Property Tax Reform in Developing and Transition Countries

esidential properties and 25 percent for non-residential properties. In addition, a 34 percent surtax was
levied on the total property tax liability and earmarked for specific social services. If a taxpayer chooses
not to self-assess,” the city will assess the value of property. For those who do comply, a 5 percent tax
rebate is given.
The new system also provides for a change in payment procedure. Taxpayers may pay directly at a bank,
in designated payment boxes, or at the electric utility. The net result of this process is that there is no
longer any need for contact with the taxing authority, and taxpayers have many more options for easy
payment of their property tax bills.
The first years of experience with the new property tax system showed some encouraging results. The
revenue increase was due to several factors: an increase in the collection rate from 64 to 79 percent, a 4
percent increase in the number of properties on the tax roll, and an increase of about 28 percent in the
amount of tax payment per property. Bangalore city officials estimate that one-third of the revenue
increase was due to revision in value, and that about three-fourths of all property owners paid higher
property taxes.
Another success of the reform was a reduction in compliance costs. The city offered its taxpayers a lower
cost of compliance in return for a higher payment. Apparently, property tax inspectors regularly harassed
taxpayers. It was reported that inspectors came on the property, sometimes unannounced, and oftentimes
“negotiated” the property tax liability with the owners. Apparently, taxpayers were willing to pay more
under the new system to eliminate this type of informal contact with inspectors.
Phase III: Revaluation under an area-based system
The flaw in an area-based system is that it does not provide for automatic revenue growth unless there are
discretionary changes in assessed value per square foot. The Bangalore model seems to have resolved this
issue through a program of de facto revaluation.
The tax officials have carried out a revaluation by assigning many properties a different zonal
classification, i.e., moving about one-half of all properties from a lower to a higher tax zone (Bruhat
Bangalore Mahanagara Palike, 2008). The justification for doing this is that the quality of public services
has improved since the original zonal classifications were assigned. In this way, an automatic revaluation
and a revenue increase were built into the system, helping the government avoid an unpopular,
discretionary increase in the tax rate. The result was striking. Between fiscal years 1999-00 and 2000-01,
property tax revenues increased by 33 percent. Between 2007 and 2009, following rezoning of properties,
property tax revenues doubled.
In addition to the above measures, the city government has been moving to complete its fiscal cadastre.
Among others, a GIS system has been instituted, based on satellite photos and field-based tax mapping.
This will have the effect of expanding the tax base by adding new properties.
References
Bruhat Bangalore Mahanagara Palike (2008). “Property Tax Self-Assessment Scheme Handbook: 2008-
2011” (Bangalore: Government Press).
Rao, Vasanth (2008). “Is Area-based Assessment an Alternative, an Intermediate Step, or an Impediment
to Value-Based Taxation in India” in Making the Property Tax Work, edited by Roy Bahl, Jorge
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