Project forContinued Improvement of the Property Tax System in Kosovo
ProTax 2 | Annual Report for 2014
Version 1.0
/ / Ministry of FinanceProTax 2 | Project Plan / Page 1 of 13
Content
1Introduction
2Progress on Development Goals
3Progress on Project Results
3.1Enhanced Property Tax Regulations
3.1.1Improved property tax law
3.1.2Improved administrative instructions
3.1.3Improved municipal grants formula
3.1.4Roles and organization
3.2Well Prepared Taxpayers
3.2.1Register and land tax campaign
3.2.2Property Tax Website
3.2.3Municipal investments
3.2.4Counterpart in Ministry of Finance Information Office (MoF)
3.2.5Serbian counterpart in Serbian municipality
3.2.6Remaining activities from preparatory work phase
3.3New Business Processes Implemented
3.4Extended Property Registers
3.4.1Improved cadastre registers
3.4.2Land usage map created
3.4.3Extended property tax register
3.4.4Property Sales Price Register implemented
3.4.5Multilayer Value Zone Maps created
3.5Further developed IT system
3.5.1Tools for Steering process
3.5.2Tools and support for Register process
3.5.3Tools and support for Appraise process
3.5.4Tools and support for Tax & Collect process
3.5.5Tools and support for Taxpayer Service processes
3.5.6Tools and support for Supporting processes
3.5.7Integration
4Important Decisions made by the Steering Committee
5Kick-off, missions and study visits
6Risk assessment and risk handling
1Introduction
This document is the first Annual Report from the Project for Continued Improvement of the Property Tax System (ProTax 2) in Kosovo. Since it is the first report it is quite detailed.
The report is mainly on the progress of expected results but it also contains an updated risk assessment and a review of implemented and planned measures for risk handling.
But first, we look at the progress on development goals.
2Progress on Development Goals
Development goals are the expected long term effects of the project.
In this early stage of the project it has, as planned, had no effects, but the effects from ProTax1 has continued with significant growth in property tax revenues.
From 2014 to 2015 the increase in revenues was impressing 26%, or over €4million.
Municipality / € Collection 2013 / € Collection 2014 / € Growth / % GrowthDECAN / 185 434 / 203 743 / 18 309 / 9,87%
GJAKOVE / 1 067 060 / 1 264 544 / 197 484 / 18,51%
GLLOGOC / 275 186 / 347 681 / 72 495 / 26,34%
GJILAN / 1 222 415 / 1 297 323 / 74 907 / 6,13%
DRAGASH / 123 440 / 146 109 / 22 670 / 18,36%
ISTOG / 270 940 / 274 709 / 3 769 / 1,39%
KACANIK / 181 264 / 217 028 / 35 764 / 19,73%
KLINE / 233 904 / 269 567 / 35 664 / 15,25%
FUSHE / 408 793 / 539 085 / 130 291 / 31,87%
KAMENICE / 212 583 / 221 684 / 9 102 / 4,28%
MITROVICE / 449 895 / 545 057 / 95 161 / 21,15%
LIPJAN / 493 144 / 714 220 / 221 076 / 44,83%
NOVOBERDE / 50 406 / 58 816 / 8 410 / 16,68%
OBILIQ / 253 471 / 316 226 / 62 754 / 24,76%
RAHOVEC / 284 916 / 301 699 / 16 784 / 5,89%
PEJE / 1 084 149 / 1 402 566 / 318 417 / 29,37%
PODUJEVE / 349 205 / 361 915 / 12 710 / 3,64%
PRISHTINE / 4 082 622 / 5 579 311 / 1 496 690 / 36,66%
PRIZREN / 1 481 812 / 1 799 870 / 318 058 / 21,46%
SKENDERAJ / 129 049 / 134 167 / 5 117 / 3,97%
SHTIME / 116 634 / 138 999 / 22 365 / 19,18%
SHTERPCE / 58 943 / 100 765 / 41 822 / 70,95%
SUHAREKE / 556 186 / 597 083 / 40 897 / 7,35%
FERIZAJ / 1 220 052 / 1 732 862 / 512 810 / 42,03%
VITI / 303 904 / 351 364 / 47 460 / 15,62%
VUSHTRRI / 335 012 / 445 915 / 110 903 / 33,10%
MALISHEVE / 161 994 / 246 634 / 84 639 / 52,25%
JUNIK / 33 565 / 40 561 / 6 996 / 20,84%
MAMUSHA / 19 062 / 27 456 / 8 394 / 44,04%
HANI I ELEZIT / 82 208 / 91 341 / 9 133 / 11,11%
KLLOKOT / 32 162 / 43 803 / 11 642 / 36,20%
RANILLUK / 30 158 / 32 526 / 2 368 / 7,85%
GRACANICA / 313 975 / 426 840 / 112 865 / 35,95%
PARTESH / 8 766 / 8 315 / -450 / -5,14%
Total / 16 112 309 / 20 279 783 / 4 167 474 / 25,87%
3Progress on Project Results
In this chapter, progress on the expected project results are accounted for. Each of the five project results has its own section.
3.1Enhanced Property Tax Regulations
3.1.1Improved property tax law
For the achievement of this major joint objective, The Ministry of Finance has already initiated the legislative process for improving and adapting the entire legal infrastructure which governs the property tax process starting with the amendment of the law “On immovable property tax". In close cooperation with the Property Tax Department and the working group set up by the General Secretary of MoF, the ProTax 2 Project is working intensively on the preparation of the initial version of the bill that will be submitted to the Government in accordance with the normal legislative procedure and the stipulated time plan. We would like to emphasize the fact that the new bill aims to be in harmony with the applicable legal framework in Kosovo and in compliance with international standards, in order to establish the institutional edifice activity, responsible for administering the process, on clear legal rules.
In overall, the proposed changes will aim at building an efficient legal basis for ensuring a fair, impartial and effective process of property tax, by: a.) Adapting the legal infrastructure in order to include the imposition of tax on land; b.) Facilitating and improving the appraisal of immovable properties; c.) Increasing efficiency in the operation and monitoring of the process; d.) Vesting the competent public authorities with the necessary institutional and legal attributes to effectively administer the process; e.) Further protecting the rights and interests of taxpayers; and f.) Removing contradictions and ambiguities existing in the current law in force.
Below you may find a list of some of the most important expected outcomes that will be reflected in the amendments to the present law:
- A scaled deduction from the tax base of the land subject to tax is introduced in the first years of the implementation of the law;
- The definition of taxpayer and the liability for the payment of immovable property tax is clarified;
- Political influence over the appraise process, i.e. base values, is explicitly abandoned;
- Clarified distribution of responsibility in the appraise process between PTD and MPTO;
- Evaluation methodology and evaluation standards are improved;
- A rolling schema for reappraisal of different property categories is introduced;
- Tax rate floors are differentiated between property categories as well as land and buildings;
- Enforcement jurisdiction is improved;
- Appeal procedures are clarified and appeal time prolonged;
- The legal deadline for payment of the property tax is changed;
- Rules for deferal of payment of the property tax are clarified and changed;
- Clarified and strengthened supervisory powers of the PTD and MoF;
- The possibiity to use private appraisers, private bailiff officers and surveyors is introduced;
- New notification means and notification procedure for tax bills, valuation acts, notices or other communications;
- Clear procedures and communication deadlines for the exchange of information and data, between public authorities which are related to the property tax process, legal persons or bodies that are related to the immovable property tax process,as well as sanctions in case of non-compliance;
- New sanctions for taxpayers who doesnt provide or provide false property information or doesn’t report within a specific period of time any change of the immovable property value.
3.1.2Improved administrative instructions
The approval of the amendments to the primary legislation will be followed by significant changes in the secondary legislation, necessary for the proper implementation of the law. So far the foreseen sub – legal acts to be issued in the near future will regulate the following aspects of the property tax process:
A sub-legal act on gathering and registration of information on the property and tax payer;
A sub-legal act fordeterminevalue categories,rules, procedure, methods, technical criteria’s and value factorsthat will be used for setting out value zones, value levels and the appraised value of immovable property that is subject to property tax;
A sub-legal act on principles of tax administration, general administrative provisions and the functional organization of Municipal Property Tax Offices andProperty Tax Department, including the rights of taxpayers;
A sub-legal act on appeal procedures;
A sub-legal act on postponement of property tax payments;
A sub-legal act on banning municipal services for enforcement of property tax payments;
A sub-legal act on communication procedures and deadlines for the exchange of information between public authorities, legal persons or bodies that are related to the immovable property tax process.
3.1.3Improved municipal grants formula
The initiative for improving and adapting the legal framework will not be limited only to the amendment of the normative acts that govern the property tax process. Therefore the Project also intends to initiate a process for amending or drafting new legal and sub legal acts that can have a big impact on the improvement of the property tax process. In that respect the Project held frequent meetings with actors involved in different reforms related to the property sector and other sectors, that covered a variety of themes such as, the inclusion of the property tax performance in the municipal grants formula, the use of the certified appraised values of the immovable properties by the banks as base for evaluating properties that will serve as collaterals, the introduction of a capital gains tax linked with immovable property transactions in order to regulate the distorted market and somehow prevent the actors in the market to state false prices, the determination of a bigger role of the notaries in the property tax process etc.
3.1.4Roles and organization
The work with clarifying roles and organization has not started
3.2Well Prepared Taxpayers
3.2.1Register and land tax campaign
To prepare taxpayers for the fact that property tax on land is going to be implemented a flyer was prepared and printed during 2014. This flyer will be distributed together with the property tax bill in 2015.
The flyer also informs about the importance to have ownership correctly registered. As correct ownership is a mutual interest for PTD and Kosovo Cadastral Agency (KCA) the flyer was produced in cooperation with KCA. KCA and World Bank took part in financing the printing of this flyer.
Information about implementation of tax on land will be posted on the property tax website in January 2015.
3.2.2Property Tax Website
After close out of the previous project, ProTax 1, no one in PTD cared about updating the website. Therefore the most urgent updates of the website have been done to keep it a website showing correct information.
The website has also been moved to Ministry of Finance servers.
3.2.3Municipal investments
As mentioned above no one took care of the website during the period when there was no project. This means that the information on municipal investments was not updated. This has been taken care of during spring 2014.
During January and February 2015 information in realized investments for 2014 and planned investments for 2015 will be collected and published.
3.2.4Counterpart in Ministry of Finance Information Office (MoF)
One of the assumptions of the project was that MoF increased the capacity at MoF Information Office. This is very important for the sustainability after project close out.
However there is no progress in this area yet and we do not have a counterpart in MoF Information Office.
3.2.5Serbian counterpart in Serbian municipality
Another assumption was that MoF arranges a Serbian counterpart from a property tax office in a Serbian Municipality who can proofread and assure that all texts concerning property tax that are published is available in correct and plain Serbian language.
There is no such person available yet.
3.2.6Remaining activities from preparatory work phase
Some of the activities were not finalized during the preparatory work phase and the work with this has therefore continued during the specification phase.
Internal communication plan
The work with the internal communication plan has been postponed since other things have been prioritized. It would also be a good idea to have the person from MoF Information Office involved in the work with the internal communication plan. This person is in first hand going to be in charge of taxpayer communication but it would also be good to have this person involved in the internal communication.
However a meeting where all financial directors were invited was held in Durres in October. In this meeting the purpose, development goals and expected project results was presented and discussed.
Project presentation material
Project business cards have been printed and distributed to all project staff.
Project presentation folder was printed and disseminated in meetings with interested parties. It is also available for downloading on the ProTax2 website.
Project Roll-ups have been produced to promote the project in meetings with Financial Directors and other Donors.
Taxpayer service procurement
The work with taxpayer service procurement has taken a lot of time and effort. Yet it is still not finalized.
During 2014 tender dossiers were finalized for printing and advertising space. They are now published in the website of Public Procurement Regulatory Commission (KRPP) and we are looking forward to opening tenders in the end of February.
The tender dossier for production of TV- and radio commercials was also finalized but was stopped by KRPP. A meeting has been held with them to see if we can solve the problems and go on to publish the tender dossier. At the moment we are trying to find ways that will allow us to consider quality of work and not only price within the legal framework of Kosovo procurement regulations. If this is not possible we will have to make procurement on our own following Swedish regulations.
3.3New Business Processes Implemented
The new business processes are under development in close relation withother project results. The aim of business processes is, among others, to sustain the other results of the project. Hence, the implementation of them is planned for later stages of the project and progress on them will be reported subsequently.
3.4ExtendedProperty Registers
The Valuation Part in ProTax 2-project is handled by Swedish Valaution Experts Mr Hans Söderblom and Mr Olof Färnkvist from Lantmäteriet, The Swedish Mapping, Cadastral
and Land Registration Authority. For supporting to the business process of GIS-development also Mr Erik Normann from Lantmäteriet is participating.
For securing knowledge of local Real Estate Market for all property categories in Kosovo six valuers has been engaged in the project. Continously work has been performed by seminars and video-meetings for steering the valuers to reach the goal for the Valuation part of the project.
3.4.1Improved cadastre registers
Deliverance of KCA-data to PTD has been performed. Unfortunately a lot of work has been done to streamline the data and merge the textual data and vectorial data so it will be suitable for use. There have been problems with the standardization of the data from KCA. For example is the official documentation of culture name not corresponding exactly to the culture names that have been used in reality in the data.
For future deliverances, import and export, of cadastre data between PTD and KCA it is important that the authorities set up a proper business process with a standardized definition of the digital format, both for textual and vectorial data. This business process is not established yet.
3.4.2Land usage map created
A first transformation and migration of data from KCA into the new classification for property category and value category (group/class) has been performed by the Swedish IT-team. The first migration has resulted in that of the 1771124 parcels delivered parcel from KCA (where from beginning 1025273 parcels has no land use after merging vectorial and textual data) 599105 parcels has received a land use according to new ProTax2 classification. At the moment there is 1 172019 parcels without preliminary classification. This figure is not acceptable. It will give too much work for the Quality assurance team if this figure will remain. There is a need to revise the migration and find other ways to set a better preliminary classification. One way could be to use the information of buildings from ProTax1. Another way is of course to see if KCA could deliver initially parcel with information about registered land use according to KCA for the initial parcel. But land use for initial parcel and the new parcel may diverge in most cases.
- There is needed with complementary migration and revise of data to reduce the number of parcels with no preliminary actual land use.
3.4.3Extended property tax register
Because of the fact there is still work with setting up a first preliminary land use classification as a base for the Quality assurance team to start verifying the actual parcel use that should be the base for the property tax register this work has initially started. Training for QA-team in the supporting GIS-system (QGIS) has been performed. The QA-team now will start working in rural areas with quality assurance of forest land where the information from ortophoto is relatively easy to confirm. This work is also depending on the efforts to strengthen the first draft of classification as described in section 1.2 and 1.3 above.
The system with property categories and sub-categories has been discussed but it has to be further discussed. It is important for properties that shall be valued that there is a detailed classification system because different types of properties belong to different markets and that means that different valuation methods and models may be used. Here there is a need of coordination with the revision of the legislation.
The problem with mixed usage on a parcel may be of a higher importance to handle directly now in the first implementation phase. Therefore it might be a good reason anyway to already now classify the parcel in several parcel units if there is a mixed usage. It has appeared that it might be better both for practical work of land classification and also in legislation to immediately handle this. Otherwise it may result in a lot of work during the special appraisal to handle this. It might also be better for the public acceptance if different mixed usages could be the base for value.
3.4.4Property Sales Price Register implemented
The Property Sales Price Register is established. Transactions have to be examined to select the transactions that are useful as basis for the mass valuation. Now the valuers examine the transactions. The plan is that PTO shall examine the transactions in the future but there is a need of manuals and training before this system can be implemented. It is more cost-efficient if PTO does most of the work when it comes to examination of transactions.
3.4.5Multilayer Value Zone Maps created
The valuers have worked with creation of value zones for agriculture and forest land. Results of this work shall be delivered in the middle of February. Next category is value zones for residential land, land for family houses. This work is ongoing and results shall be delivered in the middle of April. For other types of residential land, land for apartments and garages, the land value is already included in the determined building value, because prices in sales used to determine value levels include both a building component and a land component. This means there will not be any separate land value layers for these types created, at least not now. Work for creation of land value maps for commercial and industrial properties will start with market data collection. Results with drafts for value zones shall be delivered in middle of June. This means that the time plan for creation of value zones has been changed. Now the plan is to have a set of value zones for different categories ready in the beginning of the summer 2015. Then the zoning and preliminary value levels will be tested in the test valuation in October 2015. The test valuation may result in some changes in the zoning and also in value levels.