The Property Taxes and the Budget Crisis
This is a taboo subject that has been repeatedly approached by me during the last 2-3 years, but it did not raise the interest it would have deserved, perhaps due to the fact talking about taxes is not such a pleasant activity.
The budgetary difficulties we face these days, which lead to aberrant decisions like the dramatic and without discernment pensions decrease, could find solutions in some other area, not in that of an unavoidable increase of the flat tax and VAT, namely setting taxes based on realistic and rational principles of property.
There is no such thing as a well developed society, with solid market principles and respect towards private property, which does not set real estate taxes that match the market value of those very properties.
There are 2 major discrepancies in Romania when it comes to setting taxes on properties, besides the low level of those taxes themselves:
- a tax base set on empirical and egalitarian methods, which leads to inequity
- an exaggerate difference in taxes of the same property, regardless its owner (individual or company)
A reasonable solution to this problem could be the decision taken by the Ministry of Finance to change the whole tax system (and the tax base respectively), beginning with the market value of the property. Although this is going to be a very complex process, which is going to consume will power, time, effort and money, it would definitely resolve many of the budgetary issues and it would also create solid premises for the correct real estate market alignment when it comes to the tax value of properties, depending on objective criteria such as location and intrinsic quality of the property.
With this change in approach, the properties tax values could double or even triple, making the budget revenues therefore obtained grow significantly.
Dr. ec. Adrian Crivii, FRICS, MAA