COPLANEA: Municipios de la Regih Oriental del Paraguay a/

(en millones de G corrientes)

1999 2000 2001 2002 2003

Ingresos Totales 108,397 125,335 138,555 162,288 190,520 Ingresos Corrientes 103.605 112.828 114,497 129.090 154.450 Ingresos Tributaios (1) 69,105 761765 771601 86;024 102,676 Impuesto Inmobiliario 26,281 30,983 33,779 38,867 47,958 Adic. a inmuebles de gran extension 719 657 426 790 709

Ingresos N o Tributarios (2) 34,500 36,063 36,897 43,066 51,773 Royalties 99 345 2,397 3,983 4,600

Ingresos de Capital 4,792 12,507 24,057 33,199 36,070 Royalties 55 6,047 17,328 25,741 29,390 Otros Ingresos de Capital 4,738 6,460 6,729 7,458 6,680

Gastos Totales 101,708 115,362 127,118 146,256 166,264 Gastos Corrientes (4) 86,075 96,099 100,647 115,313 133,662

Servicios Personales

Inversion Fisica Otros Gastos de Capital

Gastos de Capital 62,320 68,653 66,685 78,809 86,332 15,633 19,263 26,471 30,943 32,601 12,096 17,479 23,866 29,142 27,431 3,537 1,784 2,585 1,802 5,170

Superhit / DCficit (3) 6,689 9,973 11,437 16,033 24,256

a/ Datos re-elaborados a partir de las ejecuciones presupuestarias de las municipalidades del estudio

Ingresos Tributarios / Ing. Totales Ingresos N o Tributarios / Ing. Totales Ingresos de Capital / Ing. Totales

Total Memo:

Impuesto Inmobiliario / Ing. Tributaios Impuesto Inmobiliario / Ing. Totales Royalties Totales / Ing. Totales

Gastos Corrientes / Gasto Total Gastos de Capital / Gasto Total

Total Memo:

Servicios personales / Ing. Corrientes Gastos Corrientes / Ing. Comentes Gastos de Capital /Royalties Totales

Superavit @&kit) / Ingresos totales

Ingresos Totales / PIB Ingresos Tributarios / PIB Impuesto Inmobiliaio / PIB Gastos Totales / PIB Gastos de Capital / PIB

PIB en millones de G corrientes

en porcentaje ( O h )

1999 2000 2001 2002 2003

64 61 56 53 54 32 29 27 27 27

4 10 17 20 19 100 100 100 100 100

38 40 44 45 47 24 25 24 24 25

0 5 14 18 18

85 83 79 79 80 15 17 21 21 20

100 100 100 100 100

60 61 58 61 56 83 85 88 89 87

S.S. 301 134 104 96

6 8 8 I O 13

en porcentaje ( O h ) del PIB 1999 2000 2001 2002 2003 0.48 0.51 0.52 0.56 0.53 0.30 0.31 0.29 0.30 0.29 0.12 0.13 0.13 0.13 0.13 0.45 0.47 0.48 0.50 0.47 0.07 0.08 0.10 0.11 0.09

22,771,596 24,736,526 26,465,663 29,104,530 35,666,425

(I) Los ingresos tributarios mas importantes son: patente comercial, patente de rodados y de acuerdo a1 municipio, l a contr ibucih a la conservaci6n de pavimento, el impuesto a la construccion y el impuesto a 10s espectaculos publicos y juegos de mar. (2) Los ingresos no tributarios m& importantes son: tasas por recolecci6n de basuras y barrido, canones por estacionamiento y ocupaci6n de espacios pdblicos (como mercados municipales) y ventas de servicios varios. (3) Las municipalidades financian sus deficits principalmente con: endeudamiento bancario privado y credit0 de proveedores. (4) En 10s gastos corrientes se incluyen solo 10s intereses pagados por prestamos o financiamiento contraido por la municipalidad, excluyendose las amortizaciones debido a que &stas corresponden a gastos hechos en otro momento, que se esthn cancelando ahora.

35


Table A3.2 Estimaci6n de 10s ingresos y gastos para las 164 municipalidades no incluidas en el estudio: JICA-MH-COPLANEA: Municipios de la Regi6n Oriental del Paraguay


1999 2000 2001 2002 2003

Ingresos Totales 75,137 89,225 110,596 135,052 157,718 Ingresos Corrientes 68,994 73,23 1 78,316 88,762 109,285 Ingresos Tributarios (1) Impuesto Inmobiliario Adic. a inmuebles de gran extension

Royalties

Royalties Otros Ingresos de Capital

Ingresos No Tributarios (2)

Ingresos de Capital

45,957 16,595

459 23,036

462 6,143

355 5,788

50,258 18,944

512 22,972

412 15,994 6,747 9,247

5 1,225 20,562

539 27,092

4,567 32,280 22,361

9,919

55,633 22,638

373 33,129

7,227 46,290 35,150 11,140

68,102 28,755

309 41,182

7,225 48,433 37,244 11,189

142,156 Gastos Totales 71,949 81,876 110,532 120,192 Gastos Corrientes (4) 58,314 64,3 14 74,796 80,728 99,823



Gastos de Capital 39,727 42,629 44,377 52,053 60,243 13,634 17,563 35,736 39,463 42,333 11,185 15,728 33,116 36,354 35,713 2,450 1,834 2,555 3,110 6,620

Super iv i t I Deficit (3) 3,188 7,348 64 14,860 15,562

en porcentaje (YO) 1999 2000 2001 2002 2003

Ingresos Tributarios / Ing. Totales Ingresos No Tributarios / Ing. Totales Ingresos de Capital / Ing. Totales

Total Memo:

Impuesto Inmobiliario / Ing. Tributarios Impuesto Inmobiliario / Ing. Totales Royalties Totales / Ing. Totales


Total Memo:

Servicios personales / Ing. Corrientes Gastos Corrientes / Ing. Corrientes Gastos de Capital /Royalties Totales

Superavit (Deficit) / Ingresos totales

Ingresos Totales / PIB Ingresos Tributarios / PIB Impuesto Inmobiliario / PIB Gastos Totales / PIB Gastos de Capital / PIB


61 56 46 41 43 31 26 24 25 26

8 18 29 34 31 100 100 100 100 100

36 38 40 41 42 22 21 19 17 18

1 8 24 31 28

81 79 68 67 70 19 21 32 33 30

100 100 100 100 100

58 58 57 59 55 85 88 96 91 91

S.S. 245 133 93 95

4 8 0 11 10

en porcentaje (YO) del PIB 1999 2000 2001 2002 2003 0.33 0.36 0.42 0.46 0.44 0.20 0.20 0.19 0.19 0.19 0.07 0.08 0.08 0.08 0.08 0.32 0.33 0.42 0.41 0.40 0.06 0.07 0.14 0.14 0.12

22,771,596 24,736,526 26,465,663 29,104,530 35,666,425

36


Table A3.3 Estimaci6n de 10s ingresos y gastos para la totalidad de las 222 municipalidades del interior del pais (en millones de G corrientes)

1999 2000 2001 2002 2003

Ingresos Totales 183,534 214,560 249,151 297,340 348,238 Ingresos Corrientes 172,599 186,059 192,814 217,852 263,734 Ingresos Tributarios (1) Impuesto Inrnobiliario Adic. a inmuebles de gran extension

Royalties

Royalties Otros Ingresos de Capital

Ingresos No Tributarios (2)

Ingresos de Capital

115,062 42,875

1,178 57,537

561 10,936

410 10,526

127,024 49,927

1,169 59,035

758 28,501 12,793 15,708

128,825 54,341

964 63,988

6,964 56,337 39,689 16,648

14 1,657 61,505

1,163 76,195 11,210 79,488 60,891 18,597

170,779 76,713

1,018 92,956 11,825 84,503 66,634 17,869

Gastos Totales 173,657 197,239 237,650 266,447 308,420 Gastos Corrientes (4) 144,389 160,413 175,443 196,041 233,485



Gastos de Capital 102,047 11 1,281 111,062 130,862 146,575 29,268 36,826 62,207 70,407 74,934 23,281 33,208 56,982 65,495 63,144

5,987 3,618 5,140 4,911 11,791

Superivit I Dtf ic i t (3) 9,877 17,321 11,501 30,893 39,818

a/ Datos re-elaborados a partir de las ejecuciones presupuestarias de las municipalidades del estudio mencionado.

en porcentaje (YO) 1999 2000 200 1 2002 2003


Total Memo: Impuesto Inmobiliario / Ing. Tributarios Impuesto Inmobiliario / Ing. Totales Royalties Totales / Ing. Totales


Total Memo:

Servicios personales / Ing. Corrientes Gastos Corrientes / Ing. Corrientes Gastos de Capital /Royalties Totales

Superavit (Deficit) / Ingresos totales

Ingresos Totales / PIB Ingresos Tributarios / PIB Impuesto Inrnobiliario / PIB Gastos Totales / PIB Gastos de Capital / PIB


63 59 52 48 49 31 28 26 26 27

6 13 23 27 24 100 100 100 100 100

37 39 42 43 45 23 23 22 21 22

1 6 19 24 23

83 81 74 74 76 17 19 26 26 24

100 100 100 100 100

59 60 58 60 56 84 86 91 90 89

S.S. 272 133 98 96

5 8 5 10 11

en porcentaje (YO) del PIB 1999 2000 2001 2002 2003 0.81 0.87 0.94 1.02 0.98 0.51 0.51 0.49 0.49 0.48 0.19 0.20 0.21 0.21 0.22 0.76 0.80 0.90 0.92 0.86 0.13 0.15 0.24 0.24 0.21

22,771,596 24,736,526 26,465,663 29,104,530 35,666,425

37


Total Nacional (sin Asuncion) Incluidas en la muestra No Incluidas en la muestra Cantidad de Municipalidades Poblacion Cantidad de Poblacion Cantidad de Poblacion

Municipalida- Municipalida- des des

Grupo 1 22 2,179,412 14 1,682,629 8 496,783 Grupo 2 71 1,580,999 26 628,340 45 952,659

14 157,900 98 1,029,136 Grupo 3 112 1,187,036

Agrupamiento de municipalidades: L a administracidn del municipio se ejecuta a traves de las municipalidades. La ley 1294187 "Orghnica Municipal" establece que las municipalidades se agrupen, de acuerdo a1 monto 'de 10s respectivos presupuestos, de la siguiente manera : Primer Grupo : Cuyos montos presupuestarios son superiores a1 50% del promedio anual'del total de 10s presupuestos correspondientes a las municipalidades capitales departamentales. Segundo Grupo: Cuyos montos presupuestarios son inferiores al 50%, pero superiores a1 12%, del promedio anual del total de 10s presupuestos correspondientes a las municipalidades capitales departamentales. Tercer Grupo: Cuyos montos presupuestarios son inferiores a1 12%, pero superiores a1 3%, del promedio anual del total de 10s presupuestos correspondientes a las municipalidades capitales departamentales. Cuarto Grupo : Cuyos montos presupuestarios son inferiores al minimo establecido para e l tercer grupo. Esta clasificacion se hace periodicamente, por Decreto del Poder Ejecutivo, previa a la realizacion de cada eleccion municipal

Metodologia aplicada para la estimacidn de 10s ingresos y gastos de la totalidad de municipalidades del pais. Para estimar a cuanto ascenderian 10s ingresos y gastos de las 222 municipalidades del interior del pais, a partir de 10s datos de las 58 municipalidades que integraron la muestra del estudio citado, se aplicaron tres metodos altemativos: i) Se calculo e l porcentaje de participacion de la poblacion de 10s municipios incluidos en la muestra, a la poblacion total para cada grupo de municipalidades, obteniendose asi un coeficiente diferente para cada grupo. Luego se dividio e l total de cada concept0 de ingreso o gasto de cada aiio de las municipalidades de la muestra, por e l coeficiente del grupo respectivo, procediendo luego a la sumatoria de las cantidades asi estimadas, por grupo y afio. Esta estimacion m o j o para e l aiio 2002, un ingreso total (muestra + estimacion ) de G 297.340 millones. De esta sumatoria se restaron 10s importes correspondientes a 10s 5 8 municipios de la muestra, para estimar 10s montos de las 164 municipalidades no incluidas en la muestra.

ii) Aplicando la proportion de la cantidad de las municipalidades incluidas en la muestra, a la cantidad total de municipalidades del grupo respectivo, siguiendo posteriormente 10s pasos detallados en e l apartado i), determiniindose un ingreso total de G 341.157 millones. iii) Mediante un ajuste por minimos cuadrados, que dio por resultado un ingreso total de G 377.036 millones. A continuacidn se presentan 10s resultados obtenidos para cada metodo. Grupos de Minimos cuadrados Proporcion de Proporcion de municipio cantidad de poblacion

Cantidad de Municipalidades Poblacion

municipalidades 1 15 8,4 15 187,144 154,253

Incluidas en la muestra No Incluidas en la muestra Cantidad de Poblacion Cantidad de Poblacion Municipalidad Municipalidad

2 3

Grupo 1 Grupo 2 Grupo 3 Grupo 4 Totales

113,341 96,355 88,783 95,743 51,278 48,187

es es 10 43 64 77 36 23 32 31 37 40 63 60 50 23 13 13 88 87 8 2 24 25 76 75

100 100 26 49 74 51

4 9,537 6,380 6,118 Totales 377,036 341,157 297,340

Grupo4 I 17 114,9191 4 28,2031 13 86,716 Totales I 222 5,062,3661 58 2,497,0721 164 2,565,294

I Distribucion por grupo en YO 1 Participacion dentro de cada grupo, en YO 3

38


Table A3.4 Evoluci6n de 10s ingresos y gastos para la Municipalidad de Asunci6n (en millones de G corrientes)

1999 2000 2001 2002 2003 2004 Consolidado Total Ingresos Totales 147,310 169,979 181,142 167,667 182,788 204,042 Ingresos Corrientes 146,117 167,040 177,949 163,7 18 178,209 197,665

Ingresos Tributarios (1) 82,964 95,067 102,653 10 1,980 120,563 12 1,455 Impuesto Inmobiliario 40,076 46,386 50,898 53,394 61,842 61,171

Ingresos No Tributarios (2) 63,153 70,961 75,296 61,739 57,646 76,210 Royalties 0 0 399 0 736 1,213

Ingresos de Capital 1,193 2,939 3,193 3,949 4,579 6,377 Royalties 0 0 0 0 2,944 4,852 Otros Ingresos de Capital 1,193 2,939 3,193 3,949 1,635 1,525

Adic. a inmuebles de gran extensidn 0 0 0 0 0 0

Gastos Totales 131,790 159,637 179,059 178,255 176,664 213,682 20 1,829 Gastos Corrientes 122,123 139,276 162,6 15 160,575 167,031

Servicios Personales 93,396 108,502 128,116 132,372 140,465 143,811 Gastos de Capital 9,667 20,361 16,444 17,680 9,633 11,853

Inversidn Fisica 3,689 13,535 16,444 9,222 8,011 8,683 Otros Gastos de Capital 5,978 6,826 0 8,458 1,622 3,170

Superhvit I Deficit (3) 15,520 10,342 2,083 -10,588 6,124 -9,640

en porcentaje (YO) 1999 2000 200 1 2002 2003 2004


Total Memo: Impuesto Inmobiliario / Ing. Tributarios Impuesto Inmobiliario / Ing. Totales Royalties Totales / Ing. Totales


Total Memo:

Servicios personales / Ing. Corrientes Gastos Corrientes / Ing. Corrientes Gastos de Capital / Royalties Totales

Superivit (DCficit) / Ingresos totales


56 56 57 61 66 60 43 42 42 37 32 37

1 2 2 2 3 3 100 99 100 100 100 100

48 49 50 52 51 50 27 27 28 32 34 30 0 0 0 0 2 3

93 87 91 90 95 94 7 13 9 10 5 6

100 100 100 100 100 100

64 65 72 81 79 73 84 83 91 98 94 102

S.S. S.S. 4121 S.S. 262 2

11 6 1 -6 3 -5

en porcentaje (YO) del PIB 1999 2000 2001 2002 2003 2004 0.65 0.69 0.68 0.58 0.51 0.49 0.36 0.38 0.39 0.35 0.34 0.29 0.18 0.19 0.19 0.18 0.17 0.15 0.58 0.65 0.68 0.61 0.50 0.51 0.04 0.08 0.06 0.06 0.03 0.03

PIB en millones de G corrientes 22,77 1,596 24,736,526 26,465,663 29,104,530 35,666,425 4 1 3 2 1,883

39


Table A3.5 Estimaci6n de 10s ingresos y gastos para la totalidad de las municipalidades del Paraguay (Interior + Asunci6n)


1999 2000 2001 2002 2003

Ingresos Totales 330,844 384,539 430,293 465,007 531,026 Ingresos Corrientes 3 18,716 353,099 370,763 3 8 1,570 441,943

29 1,342 Impuesto Inmobiliario 82,951 96,3 13 105,239 114,899 138,555

Ingresos No Tributarios (2) 120,690 129,996 139,284 137,934 150,602 Royalties 561 758 7,363 11,210 12,561

Ingresos de Capital 12,129 3 1,440 59,530 83,437 89,082 Royalties 410 12,793 39,689 60,891 69,578 Otros Ingresos de Capital 11,719 18,647 19,841 22,546 19,504

Ingresos Tributarios (1) 198,026 222,091 23 1,478 243,637

Adic. a inmuebles de gran extensi6n 1,178 1,169 964 1,163 1,018

Gastos Totales 305,447 356,876 416,709 444,702 485,084 Gastos Corrientes 266,512 299,689 338,058 356,616 4003 16

Servicios Personales 195,443 219,783 239,178 263,234 287,040 Gastos de Capital 38,935 57,187 78,651 88,087 84,567

Inversi6n Fisica 26,970 46,743 73,426 74,717 71,155 Otros Gastos de Capital 11,965 10,444 5,140 13,369 13,413

Superhit / Deficit (3) 25,397 27,663 13,584 20,305 45,942


Total Memo:

Impuesto Inmobiliario / Ing. Tributarios Impuesto Inmobiliario / Ing. Totales Royalties Totales / Ing. Totales


Memo: Total

Servicios personales / Ing. Corrientes Gastos Corrientes / Ing. Corrientes Gastos de Capital / Royalties Totales

Superhit (Dtficit) / Ingresos totales


en porcentaje (%) 1999 2000 2001 2002 2003

60 58 54 52 55 36 34 32 30 28

4 8 14 18 17 100 100 100 100 100

42 43 45 47 48 25 25 24 25 26

0 4 11 16 15

87 84 81 80 83 13 16 19 20 17

100 100 100 100 100

61 62 65 69 65 84 85 91 93 91

4010 422 167 122 103

8 7 3 4 9

en porcentaje (YO) del PIB 1999 2000 200 1 2002 2003 1.45 1.55 1.63 1.60 1.49 0.87 0.90 0.87 0.84 0.82 0.36 0.39 0.40 0.39 0.39 1.34 1.44 1.57 1.53 1.36 0.17 0.23 0.30 0.30 0.24

PIB en millones de G corrientes 22,771,596 24,736,526 26,465,663 29,104,530 35,666,425

40


Table A3.6 Composition o f Municipal Revenues (as % o f Total Revenues)

2003

222 M. Asunci6n Total Tax Revenues 49 66 55

Property Taxes 22 34 26 Other Tax Revenues 27 32' 29

Non-Tax Revenues 23 31 26 Royalties 23 2 15

Total 100 100 100 Capital Revenues 5 1 4

Note: Royalties come from both Non-Tax Income and Capital Revenues.

Figure A3.1 222 Municipalities

Composition of Municipal Revenues - 2003 (as % of Total Revenues)

Capital Property Taxes Revenues 5 22

her Tax Revenues 27

Revenues23 27

41


Figure A3.2 Asuncih Composition o f Municipal Revenues - 2003

(as YO of Total Revenues)

Capital Revenues 1 I

Royalties 2+ I-

Other Tax Revenues32

Figure A3.3 All Municipalities, including Asunci6n

Composition o f Municipal Revenues - 2003 (as YO of Total Revenues)

Capital Revenues A

Revenues 29

42

Annex 4. Constraints to Improving Property Tarx Administration - Issues in Municipal Financial Management

Page 1 of 9

Annex 4. Constraints to Improving Property Tax Administration Issues in Municipal Financial Management

4.1 financial management that were highlighted in Volume I. As discussed in Volume I, collections o f the property tax in many municipalities are very low, especially in rural areas. This i s partly due to the extremely l o w fiscal values o f the land on which the tax i s levied. But there are other constraints, especially those related to the municipalities’ financial management capacities, that prevent municipal governments f rom intensifying their collection effort and increasing revenues from the property tax. Looking forward, improving financial management i s also crucial if municipalities are to effectively manage higher revenues resulting f rom a reform o f the property tax system.

This annex provides a more in-depth discussion o f the issues in municipal

4.2 in the discussions about the potential o f the property tax: (1) the legal framework for municipal finances; (2) institutional issues at the municipal level; and (3) the characteristics o f the overall intergovernmental fiscal system.

There are at least three aspects related to financial management that are relevant

Legal framework for municipal finances

4.3 framework for public financial management, both at the central and local level. This means that municipalities have to prepare their budgets using the same classifications and format as the central government. Other aspects o f municipal management are governed by Law 1294/87 on Municipalities.

L a w 1535/99 o n the Financial Administration o f the State establishes the general

4.4 revenues for municipalities. L a w 125/9 1, which introduced a new national tax system, transferred authority over the property tax from the central government to the municipalities, while the central government retained control over the setting o f tax rates and fiscal values (see Volume 1). Since then, revenues from the tax have increased as a share o f GDP, from 0.27 percent in 19901 to an estimated 0.39 percent in 2003. While municipal governments thus do not appear to have done a worse j o b at collecting the property tax than the central government, there are a number o f serious constraints that hold back i t s potential as a revenue generating instrument.

The impuesto inmobiliario today i s one o f the most important sources of own

4.5 L a w 1309/98 introduced sharing o f royalties from two large hydroelectric projects (ItaipG and Yacyreth) with al l municipal governments starting in 2000. Municipalities in areas affected by the dams, namely those in the departments o f A l to Parana, Caninde$, Itapua and Misiones are to receive a total o f 15 percent o f royalty revenues, while

World Bank (1991).

43

Annex 4. Constraints to Improving Property Tax Administration - Issues in Municipal Financial Management

Page 2 of 9

municipalities in al l other departments are to receive a total o f 25 percent2. Departmental governments 'are awarded 10 percent o f the royalty revenue, and the remaining 50 percent i s retained by the central government. The sharing o f royalties with the municipalities and departments i s being phased in at the rate o f 5 percent per year with the objective o f reaching the full 50 percent revenue sharing target (50% local governments : 50% central government) by 20 10. In the interim, the central government retains the (declining) difference in shares.

Budget preparation

4.6 None o f the 58 municipalities used financial planning instruments in the preparation o f their revenue and expenditure projections on plans. Revenues are forecast based on historical trends, and so are expenditures, except for personnel spending, which i s based on actual personnel numbers and salary data. In the absence o f forecasting methods that estimate realistic revenue targets, there is no incentive to increase the revenue mobilization effort.

Budget approval process

4.7 According to the law, municipalities must send their proposed budgets to the local council (junta municipal) for approval by 20 October o f the preceding year. Thejunta has the right to make modifications, and it i s not uncommon for i t to increase estimates o f tax revenues, leading to a gross overestimation which municipalities often cannot fulfill.

Budget execution

4.8 The analysis o f selected municipalities in Caaguazu shows that execution rates are l o w for tax revenue (66 percent). But there i s a lot o f variation, ranging f rom execution rates o f 3 1 percent in the municipality o f 3 de Febrero to 95 percent in the municipality o f Yhu. Execution rates are higher for capital transfers (79 percent), which include royalties, and current transfers (84 percent).

4.9 In addition to l o w execution rates, many municipalities also experience cash f low problems at various points in the year, as revenue and expenditure flows are not synchronized. Budgets do not take into account the monthly pattern o f revenue inflows to cover current and capital expenditures. In such situations, municipalities are unable to pay suppliers, running up short-term debt.

4.10 comply with the obligation under Law 125/91 , Art icle 169 (see Annex 1) to transfer 15 percent o f revenues from the property tax to the departmental government on a regular basis. There are no formal sanctions for non-compliance, and given the relatively small

Only two municipalities in the department (Coronel Oviedo and Caaguazu)

* Within each department, 50 percent o f the royalty revenue i s distributed evenly among al l municipalities, and 50 percent according to the population density in each municipality.

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Page 3 of 9

amounts, there i s l i t t le effort on the part o f the department or central government to enforce this rule.

Accounting

4.1 1 central government and the j un ta municipal. The two municipalities in Caaguaz6 that benefited f rom the Municipal Finances Project - the municipalities o f Coronel Oviedo y Caaguazu -- adopted a Chart o f Accounts which integrates budget and accounting systems. However, the other municipalities in the department do not have such an integrated Chart o f Account. The municipalities o f San Josd de 10s Arroyos and Eulogio Estigarribia, for instance, record al l revenue and expenditure operations manually, and keep separate Excel spreadsheets for budget and accounting data.

Municipalities are required by law to provide a range o f financial reports to the

4.12 Given the state o f accounting practices - at least in the department o f Caaguaz6 - municipalities are not in a position to adequately keep track o f public spending, and to furnish the information required to support effective pol icy making and service delivery.

Lack of effective sanctions

4.13 The tax law includes no specific provisions for sanctions in the case o f non- payment o f property taxes, and the judicial process for claiming overdue taxes i s long and costly. Late payment penalties are only a small fraction o f the overdue payment, and thus do not provide a strong incentive to pay taxes on time. In 2005, for instance, fines represented only about 3 percent o f collections in the municipality o f Caaguazu. Officials report that in the past years, only approximately 3 out o f 10 notified tax payers came to the municipal government office to pay, and then often negotiated a smaller amount with the local officials.

4.14 notify tax payers o f their liabilities, primarily in urban areas. These notifcadores sometimes threaten that the municipality would turn o f f the property’s water or electricity supply in case o f non-compliance, but this threat does not seem to be very effective. Taxpayers have an incentive to pay their property taxes in only two situations: 1) if the taxpayer applies for a bank loan, using the property as collateral; 2) if the property i s sold.

In an effort to increase collections, municipalities frequently hire outside help to

Institutional issues at the municipal level

4.15 qualified human resources, inadequate systems and weak processes. Modest improvements have been made in those municipalities participating in two recent USAID-sponsored municipal finance projects (PFM1 and 2), especially in the area o f property tax collections.

Financial management in Paraguay’s municipalities i s weak, due to a lack o f

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Page4 of 9

Lack of cadastres and appropriate technology

4.16 urban cadastre, which was later, under PFM2, linked to the municipal tax database, leading to a 155% increase in tax collections. The municipality o f Coronel Oviedo also undertook an update o f i t s urban cadastre, albeit less complete. Overall, 52 o f the 58 municipalities in the JICA sample had an urban cadastre, with varying degrees o f digitization. Only 23 o f them had been ~pdated.~

In the municipality o f Caaguazu, P F M l helped the authorities create a digital

4.17 Only 23 o f the 58 municipalities surveyed for the JICA study had rural cadastres, most o f which were incomplete or outdated. None o f the municipalities had an electronic rural cadastre. Some have databases with the padrdn number, size o f the plot, fiscal value and name o f the owner, but without coordinates or other identification o f the exact location. This makes it difficult to collect taxes in an efficient manner. Collection efforts thus remain low, particularly because the perceived potential income from rural properties is l o w (due to the l o w fiscal values). Much o f the information on rural properties exists because the owners had paid taxes on previous occasions when forced to do so (in the case o f property sales, mortgage applications etc.).

4.18 Part o f the problem i s that the SNC and the municipalities do not share their cadastral data with each other. The SNC is the only official source o f property values; consequently, if municipalities were ever challenged on their tax bills based on their own (non-SNC) database, they would run into legal difficulties. Property transactions usually trigger an update o f the cadastre information, as they require a cadastral certificate, but this information i s not fully shared with municipalities and thus not taken into account in their own databases.

4.19 cadastre; in many cases, this involved the use o f simple spreadsheets (Le. not necessarily special software/database). Storage and updating o f cadastre data i s s t i l l done manually in 17 o f them. In those municipalities that use computerized systems, there is l i t t le integration between different information systems. In the municipality o f Juan Manuel Frutos (Caaguaz6), the property data i s stored in a simple excel spreadsheet, which allows for the compilation o f basic summary statistics, such as properties by rural and urban areas. However, this information i s not directly linked to the tax collections database, which i s kept at the caja. As a consequence, property information cannot be matched with collection information. In the municipality o f Caaguaz6, there i s a better integration o f the cadastre and collections databases, based on the property numbers and the owner’s name.

In 35 out o f 58 municipalities, there was some level o f computerization o f the

4.20 In the majority o f municipalities in Caaguaz6, the collection o f the property tax i s carried out by the Paraguayan Organization o f Intermunicipal Cooperation (Organizacidn

Thanks to recent work under the USAID project, which did a census o f urban properties including 3

buildings in participating municipalities, this number may be higher now.

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Page 5 of 9

Paraguay de Cooperacibn Intermunicipal, OPACI), which then submits the payments and records to the municipalities, alter deducting a commission.

Lack of human resources

4.21 The property tax i s one o f the most important municipal revenue sources, but this i s not reflected in the number o f staff assigned to the administration and collection o f the tax. In the municipality o f Juan Manuel Frutos, only two full time staff are in charge o f maintaining the cadastre and preparing and delivering the notifications. In the municipality o f Caaguazu, a total o f 10-12 staff are involved in the cadastre, notification and collection process.

4.22 to the taxpayers. Caaguazu recently hired an additional 5 notzjkadores (bringing their total up to 7), who work on a commission basis. It remains to be seen whether these measures are effective. Only 20 percent o f properties had been notified as o f mid-March, with up to 3 notifications per property being sent out every year. In the municipalities o f Coronel Oviedo and Caaguazu, notifications are sent out throughout the year, starting on the date on which taxes are due, i.e. in May for urban areas, and July for rural areas. Tax payers are ordered according to their tax liability and arrears, based on the information from the database.

Many districts rely on the assistance from contracted notzjkadores to deliver bills

4.23 There are very limited resources to expand or update the local cadastre, which happens on an ad hoc basis. The municipality o f Caaguazu, for example, recently hired a consultant to update the delineation o f the urban area. Given the financial and human resource constraints, municipalities tend to focus their efforts for improving property tax collections on urban areas, because o f the relative ease and availability o f information.

4.24 The institutional capacities for adequate financial management, and to administer the property tax in particular, appears to be correlated with the size o f the municipality’s budget. The classification o f municipalities into four groups i s issued by decree, updated before each municipal election, and i s based on their share in total municipal general budgets. In the case o f Caaguazu, municipalities belonging to group 1 clearly showed the highest capacity in administering the property tax, while municipalities in group 3 and 4 do not have the necessary institutional arrangements and human resources (Table A4.1).

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Page 6 of 9

Municipalities in Group 1 Aspects of Property Tax dministration

Table A4. 1 Property Tax Administration Capacity in Caaguazli

Municipalities Municipalities in Group 2 in Group 3

Dedicated administrative personnel

Specialized notiJicadores

I Directorate o f Taxes I Yes I No I N o I Yes No N o

Yes No N o

Unit for settlement o f tax bills

Information to Taxpayer

Yes Yes No

Yes No No

4.25 managing the - in some cases considerable - capital resources from royalties. The JICA study found that only a third o f the municipalities surveyed - mostly group 1 municipalities - prepared the technical and financial aspects o f proposed capital investment projects themselves; the rest - especially group 3 and 4 municipalities - used outside professionals for this task. Given that municipal capacities are already stretched, an increased inflow o f resources from the property tax, resulting from market-based assessments, should be accompanied by technical assistance and capacity building. The municipality o f JosC Eulogio Estigarribia, which i s among those that would gain the most from switching to a market-based assessment o f the property tax, belongs to group 4 (downgraded from group 2) and would likely find it difficult to make adequate use o f the additional resources without assistance. As resources from property taxes are not earmarked for capital investments, as i s the case with royalties, an increase in tax revenue could simply lead to an increase in current expenditures (especially personnel), which are difficult to reduce once created.

I t should be noted that municipalities are already having difficulties in effectively

High collection costs

4.26 The use o f standardized fiscal values keeps down the costs o f administering the property tax. On the other hand, the lack o f incentives for taxpayers to pay their bill (or lack o f sanctions in the case o f non-compliance) means that collection costs can be relatively high - including the contracting o f outside notiJicadores to deliver tax bills, several rounds o f notifications, discounts on tax bills if taxpayers claim that they cannot pay the full bill etc. - compared with the low amounts o f revenues associated with the low fiscal values o f the tax bills.

Political interference

4.27 The property tax i s a very visible and generally unpopular tax. It i s therefore not unusual for collections to drop drastically in election years. Intendentes standing for re- election try to buy the goodwill o f the electorate; intendentes not standing for re-election want to be remembered as benevolent.

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Characteristics o f the intergovernmental fiscal system that aggravate weak tax administration

Trend towards increased decentralization without expanded revenue autonomy

4.28 without transferring significant revenue raising instruments to municipalities. Since 199 1, municipalities are, de facto, increasing expected to fulfill a range o f new functions, especially in the health and education sectors. One o f the objectives o f decentralization i s to make service delivery more responsive to local needs. However, with the existing revenue instruments at their disposal, the municipalities’ ability to provide adequate and responsive public services is very l imited and will remain dependent on transfers from the central government. Shared revenues from royalties provide disincentives for tax collection

Paraguay has moved further towards a decentralized system o f service delivery

4.29 Following the introduction o f the royalty revenue sharing regime in 2000, municipal income rose significantly from this source. By 2003, royalties represented 18 percent o f total revenues, and 80 percent o f capital revenue^.^ Royalties have thus become an increasingly important revenue source for municipalities in the interior o f the country (Asunci6n does not receive significant amounts o f royalties), and particularly in those departments which are directly affected by the hydroelectric operations.

4.30 L ike other transfers f rom the central government, the receipt o f royalty revenue does not require any effort on the part o f the municipalities, and thus creates strong disincentives to increase collections from own source revenues, especially the property tax, which i s a visible and generally unpopular tax. It should be noted, however, that royalties are mostly earmarked for capital expenditures’ (physical investment and equipment), while tax revenue i s fungible, and in practice it i s primarily used for current expenditures, especially personnel spending. Consequently, if municipalities want to increase current spending, they have to mobilize more own source revenue.

Conclusion and recommendations

4.3 1 expected to deliver o f a range o f public services, but are not adequately equipped to effectively implement them. One o f the key issues, as this chapter shows, i s that financial management capacities are s t i l l weak. There i s a clear need for a national effort, both at the central and municipal level, to improve municipal financial administration, focusing on the following aspects (and building on progress made under the previous USAID- sponsored financial management programs):

With increasing popular pressure for decentralization, municipalities are now

Based on data for 58 municipalities - see Annex table A3.1. Source: JICA and COPLANEA. 4

’ Law 1309/98 stipulates that at least 80 percent of these revenues have to be used for capital expenditures. Up to 20 percent may be spent on current expenditures, but only if these are directly related to capital spending.

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Page 8 of 9

Standardize chart o f accounts: There i s currently great variation in the charts o f accounts used among municipalities, and between those at the local and the central level. Standardize appropriate software for financial administration: many municipalities currently have no integrated software, but use simple spreadsheets for each separate part o f the financial management cycle that then need to be consolidated. Improve training o f financial management staff: lack o f human resources i s currently one o f the key constraints in increasing tax collections. Strengthen compliance with reporting requirements: sanctions could be used to enforce regular and accurate reporting to the Ministry o f Finance and public disclosure (in government gazette, newspapers or on the internet) o f municipal budgets and budget executions. Mobilize public support for stronger financial accountability: a public relations campaign could help citizens understand the importance o f municipalities in service delivery, and potentially create demand for improved disclosure and stronger accountability.

4.32 At the same time, reforms o f the intergovernmental fiscal system could help establish the right incentives for local governments to increase tax collections efforts. Currently, the reliance o n royalties for a large share o f municipal incomes discourages the mobilization o f own source revenues, which i s politically less popular. However, in order to strengthen accountability and reap the full benefits o f decentralization, a significant share o f expenditures (especially those for locally consumed services) should be financed by locally raised taxes. In order to avoid the “moral hazard” problem o f dependence on royalties, disbursements o f these transfers could be made conditional upon the municipalities meeting certain financial management standards, or specified targets for property tax collections.

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Page 9 of 9

References

Asociacih Tavamba’e (2006). Diagndstico de la Capacidad Institucional de 10s Municipios Para Administrar e l Cobro del Impuesto Inmobiliario. Asuncih, Paraguay.

Cristaldo, Blas (2006). Problembtica de la Administracidn Tributaria Municipal. Background paper. Asuncibn, Paraguay.

International Monetary Fund (2006). Paraguay: Report on Observance of Standards and Codes - Fiscal Transparency Module. IMF Country Report No. 06/14. Washington, DC.

JICA and Coplanea (2004). Construccidn de una Base de Datos de Municipalidades de la Regidn Oriental, con e l Objetivo de mejorar e l Mecanismo de Distribucidn de las Transferencias y el Monitoreo que realiza e l Gobierno Central a 10s Gobiernos Locales. Asuncibn, Paraguay.

World Bank (1 99 1). Paraguay: Country Economic Memorandum. Latin America and Caribbean Region, Country Operations Department IV. Washington, DC.

51

Annex 5. Analysis of Rural Property Values in the Department of Caaguazli (June 2006) Page I of 24

Annex 5. Analysis o f Rural Property Values in the Department of Caaguazii (June 2006)

52

Annex 5. Analysis of Rural Property Values in the Department of Caaguazli (June 2006) Page 2 of 24

Vaqueria Comunidades indigenas

53

Annex 5. Analysis of Rural Property Values in the Department of Caaguazd (June 2006) Page 3 of 24

Mapa indice

54

Annex 5. Analysis of Rural Property Values in the Department of Caaguazu (June 2006) Page 5 of 24

TF1 E8-2 E8.4 U6.1 U6.2 U8.1 u10.2 U10.3 U10,4 U10.5 u11,2 U11.3 u12.1 U14.3 A4.4 A7.1 A7.3 A9.1 A9.2 A10 , l A11.3 A12.2 A13,3 A14,4 A16,2 01.5 02.5 04 ,5

56

Annex 5. Analysis of Rural Property Values in the Department of Caaguazzi (June 2006) Page 6 of 24

$1800 ALTO, Mayor a U5$18OD

57


267 268 - 340 341 - 408 409 - 476 477 - 549 550 - 627 628 - 704 705 - 782 783 - 860 861 - 943 94.) - 1030 1031 - 1113 1114- 1191 1192 - 1269 1270 - 1346 1347 - 1424 1425 - 1502 1503 - 1580 1581 - 1653 1654 - 1721 1722 - 1794 1795 - 1872 1873 - 1949 1950 - 2027 2028 - 2100 2101 - 2173 2174 - 2251 2252 - 2329 2330 - 2402 2403 - 2475 2476 - 2557 2558 - 2659

58


CARAYAO I t CECIL10 BAEZ

SAN JOSE DE LOS ARROYOS

LA PASTORA

NUEVA LONDRES

SIMON BOLIVAR

SAN JOAQU IN

SANTA ROSA MBUTUY

R13 CORRALES

CNEL OVIEDO

CAAG UAZU

3DEFEBRERO

REPATRIACION

Y HU

JOSE D OCAMPOS

JUAN M FRUTOS

VAQU E RIA

RAUL A OVIEDO

MCAL LOPEZ

J EULOGIO ESTlGARRlBlA

0 500 1,000 1,500 2,000 2,500

59

San Jose de 10s Arroyos

RI 3 Corrales

Carayao

La Pastora

Nueva Londres

Cecilio Baez

Coronel Ouedo

Simon Bolivar

San Joaquin

Santa Rosa Mbutuy

Caaguazu

Repat riacion

Jose Doming0 Ocarnpos

3 de Febrero

Yhu

Juan Manuel Frutos

Vaqueria

Raul Arsenio Ouedo

Mariscal Lopez

Jose Eulogio Estigarribia

0 20 40 60 80 100 120

Annex 5. Analysis of Rural Property Values in the Department of Caaguaza (June 2006) Page 9 of 24

60


267 265 - 340 341 - 408 409 - 476 477 - 549 550 - 627 628 - 704 705 - 782 783 - 860 861 - 943 944 - 1030 1031 - 1113 1114- 1191 1192 - 1269 1270 - 1346 1347 - 1424 1425 - 1502 1503 - 1580 1581 - 1653 1654 - 1721 1722 - 1794 17'35 - 1872 1873 - 1949 1950 - 2027 2028 - 2100 2101 - 2173 2174 - 2251 2252 - 2329 2330 - 2402 2403 - 2475 2476 - 2557 2558 - 2659

61


Addendum to Annex 5 - Technical Note on Methodology for Estimating Market Land Values in Caaguazu

5.1 Department o f Caaguaz6.

This note presents the methodology used to estimate land values in the

5.2 In summary, the study gathered original survey data o n market values from a stratified sample o f 455 rural properties in Caaguaz6. It then used the sample data to estimate values for the entire land surface o f the Department using two different statistical methodologies, both o f which lead to similar results. First, the study used a spatial interpolation method (Kriging) which i s based on the premise that the value o f any particular area will be closely related to the value o f surrounding areas. This method i s particularly usefu l because it takes maximum advantage o f the information about how land prices vary spatially to perform the interpolation. Second, the study estimated a hedonic model o f land prices based on observed land characteristics o f the sample properties and then used information about land characteristics for the rest o f the department to arrive at estimates for the entire department’s surface. The hedonic model has the advantage that the price estimate o f each point i s based on observable physical/geographical characteristics o f the land at that point. Because both methods help to explain the variation in land price over the surface o f the Department and provide insights about the factors associated with price variation, the study found it useful to calculate both types o f estimates.

Definition of the Sample Data

5.3 To arrive at a representative sample o f land areas in the Department, the starting point was a stratification o f the land by polygons based o n the chemical composition o f i t s soil, classifying the polygons into 29 different sub-types. The data for this f i rst step was obtained f rom the Agronomical Faculty o f UNA. Once the polygons were categorized into these soil sub-types, each polygon was matched with six soil quality variables, as wel l as variables measuring elevation and relief, which were obtained from the Ministry o f Agriculture and Livestock and the Directorate General o f Statistics, Surveys and Census, and accessibility (distance from a road). These characteristics were weighted to create an index o f the agricultural utility o f the land, reflected in scores between 1 (minimum) and 100 (maximum) for each polygon (Table A. 1 .)

62


Table A5.1: Variables and weights used to determine agricultural utility

Variable Max. points 1. Soil quality 75

1.3 Stationary water 7 1.4 Underground water 9

1.6 Utility for cattle ranching

1.1 Thickness o f arable layer 23 1.2 Texture 17

1.5 Richness o f soil 8 11

2. Elevation 11 3. Relief 6 4. Distance from access roads 8 T O T A L 100

5.4 Based on the above scores, three physical zones (zonasflsicas, ZF) were derived: those with low, medium and high value for agricultural production. The a p r io r i assumption i s that there i s a close connection between the level o f agricultural utility and the market value o f land.

5.5 points for which market values were to be collected. The ZF map was covered with a grid o f points, excluding points close to urban areas, bodies o f water, flooded lands and other non-relevant areas. From this grid a sample o f 455 points was randomly selected, with the number o f points in each zone proportional to the total land area o f each ZF (Map A. 1).

The ZF classification served as the basis for determining a random sample of

M a p A.l: Physical Zones (ZF) with Sample Points (455)

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Annex 5. Analysis of Rural Property Values in the Department of Caaguazti (June 2006) Page 13 of 24

Collection of information on sample points

5.6 assessors visited each o f the 455 selected sample sites, located v ia GPS. The team collected data on actual sale prices whenever possible through interviews with the buyers and/or sellers o f the properties. In those cases in which the buyer or seller could not be contacted, the team prepared i t s own estimates o f the market value based on the knowledge o f nearby transactions o f similar parcels known to local real estate agents and land surveyors.

In order to collect reliable data on property values, a team o f local surveyors and

5.7 shows the estimated market value for each sample property by district along with the Universal Transverse Mercator coordinates used to match the sample points in the above Map A.l with the actual properties.

A l i s t o f these 455 sample points i s attached at the end o f this addendum. It

Estimation of Market Values for the Entire Department

5.8 The above sample data o f market values for 455 parcels was then used to estimate land market values for the entire department using two different statistical methods: i) a geo-spatial model based o n the Kriging interpolation method; and ii) a hedonic model o f land price as a function o f the land’s physical characteristics.

Kriging Spatial Interpolation Method

5.9 Kriging i s a common tool to estimate values for a continuous space based on known sample data points developed by G. Matheron in the 1960s and named in honor o f South African mine engineer D.G. Krige. Although originally developed specifically for estimating ore concentrations in gold mines, Kriging has been used for other spatial estimation applications, and i s increasingly used for estimating land values. The intuition behind it is that land prices at any point are similar to those o f neighboring parcels. To interpolate a value for unknown points, Kriging assigns weights to the known sample data or nearby parcels, based on the distance to the point to be interpolated. Kriging assigns l o w weights to distant samples and vice versa, but also takes into account the relative position o f the samples to each other and the site or area being estimated. The appeal o f the interpolation approach is that it maximizes the use o f the spatial information about price to fill in the unknown areas. The disadvantage i s that i t treats land price simply as a spatial function o f known values, and does not attempt to model the economic characteristics o f each plot o f land in between the known sample points.

5.10 To derive the weights for calculating the interpolated values from known points in the neighborhood, Kriging requires a two step process. The f i rs t step i s to estimate the mathematical function (covariance model) which shows the way in which the variance o f pairs o f known points changes with respect to distance. With this model established, the

64


5.1 1 the variance o f the model’s predicted results. Using these values to weight nearby points, an interpolated value for each unknown point can then be calculated.

second step i s the calculation o f the weights, which are the values that minimize

5.12 In applying the Kriging methodology to Caaguaz6, Geographic Information System (GIS) software was used to generate the best fitting covariance model. This model provided the weights for calculating the interpolated values from a “neighborhood search” o f known points from our sample for each unknown point on the map (defined as 0.25 ha. grid squares). This neighborhood search turned out to be an elongated ellipse pointed southwest to northeast, which captures the trend apparent in the data that prices tend to vary less along a southwest-northeast direction. On the basis o f this procedure, the study derived estimates for each unknown point in the grid using the weighted average o f the values o f known points around each unknown grid square’s and giving the closest points the highest weights. The basic intuition i s simply that each point on the land value surface can be seen as a weighted average o f the known points nearby.

Figure A5.1: Neighborhood search ellipse for Kriging Interpolation

5.13 Having estimated the market value for each quarter hectare cell in the department the study then grouped the cells into 32 ranges with the average market value o f each range serving as the reference point (Map A.2). Presented in the form o f a map with the district limits superimposed, this detailed classification clearly shows that the highest estimated market values are heavily concentrated in the eastern part o f the department.

65


267 268 - 340 341 - 408 409 - 476 477 - 549 550 - 627 628 - 704 705 - 782 783 - 860 861 - 943 944 - 1030 1031 - 1113 1114 - 1191 1192 - 1269 1270 - 1346 1347 - 1424 1425 - 1502 1503 - 1580 1581 - 1653 1654 - 1721 1722 ~ 1794 1795 - 1872 1873 - 1949 1950 - 2027 2028 - 2100 2101 - 2173 2174 - 2251 2252 - 2329

1 2 3 3 0 . 2 4 0 2 1 2 4 0 3 - 2475 1 2476 - 2557 m 2558 - 2659

Map A.2: Range of market values in Caaguazu (in US$ per ha.)

5.14 three “homogenous economic zones” (zonas homoge‘neas econdmicas, ZHE), which facilitated the analysis o f the total market value o f land in Caaguazfi (see Statistical Appendix Table 4 in Volume 1). The average estimated land value for each district i s shown in the table at the end o f the following section.

To facilitate analysis at a more aggregate level, the 32 clusters were grouped into

Hedonic Land Characteristic Method

5.15 The hedonic model i s a common tool which derives a regression model o f land price based on the physical and geographic characteristics o f the known points. It then uses the predictors o f land value from the regression model to calculate estimated values for the parcels whose value i s unknown, but for which there is known physical and geographic information. This approach has the advantage o f using some physical property for each estimation. I t s disadvantage i s that it does not incorporate information about the spatial correlation o f land values, i.e. the influence o f neighboring properties on the target property. N o r does it take account o f the fact that properties with similar physical characteristics may have very different market values due to differences in location.

5.16 A linear model was specified using the parcel characteristics available for 446 o f the sample properties. The estimates o f the model are shown in the fol lowing table. The overall explanatory power o f the model was not strong (r-squared o f 0.26). Most plot characteristic variables contributed l i t t le explanatory power to the model, with the exception o f the variable for altitude, suggesting that neighborhood effects, which are not

66

Annex 5. Analysis of Rural Property Values in the Department of Caaguazli (June 2006) Page 15 of 24

part o f the parcel's physical characteristics, may indeed play a relatively strong role in land price. The hedonic model does not yield good point estimates for specific properties dues to the l o w explanatory power o f the model. Nevertheless, at higher levels o f aggregation, e.g., district and department the variance o f the error declines and the estimates for these levels i s more acceptable.

Table A5.2: Hedonic model coefficients

Resumen

Estadbtcas de la regresi6n Coefiuenle de correlauon mirlt 0.537321717 Coefiuente de deteminauon F 0.288714628 RA2 ajuslado 0.262 188502 E m tipico , 0.75356732 Obsewauones 446

ANALISIS DE VARIANU Valor c d m de F

Regnsion 16 98 88406568 6 180254105 10 88334058 1 57054E-23 Residuos 429 2436135295 0 587883705

F Grados de libertad S u m de cuadrados hf%edio de los cuadrados

Total 445 342 4975952

Ccefcentes Errorram Esradkrico t RDDabriaad mfenor 95% Supenor 95% nteopuon 6999601288 0 59645848 I173530972 900559E-28 5827260721 8 171941855

A Agua E 0 T U Urbano (4Km) PENDIENTE ALTURA DlSTANClA CAMINOS DlSTANClA CIUDAD MT ESPESOR EXTURA ESTACIONAMIENTO AGUA AGUA SUBSUELO RECEP

-0,018589277 -0.175148082 -0.087533329 0.822878811

-0,168425994 -0.006841936 0.515267171

-0.323875249 0.220300315

0.149683853

7.97683E-06 0.066324543

-0.015817925

-0.04031 1301

-0.07315464

0,016388835 0.683824489 0.042782582 0.21 1870731 0.609944218 0.0189ogSs9 0.381265787 0.12481 372 1 0.067341502

0.093769661

3.2582E-06 0.015138147 0.021618139

0.031 0751 27

0.06238321

-1 135664421 -0 256130166 -2 048003901 3 883872062 -0 27285445

-0351301315 1351484487

-2 599033607 3 271389972

1596079704

2 448234162 4381285412 -073169689

-1 2972208

-1 172685539

0 256731089 0797973102 0041385181 0 0001 19023 0 785096395 0 725534774 0 17725889

0 009670812 0001158815

0 11 1207345

0014755415 148492E-05 0 464753093

0 195252405

0 241580694

-0.050761977 -1.519211319 -0.17162288 0.408444974

-1.385276872 -0.043803167 -0,2341 14181 -0.588804645 0.087939983

-0.034641284

1.57281 E-06 0.038570378

-0.058308572

-0.101 389745

-0.195769404

0013583424 1168915154

-0 003443778 1239312648 1032424884 0030519292 I264648523

-0 078945853 0 352660847

0 33396897

143809805 0 096078708 0 026872722

0020767142

0 049460123

GANADERA -0.259152851 0.128049396 -2.023850629 0.043804866 -0.510835097 -0.007470605

A, E, 0, U = Soil types - alfisol, entisol, oxisol, utisol. TM = tierras misc.

5.17 Using the coefficients o f the hedonic model, estimates were made for about 500 homogeneous areas (polygons) and then grouped and weighted into average values for each district. The average price for property in each o f the twenty districts o f Caaguazu was estimated. These estimates are presented in Table B, which compares the average values for land price estimated from the hedonic model with the values obtained from the interpolation method.

67

Annex 5. Analysis of Rural Property Values in the Department of Caaguazti (June 2006) Page I 6 of 24

1,100

Table A5.3: Comparison of Estimated Average Market Values by District Using Interpolation and Hedonic Methods

1,165

District San Jose de 10s Arroyos RI 3 Corrales Carayao L a Pastora Nueva Londres Cecilio BAez Coronel Oviedo Simon Bolivar San Joaquin Santa Rose del Mbutuy Caaguazd Repatriacion Jose Doming0 Ocampos 3 de Febrero YhU Juan Manuel Frutos Vaqueria Raul Arsenio Oviedo Mariscal Lopez JosC Eulogio Estigarribia Department (weighted average)

Kriging Interpolation 370 519 360 3 83 432 369 65 1 456 457 472 1,06 1 1,157 1,32 1 1,121 1,174 1,327 1,565 1,628 1,642 1,969

Hedonic Model 349 677 3 79 280 277 398 526 429 1,663 794

1,338 1,424 1,283 1,598 1,477 1,620 1,553 1,364 1,571 1,224

5.18 The strong similarity in the estimates derived from the two different methods i s the expected result and strengthens the confidence in the estimates as both approaches reinforce each other. Indeed, the one major discrepancy between the two estimates is the district o f San Joaquin, where it i s quite plausible that the underlying land characteristics are of quite high quality, but that accessibility and neighborhood infrastructure are limited, making the interpolated estimate l ikely to be more accurate.

Conclusion

5.19 level and very close estimates for the Department as a whole ($1 , 100 Kriging versus US$1,165 Hedonic). The Kriging method i s viewed to be more robust because it captures what appear to be important neighborhood effects which are not captured in the hedonic method. Also the hedonic model has l o w explanatory power at the individual parcel level. For these reasons, the study uses the estimates o f the Kriging method for the calculations in the body o f the report. The Kriging market values are also slightly lower than those produced by the hedonic method, and are thus viewed as more conservative for making calculations o f the overall revenue potential from a revised land tax.

The two approaches yield similar estimates o f market land values at the district

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76

Annex 6. Property Taxation - Summary of Property Tax Systems in Selected OECD and Latin American Countries

Page 1 of 14

Annex 6. Summary of Real Property and Land Taxation in Selected OECD and Latin American Countries

6.1 In the fol lowing sections, the main elements o f the property taxation systems o f a sample o f OECD countries and Lat in American countries are presented based mainly on the following references.6 See also complete l i s t o f references at end o f this Annex.

OECD countries

6.2 In general, OECD countries included in this analysis are federal governments, with three levels o f administration, national, state (or provincial), and municipal. Property taxes are generally set and/or administered at the state and municipal level, not at the national level.

Canada

6.3 provincial/territorial, and municipal. Responsibility for levying property taxes rests with the provincial governments, who also perform value assessment o f properties. However, municipalities in al l provinces are allowed to levy property taxes to finance municipal services, under the ru les set by the provinces for determining the tax base and the tax rates. As a result, while there i s homogeneity in the application o f the property tax among municipalities o f a same province, there are differences across provinces. Municipalities are also responsible for the administration o f the property tax system in most provinces, including billing and collection.

Canada i s a federal government with three levels o f administration: federal,

6.4 (about 94 percent in 2003), while they account for only a small portion o f provincial revenues. They are a benefit-based tax and are set to capture, as closely as possible, the cost o f services consumed. Given that farms usually consume less municipal services than other properties, agricultural properties are usually treated differently (more favorably). Tax-related incentives given to agricultural lands include exemptions o f some properties such as farm buildings and residences, assessments below the agricultural market value, rebates by provincial governments, tax deferrals, and lower maximum tax rates.

Property taxes represent the largest source o f revenues for municipal governments

Tax base

6.5 in al l provinces. Properties are assessed very close to market value (an average o f the current value o f the tax year and the current value o f the previous tax year). As

Real property, defined as land and improvements, i s the base for the property tax

Bird, Richard M. and Enid Slack (2004). “International Handbook o f Land Property Taxation.” OECD (2005) Edward Elgan Publishing Limited, UK. “Taxation and Social Security in Agriculture.” Paris: OECD Publishing; European Commission (2002). “Inventory o f Taxes in the European Union.” 18” edition.

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Page 2 of 14 mentioned, assessment values o f farmland are often lower than agricultural market values. In addition, farmland i s assessed at i t s value in current use, rather than highest and best use.

Tax rates

6.6 In general, the amount o f property tax revenue that municipalities need to collect determines property tax rates. These can vary based on different classes o f property (e.g., residential, commercial, industrial, farms and managed forests). The tax rate on farms and managed forests i s set by law to be 25 percent o f the residential tax rate, while rate reductions apply to farmland pending development. Tax increases are triggered in case the farmland has been registered for subdivision and when a building permit has been issued.

Levying property taxes

6.7 Canada has two systems to identify the property to be taxed: the land titles system, under which only the property owner can register a document concerning t i t le to land, and the registry system, under which any person can do so. Only the land t i t les system provides a guarantee o f ownership.

Other taxes on land

6.8 Other taxes o n land include: (i) special assessment (imposed o n residential, commercial and industrial properties for additions or improvements); (ii) land transfer taxes (imposed at the time o f sale o f a property); and (iii) development charges (imposed by local governments on developers) which have to be used to pay for the infrastructure needs arising f rom the development.

Australia

6.9 Australia is a federation o f six states and the Northern Territories. There are three levels o f government: federal, state, and municipal. All states and the Territories have a state land tax, but with variations in i t s implementation. Financial and capital transactions and other property taxes are also levied by the state. Local governments in each state are authorized to levy municipal rates on property, which vary across states and territories. Assessment rolls are prepared by the states; on this basis, local governments set the tax rate, administer, and collect the taxes. Valuations are determined at the state level (for both the land tax and municipal rates) by reference to the land market at the date o f valuation. All sales relevant to the predetermined date o f valuation are investigated and where considered necessary, the parties interviewed. States fo l low different cycle for revaluations (in some cases they can take up to seven years). However, in some states, an equalization factor i s used to reflect current market values. All states are n o w emphasizing the need for more frequent revaluations.

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Page 3 of 14 Tax base

6.10 The state land tax is a tax on the ownership o f land and i s levied on the value o f land excluding improvements. The principal residence o f the owner and land designated for primary production, however, are exempt in almost al l states. By far the most importantare the municipal property rates, which can be levied on a number o f tax bases, including: (i) the land value excluding the improvements; (ii) the land value including some improvements (clearing, excavating, grading); (iii) the value o f land and buildings, including improvements; and (iv) the rental value o f land and buildings. The state or territorial governments determine the exemptions applicable to different types o f property.

Tax rates

6.1 1 Different rates are applied to different land uses, in the case o f both land taxes and municipal rates. Rates on agricultural lands are often reduced at the discretion o f the local governments. Either a flat rate or a progressive rate i s used to levy the land tax by the states. Municipal tax rates include general rates on all property-owners, which vary for different types o f land (residential, farmland, business, mining), or special rates for specific purposes (e.g., infrastructure improvements). Municipal governments may charge a minimum rate on each parcel o f land, and reduce rates in case o f harsh conditions.

Other taxes on land

6.12 usually as a percentage o f the transfer price.

State and territorial governments levy stamp duties when a property i s transferred,

United States

6.13 The predominant source o f tax revenue for municipal governments in the U S has been the property tax. In 2003, the property tax accounted for 73 percent o f local government tax revenues, and 30 percent o f a l l local government revenue. The property tax accounted for only two percent o f state tax revenues, while it amounts to 3.1 percent o f GDP in 2003. Almost al l o f the property taxes collected in the United States are used for local expenditures, with a heavy emphasis on funding o f public schools.

Tax base and rates

6.14 and improvements. A few places, such as Pennsylvania use a split-rate tax, in which a higher rate i s applied to land than to buildings. Typically county tax assessors collect information about every sale made during the year and use the market information to update mass valuation statistical models which use information on the size and location o f the lot, and the specific nature o f the structure(s) on each lot, to then update the valuation annually. Some jurisdictions have placed caps on the amount o f property tax

Almost al l property tax in the U S is valued parcel by parcel o n the basis o f land

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Annex 6. Property Taxation -Summary of Property Tax Systems in Selected OECD and Latin American Countries

Page 4 of 14 which can be levied and the rate at which it may increase. The most famous o f these i s Proposition 13, passed for the state o f California in 1978.7

Agricultural land

6.15 The assessed values for farmland in the U S vary considerably. A recent survey o f 26 states’ revealed the lowest tax rate in Wyoming at US$O. 1 1 per US$lOO o f full market value. The highest tax rates were found in Wisconsin at US$l.38 per US$lOO o f full market value. These rates have been trending downward since the 1920s. The national average o f farm property tax rates peaked in 1930 at 1.32 percent. It then fel l and has stabilized at between 0.7 percent and 0.85 percent.

In general the same annual assessment procedures are used for agricultural land.

6.16 utilization o f farmland. Wunderlich (1 993), in a survey o f agricultural land taxation in the U S concludes from an exhaustive review o f time-series data that there is “a positive relationship between higher property tax rates and more intensive use o f farmland, which in turn i s associated with more equal distribution o f farmland.” Similarly, Gaffney reports that land concentration in US agricultural land has risen as a result o f decreases in the agricultural land tax rates.

Property taxes on agricultural land are credited with contributing to good

6.17 real property taxes and thus the property tax on farmlands i s not critical to fiscal policy. In recent years agricultural land taxation has become a focus for the preservation o f farmland and the control o f urban “sprawl.” Some jurisdictions have opted to continue to assess farmland at urban fringes o n the basis o f i t s agricultural use value, instead o f at its free market value, which would be much higher. This type o f assessment allows farmers to stay in business doing agriculture on the land instead o f needing to sell out to pay property taxes based on the land’s value for housing or other development.

As currently applied, agriculture pays a relatively small part o f America’s total

Germany

6.18 The property tax-related legal framework i s set by the 1973 federal land tax law, the assessment act, the personal income tax code, and the wealth tax act. All these legal instruments are in different ways relevant for real estate taxation. The responsibility for administering the tax i s shared between the state and the municipality (as explained below). Real estate i s generally classified into three different categories, which then result

Under Proposition 1.3, the real estate tax on a parcel o f residential property i s limited to 1 percent of i t s assessed value, until the property i s resold. This “assessed value”, however, may only be increased by a maximum o f 2 percent per year. If the property’s market value increases rapidly (values o f many detached dwellings in California have appreciated at annual rates averaging more than 10 percent over the course of several years) or if inflation exceeds 2 percent (common), the differential between the owner’s taxes and the taxes a new owner would have to pay can become quite large. The property may be reassessed under certain conditions, when additions or new construction occur; the assessed value i s also subject to reduction if the value o f the house declines, but this i s rare. * Brandon G.Y. Raddatz, Bruce B. Johnson. (1999). “Agricultural Property Taxation: A Comparative Analysis.” University o f Nebraska Public Policy Center.

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Page 5 of 14 in two different tax categories. Real estate can conceivably be used for either agriculture or forestry (tax category A) or as private property -- either with or without improvements, where the improvements are simply thought to be constructions -- or property for business use (category B). The property tax i s the responsibility o f the owner, as identified in the cadastre.

6.19 municipal revenues f rom 1997 to 2000, and about 18 percent in 2003. This share has more thanhalved in the past 50 years, given that the tax base does not include a price adjustment element. In fact, annual land taxation for al l kinds o f land and buildings i s based on economic values from 1964. Some efforts to reforming this system were made in 2000; however, so far no real steps have been taken to start a reform.

Property tax revenues accounted on average for about 15.5 percent o f total

Tax base and rates

6.20 Responsibility for tax assessment lies with the municipality who sends a land tax assessment to the taxpayers. The value o f the real estate is, principally, the standard value established through the procedure set forth in the assessment act (Le., by multiplying the rateable value by a base rate which i s uniform for al l municipalities). The rateable value i s the property’s market value obtained on the basis o f rental income or constructions cost. However, as noted, this value i s s t i l l based on standard evaluations carried out in 1964. Special rules apply to real estate located in the former German Democratic Republic (GDR): a surrogate rateable value for 1964 i s used for agricultural and forestry land, while a surrogate area-based assessment is used for buildings. A partial value i s applied in case a particular piece o f property i s used by different economic entities conceivably for different purposes. The base rates range f rom 0.26 percent (for one- family houses) to 0.6 percent (for agricultural and forestry land). The higher rate for agriculture land i s applied to compensate for l o w rateable values, and the exemption from the local business tax.

6.21 The municipalities set the tax rates for the tracts o f real estate within their jurisdiction on the basis o f the established standard value. Specifically, the standard value i s multiplied by a municipal leverage factor, which i s freely determined by the municipalities, and which i s different for the category A tax (for agriculture and forestry) and the category B tax (for private and business real estate).

6.22 The tax base for the category A tax includes al l that serves to maintain the agricultural or forestry business, i.e., land, buildings, machinery and livestock. However, taxation o f agricultural land and forests include several benefits, such as special exemption, tax rate reductions.

Otheic taxes on land

6.23 Other land-based taxes include: (i) a real estate transfer tax (including land, buildings, rights to build, rights to parts o f buildings, etc.), at a rate o f 3.5 percent o f the purchase price or equivalent value. Tax o n sales o f farms or land with the intended

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Annex 6. Property Tcucation -Summary of Property Tax Systems in Selected OECD and Latin American Countries

Page 6 of 14 purpose o f compensating heirs who give way to the inheriting farmer i s lower than the regular tax on land sales; (ii) an inheritance or gift tax; and (iii) a tax on the capital gains on land.

Japan

6.24 The Local Tax Law gives municipalities responsibility for assessing, levying and collecting the fixed property tax on those properties within their jurisdiction. The owner of the property, as identified in the tax register book, i s responsible for paying the tax. Fixed property tax revenues accounted for a large share (on average about 44 percent) o f total municipal revenues from 1997 to 2001, while in 2003 they accounted for about 32 percent.

Tax base and rate

6.25 depreciable business assets at a standard rate o f 1.4 percent. The law gives municipalities the power to levy fix property tax at up to a maximum o f 2.1 percent instead o f the standard rate. The tax base i s the assessed value as listed in the property tax registry book maintained by each municipality. It generally corresponds to the market value. However, a uniform formula for the assessment o f the value i s established at the national level, so as to ensure a fair taxation system throughout the country. The assessed value in the registry book i s revised every three years on the basis o f a survey o f the market price o f land and the cost o f replacement o f houses and buildings.

The municipal fixed property tax i s levied on the value o f land, buildings, and

6.26 farmland for the fixed property tax purposes i s assessed at 55 percent o f the normal market value. In addition, various tax concessions are given to dispose o f farmland in order to encourage agricultural land transfers. However, agricultural lands in the urbanization areas are assessed as if the lands were residential lands (contrary, for example, to what happens in the United States, where concessions are given for agricultural land in the urban fringes).

Preferential assessment i s provided for agricultural lands, in that the value o f

Other taxes on land

6.27 prefectures; (ii) a registration and license tax; (iii) an inheritance tax; and (iv) a capital gains tax.

Other taxes on land include: (i) a real property acquisition tax, levied by all

Spain

6.28 taxation. The property tax (Impuesto sobre Bienes Inmuebles - IBI) i s levied annually on rural and urban real estate by the municipality where the property i s registered. The tax can vary widely from one municipality to another and from one type o f property to

The Local Finance Act o f 1988 sets the framework for property valuation and

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Page 7 of 14 another (especially between urban and rural areas). The taxpayer i s the property owner (an individual or a company, resident or not) as well as who enjoys usufruct or tenancy rights over the property. The tax i s due o n 1 January o f each year and i s the main local tax affecting owners o f properties: in 2003 i t approximately accounted for 26 percent o f total municipal tax revenues.

Tax base

6.29 systemYg which contains a large database with textual and graphic information about al l urban and rural properties. The tax base includes both land and buildings and is levied-on the value o f such land and buildings, taking into account location, size, and usage. The basis o f assessment i s the official cadastral value (valor catastral) o f the property. The cadastral values are determined by the tax authorities and are generally quite lower than the market value (they do not exceed 50 percent o f the market value o f the property). These values are adjusted every eight years through market analyses, which are coordinated for the whole country in order to obtain comparable cadastral values.

The valuation system is part o f a comprehensive national cadastre information

Tax rate

6.30 However, municipalities have the right to increase (or decrease) these rates within the limits set by the law, in accordance with population density and other relevant factors (provincial capitals, public transport, other municipal services, etc.) The percentage charged varies f rom area to area, and i s roughly 0.5 percent to 1 percent. (For example, in the case o f Marbella, the formula applied i s 0.85% o f the rateable value o f the property, which i s usually far less than i t s true market value).

The ordinary rate i s 0.40 percent for urban areas and 0.30 percent for rural areas.

Other land-based taxes

6.3 1 made on the sale o f property; (ii) the tax on the increase in the value o f urban land. This i s a municipal tax on the transfer o f urban land under any title (onerous or gifts). The tax i s applied to the increased value o f land from the purchase price to the sale price, and i s levied by the municipality based on: a) the location o f the property; b) the surface area o f the plot; c) the cadastral value; d) the date o f the previous title deed (escritura); and (iii) the inheritance which i s levied on the inheritance o f property and rights.

Other land-based taxes include: (i) the capital gains tax payable o n the profits

Latin American Countries

6.32 rates (or a range o f rates) and a National Cadastre Office that determines valuations,

Most Lat in American countries have national property tax legislation that sets tax

The cadastre management i s the responsibility o f the General Directorate o f Cadastre within the Ministry o f Economy and Finance.

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Page 8 of 14 while collection i s done mostly at the municipal level (expect in the case o f Chile where the property taxation system i s centralized).

Argentina

6.33 provinces and municipal governments have the power to determine and assess the land tax base, to set the rates, and to administer the tax. Rural and agricultural land i s generally subject only to provincial taxes. In the case o f urban lands, several provinces have basically left to the municipalities the collection o f the property tax. However, in some cases, overlapping o f provincial and municipal taxation o f urban property s t i l l exists. Within each province and municipality, the identification o f the sites and ownership, and the determination o f the tax base are the responsibility o f the cadastral offices. Responsibility for billing and collecting the tax rests with the tax administration offices. As a result, quality o f registration and managerial capacity for levying taxes are key for the efficiency o f the taxation system.

Responsibility for property and land taxation rests at the sub-national level: both

6.34 However, revenues f rom urban property taxes are by far more significant than those from rural property taxes, accounting for about 65 percent o f total property taxes.

Property taxes account for between 5 and 25 percent o f total provincial revenues.

Tax base

6.35 The tax base i s determined on the basis o f a fiscal valuation o f the property carried out by the provincial (or municipal) Cadastral Office. In urban areas this valuation takes into account the value o f the land, the area and the quality o f the construction, and the market value o f similar real estate. The assessment is carried out by technical bodies composed o f representative o f both the public and private sector. In general, the fiscal value i s lower than the market value (generally in the range o f 40 percent to 60 percent lower). Provincial and municipal tax offices adjust the house fiscal valuation with tax coefficients (composed o f a fixed plus a supplemental amount) that are set annually by the provincial legislatures and the municipal councils. In the case o f rural lands, the tax base i s determined on the basis o f the location, area, ground fertility, and alternative economic uses. In addition, if buildings are part o f the agricultural land, the value o f these i s added to the land value for tax purposes. In some provinces the total tax amount applied to rural lands i s further multiplied by an area productivity index which varies within the same province. Adjustments o f the assessments occur periodically to keep up with market values, although they vary according to the managerial and administrative capacity o f the various provinces and municipalities. Annual rural land taxes are generally paid in three or four installments, whereas urban land taxes are usually paid in six installments.

Tax rates

6.36 rates vary among provinces and municipalities: in urban areas they range between 1

Tax rates are determined by the provincial and municipal legislatures. As a result,

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Page 9 of 14 percent and 1.5 percent for provincial taxes, and between 0.7 percent and 1 percent for municipal taxes. Most provinces and municipalities apply a uniform tax rate, while others have adopted a progressive system. In addition, in order to discourage that lots are left vacant for a long time, in such cases the uniform tax rate i s increased. Tax rates are uniform for land, buildings and improvements, given that the tax base i s calculated including the fiscal value o f both land and buildings and i s unique for each property.

6.37 A uniform tax rate i s usually applied to rural and agricultural lands, and rates are limited to a maximum o f 1.2 percent (e.g., in the province o f Cordoba it i s 1.2 percent). However, in case the sum o f the tax bases o f rural properties belonging to a same owner i s above a threshold set annually, then progressive additional tax rates are applied.

Other taxes on land

6.38 price, payable by individuals and not legal entities.

Other taxes on land include a national tax on land transfer o f 1.5 percent o f sales

Colombia

6.39 The Colombian Constitution entitles municipalities to levy and collect property taxes (Impuestu Predial Unificadu). The tax base and rates for local taxes are generally defined by the national Congress, which sets a range o f rates within which the municipalities are free to choose.

6.40 Significant progress has been achieved in terms o f property tax collection over the last decade. In 2003, property taxes reached 0.70 percent o f GDP (0.45 percent without Bogota) and 35 percent o f total local revenues, up from about 0.30 percent o f GDP in the late 1 9 8 0 ~ ~ and about 23 percent o f total municipal revenues in 1994. These figures are higher than what i s collected in, for example, Chile (0.61 percent o f GDP) or Mexico (0.31 percent o f GDP). The efficiency o f the property tax and appropriateness o f i t s assignment to municipalities i s clear.

6.41 which constitutes the bulk o f property tax revenues; (ii) the urban outlining tax; (iii) the registry tax; and (iv) the contribution for valorization. Municipalities can levy al l taxes with the exception o f the registry tax, which i s applied to land transfers at the moment o f their registration at a rate ranging from 0.5 percent to 1 percent and is the responsibility o f the departments. Urban outlining taxes are levied on the construction or repair o f buildings at a rate o f 2.6 percent o f the construction or urbanization costs or, in some cases, in the amount o f 20 percent o f the official valuation. The contribution for valorization i s levied o n property appreciation resulting from public works in an amount equal to the cost o f the works plus 30 percent, which i s then divided proportionally among al l properties that benefit from the works. In the case o f rural lands, the criteria for determining the benefit include the property potential productivity, i t s proximity to retail sales, and the distance to communication facilities.

Property taxes are classified into four categories: (i) the unif ied property tax,

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Page 10 of 14

6.42 parks and forest tax, the tax on socioeconomic strata, and the surcharge for the development and maintenance o f the cadastre.

The unified property tax has replaced four taxes o n property: the property tax, the

Tax base

6.43 The unified property tax base can be either the cadastral value or the value assessed by the owner in those cases where the self-assessment system has been adopted. The cadastral value i s the official valuation determined by the National Cadastral Office, taking into account the value o f the land and buildings, the property appreciation resulting from public improvements in the area and from the presence o f spring water, and the material from buildings to be demolished or already demolished. However, the property plantations or crops, agricultural or industrial machinery on the property, use rights over the property, and the expected appreciation o f the property due to i t s future use are factors that are excluded from the cadastral valuation. The cadastral value is adjusted on an annual basis using an index established by the national government”, while the cadastre i s updated every seven years. It is estimated that cadastral values are among 70 and 85 percent o f market values. The cadastral registry maintained by the national Geographic Institute i s used in those cases where a local cadastral office does not exist.

Tax rates

6.44 according to the range established by the national Congress, namely from 0.1 to 1.6 percent. Colombian rate structure is rather complex. Rates are determined taking into account the property socio-economic characteristics, its use (e.g., industrial, commercial, agricultural, etc.), and when the last value revision took place. Land susceptible o f being urbanized can be taxed at rates up to 3.3 percent. Popular houses and small rural property used for agricultural production or stock raising are taxed at the minimum rate established by the respective municipal council. However, in some cases differences between rural and urban tax rates are not significant: in some municipalities they amount to about 0.53 percent in both. O n the contrary, there can be significant differences in the incidence o f tax rates across municipalities (e.g., smaller municipalities usually have higher tax rates than the others).

As mentioned, tax rates for the unified property tax are set by the municipalities,

Other taxes on land

6.45 Other taxes on land include the land value increment tax (inzpuesto de plusvalia), which i s applied when appreciation o f land value occurs as a result o f “urban actions” related to changes in land classification or in the use o f property, increases in the level of exploitation, and the construction o f public improvements. The tax rate can be set between 30 and 0 percent o f the property appreciation.

lo The percentage o f the adjustment may not be less than 70% or more than 100% o f the increase in the consumer price index o f the preceding year).

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Page 11 of 14

Chile

6.46 Reflecting the centralized structure o f Chile, the property tax i s a national tax, assessed and administered by the national government. Tax rates are also set at the national level, thereby leaving no autonomy to the municipal level. The entirety o f tax revenues returns to municipalities: only 40 percent o f collected revenues go back to the municipality where the property i s located, the remaining 60 percent being deposited in the Municipal Common Fund.

6.47 revenues. They accounted o n average for about 0.6 percent o f GDP in the last two decades.

In 2000, property taxes accounted on average for about 35 percent o f total local

Tax base

6.48 for non-agricultural land. Agricultural land includes al l plots that are used mainly for agriculture or forestry. Agricultural land accounts for only about 17 percent o f total properties, but almost 80 percent o f property tax revenues. The property tax is levied on the part o f the cadastral value above a fixed amount' , taking into consideration the land actual use (e.g., whether there is irrigation or not), and the location, including distances from services. Similarly, the tax base for non-agricultural land includes land and improvements, and i s calculated taking into account the location, the land use, and the quality and design o f the buildings. As a rule, reassessment o f the value should occur between three and five years after the last valuation; the cadastral value is also adjusted for inflation every six months. Property assessments are approximately 70 percent of market value; however, for agricultural lands assessment are significantly below market value (they have been estimated to be as l o w as 25 percent o f market price).

Chilean law distinguishes between a tax base for agricultural land and a tax base

Tax rates

6.49 agricultural land, the rate is set at 1 percent, while for non-agricultural land it i s 1.2 percent.12 Tax exemptions are in place for very low value properties, including agricultural properties with a l o w assessed value and with approved forest management plans.

Tax rates differ between agricultural and non-agricultural land. In the case o f

Uruguay

6.50 the export tax. It was originally set as a presumptive gross income tax based on a land

The rural land tax was first introduced in the country in the mid 1960s to replace

'' In 2001, i t was US$8,271. l2 In the case o f urban property used as dwelling house the rate i s divided into three brackets: the f i rs t bracket i s exempt, the second i s taxed at 1 percent, and the third at 1.2 percent.

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Annex 6. Property Taxation - Summary of Property Tau Systems in Selected OECD and Latin American Countries

Page12 of 14 productivity index. I t was then revised to be assessed on the net income to reflect beef price crises.

6.5 1 collecting and administering the property tax levied on rural and urban real estate within their jurisdiction. While rural property taxes are also collected by the Departmental Governments, they are set by the legislative branch. The taxpayer i s the property owner or possessor o f the property.

The country i s divided into 19 departments which are responsible for establishing,

6.52 countries (and even OECD countries): in 2003, they account for about 9.2 percent o f total tax revenues (87 percent o f which are born by companies, while only 2.9 percent by individuals). In particular, rural land taxes have provided a relatively stable source of revenues from the agricultural sector since the late 1970s.

Property taxes in Uruguay are significantly larger than in other Latin American

Tax base and rates

6.53 appreciation resulting from public improvements in the area. The basis o f assessment i s the official cadastral value (valor catastral) o f the property, which i s established by the National Directorate o f Cadastre (Direccidn Nacional de Catastro). For rural property, the cadastral value i s calculated taking into account the land productivity index set by the Comisidn Nacional de Estudio Agrondmico de la Tierra (CONEAT) as well as proximity to main transportation networks and urban centers. The cadastral value has to be set as closely as possible to the market value, although with a cap so that the cadastral value i s never above the market value. The law requires that the cadastral value be reassessed every three years; however, the actual average period between re-assessment i s one year.

The property tax i s levied on the value o f land and buildings and the property

6.54 that differ between urban and rural areas. For example, in Montevideo rates in urban areas range from 0.84 percent to 1.63 percent; the tax rate for rural property i s 1.25 percent. However, in 2000 and 2001, through so-called urgency laws, the rural property taxes to be paid during those years were lowered by 25 percent and 18 percent respectively, and small properties were partially exempted from the tax. Forest land i s exempt from property taxation.

The cadastral value i s multiplied by tax rates determined by the local governments

88

Annex 6. Summary of Real Property and Land Taxation in Selected OECD and Latin American Countries Page 13 of 14

Rural/ Agric. I Land Country Tax Base Tax Assessment Tax Rates

Matrix A6.1 Comparison of Property Taxes among Sample OECD and Latin American Countries

Responsibility for Assessment I Collection

combination of those; valuations determined at the state level and periodically reassessed (from 1 to 7 years depending on the state). Market value; annual reassessment.

Market value (although based on estimated economic values from 1964); price adjustment mechanism does not exist; area-based assessment used for buildings. Market value with uniform assessment formula established at national level; reassessments every 3 years.

OECD

although limits on annual increase.

Rates range from 0.5% to 3%. Agricultural land taxed on average at

Base rates range from 0.26 (one- family houses) to 0.6 % (agriculture and forest lands); leverage factors established at the local level.

Rates determined at the national level: standard rate i s 1.4%, up to a maximum o f 2.1%

0.7-0.85%.

Canada

Australia

United States

Germany

Japan

Spain

Land and improvements.

State land tax levied on land; municipal rates levied on land only or land and improvements.

Land and improvements.

Land and improvements; farm properly includes also machinery and livestock.

Land, buildings, and fixed business assets.

Land and buildings

at the discretion of the municipality.

Cadastral value readjusted every 8 years through market analyses, but never exceeds 50% o f market value).

Rates range from 1.4% to 4% for different classes of property; local discretion.

Rates range from 0.7% to 3% for different land uses; local discretion

Ordinary rate: 0.40% in urban areas and 0.30% in rural areas. Municipalities can increase these rates: the range i s roughly 0.5% to

Assessed at values in current use (vs. potential); rates limited to 25% o f residential tax rate; other tax-related incentives.

Lower tax rates; land used in primary production exempt in almost all states.

Lower assessed values especially at urban fringes.

Tax rates higher but applied to estimated economic values o f 1964; low rateable value and exempt from business tax.

Assessed at 55% o f market value, except for agriculture land in urbanization areas which i s assessed at full market value; tax concessions to dispose o f farmland. Lower tax rate

Province

State (not Federal)

State (not Federal); County

Municipality

Municipality, based on uniform national formula.

Central Government (not federal).

Municipality

Municipality

County; Municipality

Municipality

Municipality

Municipality

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Annex 6. Summary of Real Property and Land Taxation in Selected OECD and Latin American Countries Page14 of 14

Country

Table A6.1 Comparison of Property Taxes among Sample OECD and Latin American Countries (cont.)

RuraW Responsibility for Agric. Land Assessment I Collection

Tax Base Tax Assessment Tax Rates

Latin Arne Argentina

Colombia

Chile

Uruguay

Paraguay

sa Land and buildings. (In a few cases, urban land i s subject to both provincial and municipal property taxation).

Land and buildings

Land, buildings and improvements; for farm lands, land and improvements (e.g. irrigation).

Land and buildings, public improvements.

Urban areas: land and improvements; rural areas: land only.

Fiscal value which i s generally 40%-60% below market value, i s adjusted annually with tax coefficients to meet revenue requirements. Periodic assessments are carried out to keep up with market value.

Cadastral values are 70%- 85% of market values; they are adjusted on an annual basis using index set by national government, while the cadastre i s updated every 7 years; or self- assessment in certain jurisdictions (e.g. Bogota).

Cadastral value approximately 70% o f market value; reassessment should occur between 3 and 5 years; cadastral value adjusted for inflation every 6 months.

Cadastral value, set as closely as possible to market value, i s set annually by National Directorate of Cadastre; for rural land, cadastral value i s calculated taking into account productivity index set by CONEAT.

Fiscal values are less than 10% o f market value. Fiscal values set by the National Cadastre Service. Law requires values to increase to market prices, but increases limited to increase in cost o f living index with maximum o f 15% per year.

Vary among provinces and municipalities: in urban areas range i s from 1%-1.5% for provincial tax and 0.7%-1% for municipal tax; higher rates for vacant lots. In rural areas: uniform tax rate up to a maximum 1.2%. Range established by Congress, 0.1%-1.6%, within which municipalities can choose; rates also vary by use (industrial, commercial, agricultural); for land that can be urbanized rate i s up to 3.3%.

Rates centrally set: agricultural land 1%; non-agricultural land: 1.2%; (for residences a 3-bracket system i s applied that goes from exemption to a 1.2% rate).

Rates vary from department to department: e.g., in Montevideo rates in urban areas range from 0.84% to 1.63%; rate o f 1.25% for rural areas.

1% of fiscal value per year.

Value based on land productivity, area, location. Rural tax i s payable in three to four installments.

Small rural property i s taxed at the minimum rate established by municipal council.

Value as low as 25% o f market value and based on current use; exemptions for low value properties and forest lands with approved management plans. Exemption for forest land; ad hoc reductions in difficult years (“Urgency Laws”).

Rate reduction of 50% for rural properties less than 5 has. Additional tax ranging from

on properties larger than 10,000 has.

0.5% to 1%

Province and municipality

Central Government (not federal) or municipality (self- assessment).

Central Government

Department

Central Government

Province and municipality

Municipality

Central Government. (Revenues returned to municipalities under revenue sharing formula).

Department

Municipality

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References

Bird, Richard M. (2003). “Local and Regional Revenues: Realities and Prospects.” University o f Toronto.

Bird, Richard M. and Enid Slack (2004). “International Handbook o f Land Property Taxation.” Edward Elgan Publishing Limited, UK.

Brandon G.Y. Raddatz, Bruce B. Johnson (1 999). “Agricultural Property Taxation: A Comparative Analysis.” University o f Nebraska Public Policy Center.

European Commission (2002). “Inventory o f Taxes in the European Union.” 1 8th edition;

FA0 (2004). “Decentralization and rural property taxation.” FA0 Land Tenure Studies. Rome.

Glaeser, Edgard L. (1 995). “The Incentive Effects o f Property Taxes on Local Governments.” NBER Working Paper Series, Cambridge, MA. Heady, Christopher (2002). “Tax Policy in Developing Countries: What can be learned from OECD Experience.” Paris: OECD.

Joumard, Isabelle (200 1). “Tax Systems in European Countries.” OECD Economics Department Working Papers, No. 301. OECD Publishing.

OECD (2005). “Taxation and Social Security in Agriculture.” Paris: OECD Publishing;

Skinner, J. (1 99 1 a). “Prospects for Agricultural Land Taxation in Developing Countries. World Bank Research Observer. 5(1991) 493-51 1.

Uruguay Agroalimentario en Cifras (2005). “Impuestos en e l Sector Agropecuario.”

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