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Abstract
A banded property tax can provide a simple, cost-effective, and understandable assessment system in countries with transitional economies, with traditional ad valorem systems in decline, or in developing countries with little property data or ownership information. A banded system can be flexible in terms of the number of bands, their widths, and the effective tax rate.
Introduction
Ad valorem property taxes have historically developed around the singular notion that discrete assessed values are essential. The purpose of this paper is to illustrate the experience of a banded approach in Britain and then to suggest the potential application of such a system in other countries. The introduction in Britain in 1993 of banding (assigning properties to value bands) as an integral part of real property taxation in the form of a new Council Tax on residential property (replacing the ill-fated Community Charge, or Poll Tax, as it was more infamously known) is well established (Plimmer, McCluskey, and Connellan 1998). The authors have found no other recorded system of using banded values for property taxation purposes anywhere else in the world. Although the banded residential property tax as used in Britain is unique, there are systems that use, for example, beacon properties as a means of identifying groups of similar properties on which the same tax liability is levied. Another system uses broad land uses and zoning (for the Arnona in Israel see Portnov, McCluskey, and Deddis 2000).
One of the founding principles of any tax, including the property tax, is the perception, and indeed, the reality of fairness. The question, "Is fairness directly correlated with having discrete values on each and every property?" needs to be considered. Fairness has never been defined in a land taxation context; for example, one of the stated principles on which the government of the United Kingdom (UK) devised the Council Tax was "fairness." Indeed, it is likely that fairness in taxation is a concept related to the historical, cultural, and social background of the taxpayer. Nevertheless, it is generally accepted that fairness is related to the degree to which the principles of horizontal and vertical equity are achieved by the taxation system.
The British Experience with a Banded Property Tax
Banding was introduced into Great Britain...