CASE STUDY
REGISTRATION OF REAL ESTATE AND UPDATING THE REGISTRY ON REAL ESTATE IN THE MUNICIPALITIES OF VASILEVO, BOSILOVO AND NOVO SELO
Authors:
Maksim Acevski CFE
Zoran Jankulovski
Association of Finance Officers of the Local Government and Public Enterprises – Veles
ul. Car Samoil No. 1, PO Box 155, 1400 Veles, Republic of Macedonia
Tel ++ 389 43 230 623; ++ 389 43 230 625; ++ 389 70 375 136
Case study
Registration of real estate and updating the registry on real estate in the municipalities of Vasilevo, Bosilovo and Novo Selo
Content:
1 / INTRODUCTION / 32 / LEGAL FRAME / 6
3 / PROBLEMS THAT WERE ADDRESSED / 6
4 / NEED OF TRAINING FOR THE EMPLOYEES / 7
5 / COMPLETELY DETERMINATION OF TAX SOURCES, ESTABLISHMENT OF DATA BASE AND ITS UPDATING / 7
6 / LOW LEVEL OF COLLECTED TAXES ON ESTATE / 8
7 / NOT UNDERTAKEN MEASURES FOR SANCTIONIZING THE TAX EVASION / 9
8 / INAPPROPRIATE COMMUNICATION WITH THE TAX PAYERS, INAPPROPRIATE INFORMING AND LACK OF PARTICIPATORY / 10
9 / REALIZATION OF THE PLANNED GOALS / 10
10 / REACHED AND ANTICIPATED RESULTS FROM THE PROJECT REALIZATION / 11
11 / UNDERGOING PROBLEMS / 13
12 / CONCLUSIONS AND RECOMMENDATIONS / 14
- INTRODUCTION
With the fiscal decentralization process in Republic of Macedonia, since 01.07.2005, started transfer of many competencies from central to local government. Administering of local taxes and fees was transferred as well.
Implementation of the transferred authorities to the municipalities was followed by some problems, first of all: lack of qualified staff, lack of technical equipment and software, insufficient financial funds and undeveloped infrastructure. This condition was reinforced with the need of undertaking concrete steps for providing essential financial funds. This was reinforced with the conditions in the initial phase of fiscal decentralization, when the central government transferred the same financial funds in level of increased authorities. Actually, the municipalities had restricted space for real management with the transferred authorities. Namely, according to the Law on financing of the LSGUs, all municipalities regardless their size, economic power and total capacities according to the scope of activities were equally treated. By this, the smallest and the biggest municipalities have the same authorities, although there are huge disproportions in the development of these municipalities, which have roots in the past because of the unequal economic development.
At least, the answers can be found in increasing the personal incomes of the municipalities, first of all, increasing the collection of local taxes and fees. Also, partly the answers can be found in more effective and more efficient operating of the departments and giving services, so the municipalities must find other procedures and methods for services delivery, including inter-municipal cooperation and mutual providing of services.
There are initiatives in some municipalities in Republic of Macedonia, that had seen the advantage and had partnership for cooperation and mutual delivery of services. Especially in the scope of financial management and administering of taxes, urban planning and management and rule of law and control, as a part of the criteria from the first stage of the fiscal decentralization process. On the other hand, there are some municipalities that still has doubt for approaching in the inter-municipal cooperation, using lack of clear concepts and regulations as a main argument.
Within the project “Inter-municipal partnership for improved quality of the public services” (IMC 1), which started in August 2006, the municipalities of Bosilovo, Vasilevo and Novo Selo were encompassed, and the main goal was to provide assistance in the strengthening of technical capacities, linking of the municipalities that have mutual department for administering local taxes and fees, establishment of real data base of tax payers for local taxes and fees/registry on real estate, determination of the market value of the real estate, permanent training of the municipal administration and commissions for estimation of the market value of the real estate, timely publishing and distribution of tax bills, that will result with increasing of source incomes of all 3 municipalities.
The environment in which the municipal administration is working can be observed as internal and external.
External
The municipalities of Bosilovo, Vasilevo and Novo Selo are rural municipalities, which are settled in the southeast part of Republic of Macedonia and are categorized as small municipalities.
Internal:
Within the financial department there is a special department that is responsible for determination and collection of local taxes and fees. With the start of the fiscal decentralization process and establishment of mutual administration, hardware and software were donated, and they are used for administering of local taxes and fees. In order to update the data on estate and tax payers, the 3 municipalities had established Commissions for estimation of the market value of the real estate.
In order to meet the problem, the AFO expert’s team had analyzed the current legal regulations, as well as internal acts[1] that are regulating this scope, conducted survey for determination fo the conditions. In order to do so, the following methods were used:
Historical method
Comparative method
Statistical method
Analytical method
Structured interviews
SWOT analysis
According to the expert team, and without decreasing the meaning and influence of the other methods that were applied, we are presenting the findings for realization of the project and planned activities received from the SWOT analysis:
Strengths
Mutual cooperation of the municipalities
Mutual tax administration
Established commissions for estimation of the market value of the real estate
Technical equipment
Internet approach to the demanded data
Timely location of the problems
Updated data base
Conducted campaign for rise of the awareness
Existing of Forms/templates
Weaknesses
Not generated tax bills for 2008
Insufficient collection from the previous period
Not application of forced collection
Low level of economic power of the citizens
Opportunities
Increasing the awareness of the citizens for payment of tax obligations
Increased involvement of the citizens, NGO sector and the business community
Establishment of a registry on real estate for the taxes on estate for the legal persons (administrative, business buildings, business offices etc)
Updating the current data base on regular basis
Timely generating of tax bills
Increasing the coordination, control and reporting for tax collection in all specific aspects
To register, research and solve the complaints from the tax payers
Permanently to follow the collection of taxes
Regular training of the tax administration for the novelties in the legal regulations
Timely submission of warnings for not paid debts and undertaking activities for forced collection of the taxes on estate
Threats (risks)
Updating of the registry on real estate for the individual and legal persons to not be performed timely and completely
Timely preparation and mailing tax bills
Risk of tax evasion
Resistance by some individuals during the process of re-estimation of the estate by the executors
Not really determination of the market value of the buildings which owners are in foreign countries
Complaints from the citizens about the value
The complete analysis of the problems was systematized in a summary – report for the conducted activity, which is a basis for preparation of this study.
General/main goal of this study, which, beside the previously stated, will also provide transfer of experiences in the process of administering of local taxes and fees, increasing the fiscal capacity of the local self-government units and practicing inter-municipal cooperation.
The main goal of this study will be provided by realization of the concrete objectives, as follows:
Goal 1 – Determination of the correct number of the taxation objects
Goal 2 – Creating preconditions for determination of the real value of the estate and taxes on estate
Goal 3 – Providing essential preconditions for establishment of new data base for evidence and following the collection, separate for each LSGU available through link, as well as e-services for the tax payers
Goal 4 – Improving the tax procedures for the taxes on estate
Goal 5 – Improving the inter-municipal cooperation, increasing and strengthening the analytical capabilities for tax research
Goal 6 – Creating plans for the needs of human resources
Goal 7 – Increasing the tax capacity and the percent of collected taxes and fees.
Realization of the stated objectives will lead toward reaching the main goal, and at the same time, elimination of the biggest problems that these 3 municipalities are facing with, but also all other municipalities in Republic of Macedonia at the start of the fiscal decentralization.
The process of administering local taxes and fees and determination of the tax capacity for the LSGUs is a complex issue, which demands appropriate organizational structure of the municipal administration, appropriate skills, knowledge and skills of the municipal tax administration, appropriate relation toward the tax payers and transparency in the operating.
Appropriate and good organization structure of the municipal tax administration will provide segregation of duties and responsibilities between the employees in the tax department and segregation of the following activities:
Determination and registration
Collection of taxes
Tax evidence
This case study is encompassing and is a result of all undertaken activities within this project and is an example for successful inter-municipal cooperation, which can be recommended for partnership building with many other municipalities in the country.
- LEGAL FRAME
Mutual tax administration is applying general legal regulations that are common for all LSGUs[2] in Republic of Macedonia, as well as internal acts from the municipalities that are observed.
For determination and collection of the taxes on estate and communal fees, LSGUs Vasilevo, Bosilovo and Novo Selo are using the following legal regulations:
Law on financing of the LSGUs (“Official Gazette of RM” Number 61/04; 96/04; 22/07; 67/07)
Law on local government (“OfficialGazette of RM”Number 5/2002)
Law on communal fees (“Official Gazette of RM” Number 61/04; 64/05, 92/07)
Law on taxes on estate (“Official Gazette of RM” Number 61/04; 92/07, 102/08)
Tax on estate
Tax on inheritance and gift
Tax of turnover of real estate
Methodology on determination of the market value of real estate (“Official Gazette of RM”Number 50/2005)
Bylaw on the form, content and the procedures for registration in the registry of movable and immovable estate (“Official Gazette of RM” number 47/05)
Decisions issued by the Municipal council from the observed municipalities for determination of the rates of taxes on estate and the amount of communal fees for the municipalities (decision for determination of the rate for the tax on estate, decision for determination of the rate for communal fee, decision for determination of the rate for tax on turnover of real estate)
Acts adopted by the Mayor in these LSGUs, that refer to the tax policy (Special act of the Mayor for postponement payment of the tax debt that exceed 10.000,00 MKD)
- PROBLEMS THAT WERE ADDRESSED
With the Law on financing of the LSGUs, the sources of financing of the LSGUs are defined, and among others significant position have the own sources of incomes, generated by local taxes and fees. With the Law on taxes on estate, it is determined that basis for the tax on estate is the market value of the real estate that is subject on taxation.
Determination of the market value of the real estate is prescribed with the Methodology on determination of the market value of the real estate. Application of the methodology requests appropriate level of qualified staff, training and operational experiences. The above mentioned refers to the key problems detected during the process of administering of local taxes and fees:
Not completely determined tax sources, not completely established and updated data base
The tax basis is not determined on real basis
The tax payers are not completely encompassed
There are data for tax payers that are inhabitants of other municipality
Low collection of taxes on estate
Measures for sanctioning tax evasion are not undertaken
Inappropriate communication with tax payers, inappropriate information and lack of participatory
Not having sufficient financial and human capacities for conducting the registration
- NEED OF TRAINING FOR THE EMPLOYEES
According to the fact that the Tax department is established after start of the fiscal decentralization process, there is need of permanent training of the employees. Major part of the essential activities for administering local taxes and fees, as well as often changes in the legal regulations and the need of mutual exchange of knowledge and skills are confirming the conclusion of our expert team.
By structure, the trainings can be divided in several groups:
Trainings for the legal regulations
Procedures and practices for determination of the market value of the real estate
Establishment of the data base
Use of software for administering of taxes
Generating and mailing tax decisions
Complaint procedure
Following the collection, preparation and mailing warnings
Forced collection
Preparation of reports
- COMPLETELY DETERMINATION OF TAX SOURCES, ESTABLISHMENT OF DATA BASE AND ITS UPDATING
Each of the three municipalities inherited base of taxpayers from the Public revenue office – local branch Strumica, that were almost not useful. The data were historical and were not updated from1995, when the tax payers have the obligation to fulfill applications upon which PRO create the tax bills. In fact, this confusing data base created mistrust among taxpayers, unfair treatment and generated significantly decreased incomes.
Determination of the market value of the real estate was performed by commissions, but without previously determinate clear criteria and procedures for determination. This way of determination of the tax basis implied dissatisfaction to the taxpayers that often had conflicts with tax administration, expressed by enormous number of complaints. In taxation there were a lot of illogical, so often there were situations larger objects located on better locations to have lower values, and the small and rat traps had increased tax freight.
Generally, all inherited conditions could be defined as follows:
Not complete encompassment of the tax payers
Not really determined value of the objects/subject on taxation
Low level of collection of the tax debt
Not present/not applied procedure/forced collection
Mutual tax administration had responsible task and complete activity was directed toward more really determination of the tax capacities of the LSGUs (detecting of estates that were not registered at all), and determination of estates that were not registered properly because of the changes in the structure or because of the changes in the ownerships – correctness). Update was successfully conducted in all three LSGUs (Vasilevo, Bosilovo and Novo Selo), so currently we have on disposal data that are correspondent with the conditions on field.
Realisticallyestablishment of the market value of the real estate brings increased tax incomes, equal treatment of the tax payers and increased confidence to the tax administration. In order to do so, the authorized organs of the partner LSGUs had approached toward establishing of more municipal commissions for determination of the market value of the real estate.
- LOW LEVEL OF COLLECTED TAXES ON ESTATE
Analysis of the data received by the tax administration present a low percent of collection of taxes on estate, i.e. by municipalities the conditions is as follows:
Table number 1: Percent of collection of tax on estate
No. / LSGU / Percent of collection of tax on estate (by years) / Index on increasing/decreasing (dynamics) of the rate of collection of the tax on estate
2006 / 2007 / (2007/2006)*100
1 / Vasilevo / 10% / 14% / 1,40
2 / Bosilovo / 8% / 10% / 1,25
3 / Novo Selo / 26% / 34% / 1,30
The reasons for low collection can be found, first of all, in tax evasion, not undertaking measures for forced collection, which implied stimulation for not paying the tax.
There are potentials for increasing the collection, that can be located in determination of the correct number of tax payers and the real value of the tax on real estate, presented in the tables below:
Table number 2: Number of decisions for tax on estate for 2006, 2007 and 2008 by municipalities and dynamics for growth (base for comparing – the year 2000)
No / LSGU / Index on debiting of the tax on estate2005/2000 / 2008/2007 / 2008/2006 / 2008/2005
1 / Vasilevo / 1,139 / 1,363 / 1,420 / 2,258
2 / Bosilovo / 1,033 / 1,098 / 1,269 / 1,744
3 / Novo Selo / 1,070 / 0,916 / 1,077 / 1,867
According to the data presented in the Table 2 and additional annexes of this Study, a conclusion can be made that the tax debt for the tax on estate was moved starting from 2000 till 2005 (year when the fiscal decentralization started) is constant, with minimal variations from one year to another. Starting from 2006 and 2007, and especially in 2008, effects were expressed for conduction of the project activities (Inter-municipal partnerships for improved quality of the public services – IMC 1) and can be concluded increasing in nominal amounts. In percents, the increasing of the debt in 2008 compared with 2005 is between 74.4% – 125.8%.
- NOT UNDERTAKEN MEASURES FOR SANCTIONIZING THE TAX EVASION
Pilot LSGUs had not undertaken concrete measures and activities (except some warnings from the LSGU Vasilevo that did not ended yet) to sanctioning the tax evasion, starting with mailing warnings, court processions and forced collection. This condition is stimulating tax payers not to pay the tax on estate, which can be confirmed by the data for collection of the tax demands from the previous period, presented in the table number 3.
Table number 3: Percent of collection of tax demands from the previous years
Number / LSGU / Percent of collection of the tax demands (by years)2006 / 2007
1 / Vasilevo / 3% / 9%
2 / Bosilovo / 4% / 8%
3 / Novo Selo / 6% / 18%
These data presents percentage of collected tax demands from past years, till the end of 2007. According to the data the level of collected taxes is beetwen 3,55% and 5,57% at 2006, and between 8,04% and 18,42% at 2007.