Innovations in Local Revenue Mobilization

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Innovations in Local Revenue Mobilization

Lessons Learned from Property Tax Reform: The

Peruvian Institutional Approach

LUIS ALBERTO ARIAS M.

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Content

Introduction The local government main

revenues The creation of Lima Tax

Administration Service Improvement of taxpayer services Tax compliance enforcement The main results The learned lessons

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PERÚ - Year 2000Population and Districts

N° of districtsN° of inhab. (Millions)

0% 20% 40% 60% 80%20%40%60%80%

13194.6

Less than10, inhab.

44513

From 10, to 150, inhab.

256.8From 150, to 500, inhab.

10.7More than 500 mil inhab.

4

Lima: Monthly Familiar Income(Year 1998)

1,185

2,221

307494

281329

0

500

1000

1500

2000

2500

North East Center SouthWest

SouthEast

South

In U

S$

5

THE LOCAL GOVERNMENT MAIN REVENUES

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Real Property Tax

The real property tax levies the

ownership of real property.

The pensioners have a deduction

of 50 TRUs, as long as they own

only one real property and if the

pension is their only income

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Real Property Tax:Tax Base

The tax base is determined according to the reference values that Housing and Transport Ministry publishes.

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Real Property Tax:Tax rates

From 0 to 15 TRUs…… 0.2%

From 15 to 60 TRUs…. 0.6%

More than 60 TRUs….. 1.0%

1 TRU = US $ 900

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Real Property Tax: Tax administration

The district municipality where

the real property is located. The

municipality assumes the

function of collecting and

auditing the tax.

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Property transfer tax

The property transfer tax

levies the real estate transfers

from one person to another

either for burden or for free.

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Property transfer tax:Tax Base

The tax base is the value of the

property adjusted by a wholesale

price index.

The first 10 TRUs are exempted.

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Property transfer tax:Tax administration

The provincial municipality where the

property is located.

Collection is shared by equal parts with

district municipalities as long as provincial

municipality constitutes investment

funds. Otherwise total collection is

transferred to district municipalities.

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Property transfer tax: Tax rate

The tax rate is

3%.

The taxpayer is

the real estate

buyer.

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Motor vehicles tax

The motor vehicles

tax levies the

ownership of

automobiles and

station wagons not

older than three years

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Motor vehicles tax: Tax Base

The tax base is the original value of

adquisition, import or net wealth increase.

This value has to be compared with the

referencial values that the Finance

Ministry approves, having to pay the

amount that turns out the biggest.

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Motor vehicles tax: Tax Rate

1 %

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Motor vehicles tax Tax Administrator

The tax administrator is the

provincial municipality where

propietor tax home is located.

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User charges: used to finance public utilities such as waste management, city security and ornate.

Administrative Fees: payments for official acts perform upon request

Licenses: annual duties payable for the privilege of carrying on a certain trade.

User charges

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The Municipal Compensation Fund

The Municipal Compensation Fund (FONCOMUN) is financed with:

(i) The Municipal Promotion Tax

(ii) Motor vehicle tax

(iii) 20% of the tax on gambling

(iv) Other minor taxes

The revenues from FONCOMUN are distributed among the 150 provincial municipalities and the 1800 district municipalities, based on poverty and population criteria. The law points out that no municipality can receive monthly less than 8 TRUs from the FONCOMUN.

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THE CREATION OF THE LIMA TAX ADMINISTRATION

SERVICE (SAT)

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SAT is a descentralized public institution of the municipality , which has economic, administrative and financing authonomy.

On May 1996, the Council of the Metropolitan Municipality approved the creation of the Lima Tax Administration Service (SAT).

Its aim is to organize and implement collection and auditing of local taxes and other revenues of the Municipality of Lima.

It is faculted to celebrated agreements with Dsitrict Municipalities to give them advice or to assume the administration of their revenues.

CREATION OF SATCREATION OF SAT

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SAT Organization Chart

INFORMATION SYSTEMS

DEVELOPMENT

TAX DEVELOPMENT

LEGAL

ISSUES

CHIEF

DEPUTY CHIEF

FINANCE

INTERNAL AUDITING

ATELA VICTORIA

LIMA

OPERATIONSPLANNING AND INFORMATION SYSTEMS

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Human Resources StrategyHuman Resources Strategy

Employees selected through public

processes.

Recruit, develop and retain

qualified work force.

Implementation of public career

line.

Annual course of Local Taxation

and Local Public Management.

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Employee selection process

Profile Candidates

Selected

S/C

Tax Specialist 707 19 2.69%

Finance Specialist 605 2 0.33%

Information System Specialist

44 1 2.27%

Public Relations Specialist 174 1 0.57%

Programmers 41 2 4.88%

Human Resources Specialist

250 -.- -.-

Tax Junior 801 21 2.62%

Operators 306 2 0.65%

Secretaries 234 4 1.71%

Total 3,162 52 1.64%

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Infrastructure

Headquartes located in the centre of Lima and specifically adecuated to attend 3,000 people daily.

Offices implemented with queue administrators.

Three descentralized offices: Ate, La Victoria and Jockey Plaza.

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Ate OfficePlaza Vitarte

La Victoria Office

Nicolás Arriola

Jockey Plaza OfficeC.C.Jockey Plaza

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IMPROVEMENT OFTAXPAYERS SERVICES

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Taxpayers Services Systems

Provide first quality service to each taxpayer needing help.

Tax Returns Filing assistance: Making filing easier.

Broadening the use of electronic interactions.

Tax returns and accounts.

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24 hour Service Every working day

Aló-SAT : 332-2828

Web SAT : www.sat.gob.pe

Fax SAT.

Accounts emission.

Tax payments

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Aló-SAT : 332-2828

NUMBER OF TELEPHONE CALLS1997 - 2000

27.448

90.610

259.860

335.382

-

50.000

100.000

150.000

200.000

250.000

300.000

350.000

400.000

1997 1998 1999 2000

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Web SAT:www.sat.gob.pe

Vehicles with capture order.

Transit fines.

Conductor record.

Tax accounts.

Payment facilities.

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Web SAT:www.sat.gob.pe

-

4,000

8,000

12,000

16,000

20,000

J-99

F M A M J J A S O N D J-00

F M A M

N°

of

Vis

its

NUMBER OF VISITS

JANUARY 1999 - MAY 2000

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Collection Services

Collection through 6 banks including 164 agencies.

Automatic registration of payments in taxpayers accounts.

Daily transfers of collections to the municipalities accounts, within 24 hours of collection.

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Complains and Refunds Services

Files Reception and immediate registration in information systems.

Taxpayer assistance about their complaints or refunds.

Simplification and continuous processes improvement.

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Other Taxpayer Services

Monthly report of taxpayer debtors.

Statistic Reports on management and revenue results.

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TAX COMPLIANCE ENFORCEMENT

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Tax Compliance Processes

Implementation of large taxpayer unit.

Tax gap control.

Selective audit programs.

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REAL PROPERTY TAX DISTRIBUTION(According to tax amount)

% Real properties% Potential revenue

0% 15% 30% 45% 60%

From S/. 0 to S/. 200

From S/. 200 to S/. 1.000

From S/. 1.000 to S/. 20.000

More than S/. 20.000

15%30%45%60%

8,5%47,0%

17,0%31,7%

17,5%11,1%

57,1%

10,2%

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RESIDENTIAL USER CHARGES DISTRIBUTION(According to property value)

0% 15% 30% 45% 60%

From 0 to 6 TRUs

From 6 to 17 TRUs

From 17 to 45 TRUs

More than 45 TRUs

15%30%45%60%


1.2%15.7%

12.7%27.7%

37.8%40.1%

48.3%16.5%

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NONRESIDENTIAL USER CHARGES DISTRIBUTION(According to property value)

0% 20% 40% 60% 80%

From 0 to 6 TRUs

From 6 to 17 TRUs

From 17 to 45 TRUs

More than 410 TRUs

20%40%60%80%


From 45 to 410 TRUs

0.8%36.1%

5.8%46.5%

7.9%5.1%

22.0%6.4%

63.5%5.9%

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Unpaid taxes processes

Implementation of unpaid taxes unit.

Employees selection through transparent processes.

Preventive collection strategy.

Taxpayers segmentation.

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THE MAIN RESULTS

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SAT Total Revenue: 1995 – 2002(In Millions of Dec 2001)

169.0 164.7

188.8

227.6

140.0162.7

193.2

146.6

0.0

50.0

100.0

150.0

200.0

250.0

1995 1996 1997 1998 1999 2000 2001 2002

Mil

l. S

/. D

ec

20

01

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MUNICIPALITY OF LIMA: Financing Sources

37%

46% 46%40%

31%

18% 17% 17% 18%

73%

63%

54% 54%60%

69%

82% 83% 84% 82%

51%

27%

49%

0%

20%

40%

60%

80%

100%

90 91 92 93 94 95 96 97 98 99 00

Per

cent

age

(%)

Central Government Transferences Own Revenues

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Real property tax: 1995 - 2002Effectiveness Rate

18.1 11.413.7

13.6 14.5 12.6 7.0

59.858.259.260.964.570.465.5

31.2

0.0

20.0

40.0

60.0

80.0

100.0

1995 1996 1997 1998 1999 2000 2001 2002

Per

cent

age

(%)

Year of emission Total

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Motor vehicle tax: 1995 - 2002 Effectiveness Rate

16.017.1 14.3 14.6

12.7

6.5

9.2

76.788.4

78.574.275.575.179.0

51.3

0.0

20.0

40.0

60.0

80.0

100.0

1995 1996 1997 1998 1999 2000 2001 2002

Per

cent

age

(%)


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User charges: 1995 - 2002 Effectiveness Rate

33.9

29.9 23.9 22.2 20.4 16.6 11.1

52.249.149.650.750.245.8

27.129.6

0.0

20.0

40.0

60.0

80.0

100.0

1995 1996 1997 1998 1999 2000 2001 2002

Per

cent

age

(%)


48

Infringement of the NTC: 1997 - 2002

Effectiveness Rate

14.9 17.0

12.815.6

20.4

50.150.046.0

51.350.5

35.0

0.0

20.0

40.0

60.0

80.0

1997 1998 1999 2000 2001 2002

Pe

rce

nta

ge

(%

)


NTC: National Traffic Code.

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Infringement of the UTC: 1997 - 2002

Effectiveness Rate

9.5

21.223.6

10.6

13.0

14.2

41.3

23.819.221.219.0

12.3

0.0

10.0

20.0

30.0

40.0

50.0

60.0

1997 1998 1999 2000 2001 2002

Per

cent

age

(%)


UTC: Urban Transport Code.

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Municipality of Ate - Real property tax: 1999 - 2001

Effectiveness Rate

17.814.6

68.968.872.0

0.0

20.0

40.0

60.0

80.0

100.0

1999 2000 2001

Pe

rce

nta

ge

(%

)


51

Municipality of Ate - User charges: 1999-2001Effectiveness Rate

24.5 13.9

62.063.460.4

0.0

20.0

40.0

60.0

80.0

100.0

1999 2000 2001

Pe

rce

nta

ge

(%

)


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Municipality of La Victoria - Real property tax: 1999-2001

Effectiveness Rate

17.9 11.8

68.972.370.4

0.0

20.0

40.0

60.0

80.0

100.0

1999 2000 2001

Pe

rce

nta

ge

(%

)


53

Municipality of La Victoria - User charges: 1999-2001

Effectiveness Rate

27.2 14.6

52.555.848.9

0.0

20.0

40.0

60.0

80.0

100.0

1999 2000 2001

Pe

rce

nta

ge

(%

)


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THE LEARNED LESSONS

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The learned lessons

Human Resources enforcement.

Local Tax law simplification.

Taxpayer services improvement.

Taxpayer Compliance enforcement.

Infrastructure improvement.

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The learned lessons

Promote taxpayer payments through banking system.

Implementation of large taxpayers unit.

Broadening the use of electronic interactions.

Innovations in Local Revenue Mobilization

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