For the past two election cycles, the PNM administration has signaled its intention to reintroduce a regime of property taxation in T&T.
First introduced in 2009, the Property Tax Act was intended to replace the Lands and Building Taxes Act in place since 1920, last amended in 2007, and suspended since 2010.
To say that the public outcry surrouding the tax has been deafening would be an understatement.
However, property tax in T&T is not new as, according toFinance Minister Colm Imbert, for close to 200 years, (since 1818), a form of property taxation has been on the country’s law book.
When the tax was first proposed in 2009, then deputy leader of the Congress of the People (COP), Opposition MP Prakash Ramadhar, was among the most outspoken opponents of the intended tax, leading an “Axe the Tax” campaign that sought to collect more than 200,000 signatures to protest the tax.
Fast forward to today and little has changed by way of understanding and public sentiment toward what some perceive as a vague, if not cumbersome, taxation mechanism.
For example, the American Chamber of Commerce (AmchamTT) is seeking “details on the valuation and implementation of the Property Tax, particularly where it relates to uncovered plant, rigs and machinery” adding that they “are concerned that this may be a deterrent to new investors, whose deployed capital in the form of new plant or equipment, will now attract an exorbitant property tax before depreciation can be applied”.
The Chamber, ostensibly seeking the interest of the business community, encouraged Government to be “mindful of the impact on business and to provide clear and detailed information on how it will be implemented.”
Also, a group known as the TnT Patriots expressed concern that pensioners on fixed incomes may be disproportionately affected by the tax, given the current economic situation of the country.
The Institute of Surveyors of T&T (ISTT) also added their voice to the public discourse through a position paper it released last month.
In it, the Institute argued that for the property tax to yield the desired revenue, the government would do well to address the constraints of the valuation division to collect and collate values of property across the country.
“One of the crucial elements of an efficient property tax regime is the use of supporting technologies that will make the identification and management of the hundreds of thousands of properties that need to be assessed as simple as possible.” the ISTT said.
Again, a familiar foe of the tax, the COP, weighed in on the most recent announcements emanating from the Ministry of Finance about the impending reintroduction of the tax.
In a press releas, the COP sought to highlight what it perceived to be a failure on the part of the Finance Minister to provide clarity on a few issues: “The Finance Ministry release today did not tell property owners:
i. that failure to submit their VRF or return document with attachments also being required by May 22, can lead to the owner facing a criminal charge and fine for failing to submit “a return within the prescribed time” (section 6 (4) (a) of the Valuation of Land Act Ch. 58:03).
ii. Or where in completing the VRF, if the document is “defective or incomplete” or contains any information which “is to his (the owner’s) knowledge false” (section (6) (4) (b)), the owner can be similarly charged.
B. explicitly, in relation to point 5. on the VRF, whether this does not apply since this is the 1st Return that any property owner will be completing under the Property Tax Law, including the Valuation of Land Act.
C. That an owner must be furnished with a Notice of Valuation which must inform the owner of the valuation made by the Commissioner and the owner’s right to object to same (on grounds in section 19 of the Valuation Act.
D. When the Notice of Assessment of Property Tax will be issued although it points out that “Property Owners would be required to make payment upon receipt of an Assessment Notice…”
As a starting point, any discussion on the Property Tax should first begin with a discussion of the components of the Act itself.
The Property Tax Act 2009
The Property Tax Act is divided into seven parts and contains 57 clauses, all detailing various property-specific issues.
According to the Act, the Board of Inland Revenue (BIR) is charged with the creation of an “assessment role” which effectively determines the classification and valuation of land, and the applicable deductions, allowances and tax rates to be levied with respect to that property.
The Act states that the tax is to be calculated based on the annual rental value (what a property owner would fetch should the property be put on the market for rent—rental income) less 10 per cent for periods when the property is not rented or the landlord does not collect rent.
The rate of taxes are then applied such that:
• Residential property is taxed at a rate of 3 per cent
• Commercial property is taxed at a rate of 5 per cent
• Industrial property (with building) is taxed at a rate of 6 per cent
• Industrial property (without building) is taxed at a rate of 3 per cent
• Agricultural is taxed at a rate of 1 per cent
The Act also clearly lists properties that would be exempt from the tax such as: churches and places of worship, school compounds and playgrounds, property used for charitable and philanthropic work, land occupied by state enterprises, public hospital facilities and university and tertiary education facilities.
Of note, the Act includes a section that clearly defines the conditions and procedures necessary for objections, revaluations, relief and appeals.
This area is of particular interest given the outcry by certain segments of the population that have intimated a possible inability to pay the tax.
Clause 23 (1) of the Act states: “The board may, upon the application of the land owner, authorise the deferral of the payment of the assessed tax on the land on the grounds of the impoverished condition of the owner and his inability to improve his financial position significantly by reason of age, impaired health or other special circumstances, that undue hardship to that owner would otherwise ensue”
A Tax Scenario
A visit to the Ministry of Finance website provides a useful guide to all things property tax related.
The site contains a list of frequently asked questions (FAQs) that attempt to break down the tax for the lay reader. The FAQs concentrate on areas such as the Property Tax Act itself, property valuation, property tax calculation and payment information.
One of the more salient areas on the site is the presentation of a tax scenario that computes the actual tax a home owner could expect to pay.
It shows that a home that can be rented for $3000 per month, would have an annual rental value of $36,000 per year ($3000 x 12).
Taking the 10 per cent deduction for voids, the annual taxable value become $32,400.
Taxed at 3 per cent, the property owner will now be liable for $972 per year (or $81 per month) in property tax.
The same methodology would apply to the various other classifications of property
Tax Hotline
Calling the tax hotline proved to be a fairly efficient process. The answering representative was able to provide a general outline of the tax, explain the areas of valuation and redirect to the website if one needed more details on a particular area.
The representative was also quick to point out that the first wave of the tax was to be levied on residential properties, and generally seemed uncomfortable speaking to matters beyond that.
All told, access to the hotline didn’t pose much of a challenge.
Challenges to implementation
One of the biggest foreseable issues in the reintroduction of the property tax seems to be the sheer manpower that will be required to assess the “worthiness” of the ascribed rental values by property owners.
Government will be required, after collecting self-assessed rental values to send out valuators to corroborate stated rental values. Given the current staffing issues at the BIR, one wonders how efficiently and effectively the process will be carried out.