Property tax reform in Russia


A few days ago I wrote about the fact that Moscow is currently struggling with eminent domain issues. Now, it turns out, that the city is also thinking about reforming the way it imposes the property tax. Currently the tax is imposed based on an estimate of value based strictly on a measurement of floor space, which results in vastly underestimated values. The proposed new system sounds oddly familiar:

Currently, homeowners pay an annual charge of 0.1 percent to 2 percent of a property's value estimated on the basis of floor space, which vastly underestimates the actual market price.

This means that owners pay nugatory sums each year, sometimes as low as 150 rubles ($5.70), irrespective of the real value of the properties.

In comparison with current figures, the proposed future rate would take into account such factors as the location and condition of the building, giving a figure far closer to the actual market value of the property.

The new taxes would be around 0.05 percent of the property's value over the previous year minus 30 percent.
Put more simply, an average Moscow apartment worth $400,000 to $500,000 could cost up to $2,000 to $2,500 per year in taxes.

The square footage formula must produce some ludicrous numbers. A tax bill of $5.70 yields a maximum property value (assuming .1 percent mill rate) of $5,700.00. Of course, as one can't say enough, if the yielded property values are accurate relative to one another, the system is fair. All you have to do is raise the mill rate to accomplish what the folks in Moscow are trying to do.

The new system would be much like ours, right down to the seventy percent assessment figure. The tax rate, on the other hand, appears to be a bit lower than ours. The good citizens of Moscow, particularly those that benefit (comparatively) from the current system, are mystified by the new proposal and can't imagine that it could work:

According to the proposals, the exact level of the rates would be determined by local administrations and feed into their budgets. But critics argue that this leaves a lot of questions unanswered.

"I understand why they are trying to do this, and maybe the purpose is quite clear and maybe even good, but I don't really understand how they plan to implement the proposals," said Anna Papakhina, a sales director at DeltaRealty.

Muscovites are apparently being victimized by real estate speculators, and the property tax reform, along with another reform of what is essentially a steep conveyance tax, is meant to dampen that speculation. Whether it will achieve its purpose is another question.

This proves once again that there's nothing new under the sun. The intent is to tax the wealthy, but the critics are claiming, probably with justification, that the tax change will hit a lot of middle income/land rich people hard. The folks in Moscow could avoid a lot of mistakes by examining the situation here. And we can take some small sense of satisfaction from the fact that our system looks good to our former adversaries.
Posted: Tuesday - February 27, 2007 at 09:10 PM          

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