San José, Costa Rica, since 1956

Property Tax Assessments Boosted

After nearly 15 years, Costa Rican municipalities still are adjusting to their role as assessors of property values, with the vast majority of Costa Rican homes officially listed far below their market value, according to a government study.

But the localities’ hesitance to take full advantage of the new program – or their lenience in enforcement – likely has been a blessing for both property owners and the municipalities alike, experts say.

The massive reserve of potential funding that was opened to the municipalities in 1995 – when municipalities were given the power to directly tax the properties within their jurisdiction – has been tapped only timidly.

Property owners now are paying $5 tax for every $2,000 of their homes’ values, as opposed to $12 for every $2,000 before the law changed. Even so, income from the tax has risen significantly – at about 2 percent per year, according to the Finance Ministry’s Tax Assessment Office (ONT).

“What we found was that the municipalities were much more efficient at collecting the taxes” than the central government, which processed the tax before 1995, according to Alberto Poveda, director of the ONT.

Under the current law, property owners must present their municipality with a declaration of the value of their property at least every five years – the majority of which are declared “excessively low,” Poveda said. Municipalities have the option of rejecting this number and assigning their own, or accepting the declaration.

But even though property owners should have turned in three declarations since the new law passed, some have yet to turn in one, Poveda said.

According to a recent ONT survey assessing property values across the country – the first of its scale in 10 years – 92 percent of the real estate in Costa Rica is listed at less than $20,000.

But just because the municipalities aren’t enforcing true values doesn’t mean they’re not collecting.

The nation’s overall yearly take from the real estate tax has gone from close to $3.6 million before the law was changed in 1995, to nearly $56 million last year, according to the ONT.

That number could double if municipalities force property owners to pay according to the true value of their properties, Poveda said.

But were the municipalities to immediately crack down and force true market values on property owners, they would not only feel the bite of a furious populace, but they would be inundated with far more money than they would know what to do with.

For that reason, “they need to go about the process little by little,” Poveda said. Nearly all of the tax goes directly into the local municipality, with 76 percent going into public works and 10 percent to local education. The remaining 4 percent goes to the National Registry and the Finance Ministry.

“The municipalities actually get most of their money from this tax,” said Greivin Hernández, an economist with the InternationalCenter for Political Economics with the NationalUniversity.

Whether or not property values are accurate largely depends on the level to which each municipality has prepared itself for the process, Hernández said.

“There are some municipalities that are accustomed to this process,” he said. “But there are others that are not taking it too seriously.”

The ONT survey has been completed in 33 cantons, and it expects to finish with the other half of the country by the end of the year, Poveda said. The idea is to provide the municipalities with a base from which they can accurately determine property values and contest owners’ low claims.

“The helpful thing about property taxes is that people can’t hide their property,” Poveda said.

With the help of the survey, municipalities can negotiate with property owners to slowly increase the value – and in turn the size of the tax paid – when the property is reassessed every five years, Poveda said. Still, some claim the values assigned by the new survey are too high, and don’t take into account the waning of property values as a result of the recession.

“Properties (values) are coming down all over the world in real estate,” Hernández said. “Right now, it’s not very logical to see prices of real estate going too high.”

Poveda insisted that the prices listed are still only 70 percent of market value, and the incoming money is far too important for municipalities to let slip through their fingers.

“You can invest in great social works with this tax, because it goes straight to the municipality,” Poveda said.


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