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المستخلص
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Executive Summary
The administration and collection of property tax is a comprehensive process and requires
considerable efforts of various parties en route for success. It involves close cooperation
amongst authorities in charge of the administration and collection of property taxes. These
authorities include: the Ministry of Finance (MoF), the Ministry of Local Government (MoLG),
Land Authority, municipalities, judiciary institutions, executive bodies and the local
community via its representatives. Weakness or absence of such cooperation will have
negative implications on the administration and collection of property tax.
There are 483 Local Government Units (LGUs) in the oPt out of which 132 municipalities are
subject to property tax collection. The Department of Property Tax, in cooperation with local
governments, conducted a valuation of properties in 2008 in 34 municipalities. The total
estimation value of the valuation was around JD 50 million. This was a fivefold increase
compared with the preceding property valuation, which was conducted in 1986.
In the West Bank, the total amount of property tax incurred in 2008 was nearly JD 13 million of
which around JD 11 million were collected with a collection rate 85%. However, this amount
also includes the collection of tax liabilities covering the past ten years. These taxes were
collected by the Ministry of Finance from within the boundaries of 26 municipalities in the
West Bank while the total amount did not exceed JD 1 million for 25 municipalities in the Gaza
Stip.
According to the existing property tax Jordanian law number 11 for 1954, the MoF deducts
10% of the collected amounts as administrative fees. According to its budget of 2008, the
operational costs of the Department of Property Tax was less than 10% of the total amount
being deducted from the collected property tax in the same year, hence, the excess amount
could be utilized to promote the capabilities of the department through the purchase of
equipment, software programmes, and conducting capacity development programmes based
on the actual needs of the department and its employees, instead it is being used to cover the
arrears of electricity and water on local governments.
The Department of Property Tax has 128 officially registered employees in addition to
employees commissioned by LGUs which pay their salaries. There are 12 property tax offices
throughout the West Bank in addition to the Department of Property Tax within the Ministry
of Finance as well as the Gaza Strip office.
This study offers several recommendations and observations aimed at achieving a modern
administration structure based on developed principles for the administration and collection of
property tax in the oPt. In view of that, the following suggestions should be taken into
consideration:
First: The Legal Framework
The section related to the legal framework in this study recognizes that Jordanian Law No. 11
of 1954 - stipulating the tax law for land and buildings within the jurisdictions of municipalities
and local governments, and its amendments specifically provisional Law No. 9 of 1967 and
amending law No. 11 of 1954 - is the law in force in the West Bank. This law grants authority to the Ministry of Finance to collect taxes on behalf of municipalities only and not from within the
boundaries of the remaining 251 village councils and smaller clusters. These laws were
inherited from the Jordanian regime. In the Gaza Strip the laws governing property tax were
inherited from the British Mandate / Egyptian and remain in force. The laws in the Gaza Strip
include the Property Tax Law in Cities No. 42 of 1940 and the Property Tax Law in Villages, No.
5 of 1942. They address the mechanisms of valuation and collection of property taxes in the
Gaza Strip, and whose provisions have been amended in accordance with Israeli military
orders, specifically Military Order No. 675 of 1980.
Based on the aforementioned, the legal framework governing property tax in the oPt (West
Bank and Gaza Strip) should be reviewed and incorporated into one law that should reflect
international standards. Some examples of different systems of property tax in selected
countries are included in this study. The revised new property tax law should allow collecting
and consenting property tax operations in all local governments, i.e. municipalities, village
councils, project committees, and properties outside the boundaries of these units.
The legal review of the property tax law should not be in isolation of the remaining laws related
to the various types of taxes as well as the law of local government number one for 1997 in the
West Bank and Gaza Strip. This would exert efforts to unify a package of laws governing the
legislative process for local governance in the oPt.
The property tax experiences of select neighboring and international countries have been
addressed in this study. Countries were reviewed in the context of their approach to property
taxes in terms of the unification of taxes in general or establishing standards of valuation based
on specific equations and principles.
Second: The Financial Framework
A reconsideration of the tax system in general, and the sources of income of LGUs in particular,
are necessary due to the financial aspects of property tax. Aspects of property tax include: its
value and how it is calculated; its reliance on valuation, terms of this valuation and the
consequent inaccuracy and lack of clarity in these terms; the relationship between the property
tax and other taxes levied on citizens and the value of the actual contribution of property taxes
to the budget of LGUs, as opposed to other sources of income. This review is particularly
important for equitable distribution of services for citizens and increasing the sources of
income of LGUs to carry out the required tasks in serving the citizens as mandated. It is also
necessary to identify expenditure facets and deploying taxes in the development processes,
carrying out projects, and providing high quality services corresponding to the aspirations of
the Palestinian citizens.
The existing property tax legal frames in the West Bank and Gaza, Jordanian and Egyptian
respectively, have not been amended or upgraded since 1967, while in Jordan and Egypt the
legal frames were amended after 1967 to reduce the rates of property tax for real estate from
17% to 10%. In the oPt, it is apparent that the percentage of 17% needs to be reviewed and
scrutinized to achieve fairness on the basis of overall per capita income and unemployment
level in the country. Meanwhile, subjecting private houses to property tax contradicts with the
considerations of social justice set forth in the constitution, which stipulates the limited
exemptions that the law does not take into account such as the elderly, those with special
needs, widows, families of martyrs, wounded, prisoners, and other marginalized groups that
require protection and support.
Third: The Current Relationship between Municipalities and the General Administration of Property Tax
It is apparent that the role of LGUs in the administration and collection of property tax
protected by the enacted laws provides these units with a significant capacity to cooperate
with the Property Tax Department in relation to valuation, providing updated physical plans,
property tax collection, and updated information on new buildings within the municipal
boundaries which is vital for the property tax operations, especially the property valuation.
Yet, in practical terms, this rarely happens. The participation of LGUs in the valuation and
collection of property tax is limited. Combined efforts by the staff of the Department of
Property Tax and LGUs is a major source of success of the valuation and other mentioned
operations to ensure fairness, objectivity, and cooperation in tax collection. These efforts
should also ensure transparency in the transfer of receivables through providing the
municipality with reports and disclosure of the special accounts in relation to the property tax.
Furthermore, groundwork should be recognized to maintain an explicit legalized relationship
that is well defined in the property tax legal frame between the central authority represented
by the Ministry of Finance, the Ministry of Local Government and the LGUs that allows a better
degree of decentralization through allowing LGUs to play an efficient role in managing the
property tax operations.
The LGUs are responsible for the lack of following up their legal rights in the valuation process,
which allows LGUs to participate in the valuation committee. Moreover, they are not fully
pursuing their role in encouraging the citizens to pay their due taxes through requesting a
clearance form issued by the Department of Property Tax to follow up any transaction
involving property and real estate. Moreover, LGUs need to be aware of the importance of
their role in the valuation process and nominating qualified persons from municipal councils
and representatives of taxpayers as important members in the valuation committees.
At the same time, the General Directorate of the Department of Property Tax is requested to
exchange detailed reports and disclose information to all municipalities with respect to
collected tax amounts and the results of the valuations. In addition, the General Directorate of
the Property Tax has not been exerting efforts towards raising the awareness of municipal
councils and municipal employees on the importance of paying taxes and cooperating for the
benefit of the LGUs.
Forth: Capacity Development (Department of Property Tax)
It is apparent from this study that there is a need for capacity development in the Department
of Property Tax to strengthen performance and improve capacity in the valuation and
collection processes. This includes, but is not limited to, meeting the infrastructure
requirements of individuals through provision of equipment and computerized systems to
improve their performance. It is recommended to design an integrated programme that would
increase the capacity of human resources and provide a specialized cadre qualified to assume
responsibility of all sections in the General Directorate of Property Tax and its district offices in
the governorates. Material needs are also essential and include vehicles, offices, modernized
equipment, and data software. All of this aim to expedite procedures and increase
effectiveness and computerization through the use of networks and the internet. These tools
would be useful for inquiries and for citizens and expatriates to pay their due taxes online.
The standards used for valuation rely on extremely broad components, which render the
general process and often inaccurate. These components need to be reviewed in a way where
specific, digital equivalency and standards are derived to be used in determining the valuation
on the basis of a clear mathematical equation. A model, attached in annexes for valuation
equations, has been developed for the purpose.
Fifth: Capacity-Development (municipalities)
Municipalities require capacity development in the areas of tax administration and the
collection of taxes and fees. It is apparent that the capacities vary from one municipality to
another, and the same applies to the collection of fees, taxes, licenses and rent revenues.
Some municipalities have been able to collect large sums of local assigned fees and taxes that
may exceed the amount collected from the property tax. However, these are limited cases and
cannot be relied on as a basis for all municipalities. Still, it would be beneficial to take
advantage of these cases and circulate them among other municipalities. It is important to
note that the municipalities have different classifications, such as A, B, C, D, and these
classifications reflect the different capacities of LGUs in terms of budget, expertise,
population, financial resources, and the number of departments and employees. These
classifications should be taken into account when discussing issues related to municipalities in
general.
In order to identify the actual needs of the municipalities, it is recommended to raise the
awareness of LGUs pertaining to tax collection and valuation as well as to tax and fees
administration. These are currently within the jurisdiction and authority of the municipalities.
Such step would enable them to better manage the property tax and its collection in the event
of any transfer of authorities to the municipalities in this field.
One of the unique models in this regard is Doura Municipality, which, until today and along
with the Department of Property Tax, collects the property tax. This is an exceptional case in
the West Bank, which is a result of special circumstances that took place since 2005.
Sixth: Transfer of property tax to the municipalities
The possible options for the administration and collection of property tax should not be
confined to the two choices of either maintaining this task in the Ministry of Finance or
transferring it to the LGUs. Each of these options has advantages and disadvantages and
requires the study of models in other countries that may be more effective and appropriate for
the administration of this type of taxation. These models deal with the topic of taxation policy
and reform in general as one issue and with reviewing each tax individually. Additionally, there
is a connection between this issue and the vision of the legislators in respect to the role and
authority of LGUs in development and the relationship of such endeavors with local financial
sources and ways of investing these funds in infrastructure and service projects.
The option of transferring the property tax to LGUs for the time being is definitely not an easy
process nor will it necessarily lead to its development. This is due to the Lack of performance of
municipalities, which, in general, is not successful in the area of financial administration,
though some are capable of carrying out this task. Hence, there is a need for these units to
develop their capabilities in many areas. Conversely, the current legal framework prevents the
transfer of the property tax to municipalities. This framework is very outdated with
discrepancies between the West Bank and Gaza.
It is recommended to carry out a thorough review of the legal frameworks governing the
property tax in other developed countries, such as valuation, tax rates, methods of tax
collections, etc… in order to choose the best model for a legislative policy for the property tax
in the oPt. This would be followed by the formulation of a new legal framework for the
administration and collection of property tax, which ensures justice and comprehensiveness in
the valuation process, efficiency in collection and integrity in the use and disbursement of
funds generated from this tax.
Until the achievement of a new, advanced, and unified legal framework for the administration
and collection of property tax, with or without amendments to other taxes, the following
actions are recommended in this transitional phase:
1) Implementation of valuations in all municipalities, especially new ones formed since
the establishment of the Palestinian Authority in the West Bank and Gaza Strip. This
occurs in preparation for the collection of property tax, which will ensure a new source
of income for these municipalities.
2) Revitalize and apply an active role for municipalities to valuate and collect property tax
as they are acquainted with the properties located within their borders.
3) Ensure an explicit, honest, and transparent mechanism for the transfer of funds
collected by the Ministry of Finance from the Department of Property Tax to the
municipalities. This can be achieved through the creation of mechanisms for financial
reports prepared by the Ministry of Finance whereby a copy of these reports is
provided to the Ministry of Local Government and Municipalities on a regular basis.
4) Develop the capacity of Property Tax staff in district offices and municipalities in the
aspects mentioned in the section on capacity building of this study in order to ensure
effective cooperation in the valuation and collection of property tax. In addition, to
ensure the capacity development of selected municipalities to be part of the transfer of
authority as a pilot test for judging its capabilities to manage and collect property tax.
5) The Department of Property Tax currently carries out transactions other than the
valuation and collection of property taxes, such as the issuance of certificates of land
registration entries and records keeping of land ownership and other tasks. Therefore,
the tasks and matters previously discussed to be transferred to the municipalities
should be reviewed to ensure efficiency and integrity. For example, are municipalities
eligible to issue certificates of land ownership proof? In all cases, these arise within the
jurisdictions of government departments and should remain within these
departments, even if the collection of property taxes is transferred to LGUs.
Seventh: Property Tax and Non-Municipal Bodies
Under the supervision of the Palestinian Authority Office of the President, a study on local
administration was prepared presenting models and scenarios for proposed regulations for the
administration of local affairs, including inside and outside the boundaries of LGUs. It is well
understood that the property tax should be collected from outside the boundaries of LGUs as
well. Therefore, it is recommended that a new framework be formulated to establish a
relationship between the property tax in terms of administration, collection, and facets of
expenditure, to regulate the relationship between the LGUs on one hand and between the
central authority and administrative rulers or the governors, on the other.
Eighth: Property Tax and the Municipal Development and Lending Fund
The Municipal Development and Lending Fund exists to serve the LGUs in several aspects, and
for the importance of identifying long-term sources of funding. For this fund to ensure
sustainability and continuity, the relationship should necessarily develop between the
Department of Property Tax and the Fund as well as all the LGUs (not just municipalities). The
Fund should also be reviewed in order to identify sources of revenue for the Fund, which will
supposedly lend money to municipalities in the coming years.
Ninth: Identification of Roles
There is a need to identify the main characteristics of the LGU system in the oPt due to the
major impact in determining the roles of all players and the level of financial decentralization
or centralization that will evolve, of which the property tax will necessarily be part. Without a
clear idea of how to deal with domestic issues in terms of the degree of the administrative and
financial decentralization permitted, it will be difficult to determine how to manage local
affairs. This will also allow room for personal speculation by officials who deal with local affairs
at all levels.
Incontrovertible, the property tax and its collection is a major source of income for LGUs,
which necessitates methodical objectivity and accuracy when deciding how will it be
administered and collected. Indeed, regardless of the method selected, what should be
considered is whether this method will be fair to the taxpayers and will it increase its own
revenues, such a method would increase the income of all LGUs in the oPt who face financial
crisis in administering their affairs and mandated duties.
Tenth: A Study Tour
A brief survey was conducted in five countries, Chile, Poland, Egypt, Jordan and Lebanon, to
explore and identify different property tax regulations and to propose a study tour to one
selected country to benefit from its experience in this field.
If the general attitude is toward adopting a decentralized system, then a visit to Poland should
be considered, owing to its decentralization policy for property tax. Otherwise, a study tour to
Chile is recommended if the general outlook rests towards a centralized system, which is the
current case in the oPt.
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