Published Thursday October 15th  2009

The challenge for the newly founded T&T Revenue Authority (TTRA) is considerable, given the depth of criticism against the proposed review of property taxes. It is my belief that no review or reform, however well-intended, can succeed without a solid grasp of what has gone before. Those who forget the lessons of the past are doomed to repeat them. That old saying also extends to those who do not bother to seek out those historical lessons. This article will outline the nature and extent of that challenge. Last week’s Property Matters ended with details of the total amounts collected in land and building taxes between 1993 and 2009. To recap, those figures showed total receipts of those property taxes ranging from $72.0 million in 1993 to an estimated $72.77 million in 2009.

I made the point that as a major engine of wealth, property taxes amounted to less than one-fifth of 1.0 per cent of the country’s total tax revenue. That figure came from the Ministry of Finance and was only for land and building taxes. I have been as yet unable to get the figures for stamp duty on property transfers, or income/corporation taxes paid on rental income. Based on the official figures, it is plain to me that even if we limit the discussion to land and building taxes, there is a major problem. At the very least, there is gross inefficiency in the monitoring and collection of these taxes. The bleaker view would seem to suggest improper behaviour by the officials responsible. It is impossible that the land and building taxes collected in this country could justifiably remain at the same level in the period 1993-2009. There are five elements of change which would each have significantly increased the collections of that tax.

Those elements are:

• Inflation—Over the period, there was a tremendous increase in property values. I hear you say that properties were not revalued for decades but that is just not so since revaluations were carried out in San Fernando (2004) and Point Fortin (2008). More on that one later in the sidebar.

• New buildings—There has been a large number of new buildings added to the national stock in the period. The Minister of Finance has made the surprising statement that about 200,000 of those properties have never paid any taxes and that they are effectively “missing” from the official records.

• Improved buildings—In addition to those two elements, it is also the case that significant improvements which add value would increase the tax liability of the owner.

• Extended buildings—If a property is extended so as to increase its value, that would increase the taxes payable.

• Changes of use—Changes of use which increase value would also increase the taxes payable.

Each of these five elements occurred, to a huge extent, in the period under review and yet the amount of taxes collected is virtually the same. Something has gone seriously wrong here and we need to consider that situation before arrangements are set in concrete for the proposed review. To return to the first of the five elements set out above, the revenues in those areas which were revalued should have increased significantly. That is not the case, as shown by both the national figures and the sidebar dedicated to County Victoria. The point of the recent revaluations was to increase the revenue base and we need to enquire how that has changed. In these circumstances, it is just not good enough for the Ministry of Finance to publish Estimates of Revenue showing this poor performance at the same time as announcing a review of the system. We need to understand the problems if we are to have any chance of fixing them. If we press on without asking the right questions, we will just continue spinning top in mud.

We need to find out how come these government revenues went missing in San Fernando. Did people complain about unfair assessments of their properties and have successful appeals? Even if that took place, it could never lead to the scandalous situation set out in the sidebar. Never. It seems to me that a significant number of people in San Fernando are either having their assessments unduly reduced or just not paying the tax. Either way, it is simple work to identify the mischief-makers. We have already located them. It would only be necessary to examine the records for the largest 100 properties in San Fernando or select a few along certain major roads. A clear pattern would soon emerge. The real question, if the government was serious about reviewing these taxes and doing so under the new TTRA, is how to proceed. It is vital that those who undermined San Fernando’s property tax revenues must form no part of the new, revised system. In the period under examination, the highest total receipts for this tax was $109.4 million in 1994, which has now declined to $72.77 million this year. If the Ministry of Finance cannot collect $109 million, how are they going to collect the $325 million anticipated in 2010? Some serious house-cleaning is in order.

County Victoria

The revenue riddle

The properties in San Fernando were revalued for land and building taxes in 2004, and it is reasonable to expect that the receipts from that source would have risen to reflect that increase in values. The Ministry of Finance compiles those receipts by county and San Fernando is part of County Victoria. The records for County Victoria are instructive:

Year                                          Land & Building taxes receipts

2001                                                   $5.64M

2002                                                   $5.56M

2003                                                   $5.96M

2004                                                   $5.97M

2005                                                   $10.01M

2006                                                   $8.66M

2007                                                   $6.49M

2008                                                   $7.11M

2009 (revised estimate)                  $5.90M

This is showing the depth of the problem in that in 2001 the total land and building taxes collected in County Victoria was $5.64 million. and after the 2004 revaluation, that figure rose to $10.01 million. A few short years later, the ministry’s own Estimates of Revenue is telling us that only $5.90 million is expected from County Victoria in 2009.

Next week, I will examine the property tax review itself.

Afra Raymond is a chartered surveyor and managing director of
Raymond & Pierre Ltd. afra@raymondandpierre.com.