Why property tax is needed: its peculiarities
Real estate or property tax is imposed by the government for the services it provides in various transactions with the properties. The basis for calculating the amount to be paid is the value of the property. The higher it is, the more tax will have to be paid.
Despite the fact that such a tariff has existed for several centuries and is a common practice for a huge number of states, it has repeatedly lent itself to criticism. According to some experts, the tax would be more appropriate if its rate were progressive. The fact is that buyers of expensive real estate have more solvency, otherwise they wouldn’t buy it. However, there are also critics of the option of a progressive rate; their argument is that during periods of high economic growth there is a spike in real estate prices. Such trends do not mean that its owner’s income will also rise.
A number of countries have a mechanism to protect owners of property deemed to be expensive. At the same time, the owners themselves have a limited income. One such option is the procedure of freezing the rate at a certain level until the property is put up for sale. Another option is to increase the valuation of the property by a percentage similar to the annual inflation rate.
In most countries, the rate to be paid is calculated on the basis of the value of the property to be taxed. However, it is worth noting that this figure is often not the same as the market price. The size of the rate is expressed as a percentage. In some states, the tax is calculated based on the size of the area of the property, in which case there is a fixed figure per square meter. For example, if the rate is $2 per square meter, the owner must pay $500 if the property is 250 square meters.
More often than not, property tax is associated with the availability of various benefits and a list of situations in which it can be avoided. This reduces the burden on the property owner. One such option is the absence of tax on the property where the owner resides. The other objects that belong to him are already taxed. An exception may also be a certain amount of real estate area per person.
Calculation of the rate for commercial and residential properties may differ. In addition, exemptions may apply to different types of real estate, such as industrial premises, and farms.
It should be noted that the calculation of the property tax rate is the responsibility of the municipal authorities, and they are interested in the receipt of such funds in the local budget. This can lead to unfair tax calculation mechanisms.
