The gap in municipal revenues from land and real estate taxes is the difference between the tax revenues actually collected and the potential revenues from property taxes, taking into account feasible tax rates, tax reliefs and the tax base. Potential property-tax revenue is calculated by adding to actual property-tax revenue the revenue gaps attributable to deviations in municipal tax rates, tax reliefs and tax-base indicators from the cluster or national average. For example, if a municipality applies lower tax rates than the cluster or national average, it has potential to increase revenue by raising those rates. Likewise, if a municipality grants more tax reliefs than the cluster or national average, it has potential to increase revenue by reducing such reliefs. The tax-base gap indicates the extent to which revenue could increase if the municipality’s tax-base indicator (defined as the taxable property value per unit of area/territory) were equal to the cluster or national average.
Total municipal revenues consist of personal income tax, grants, and own-source revenues. Own-source revenues comprise property-tax revenues and other own-source revenues. Within the municipal revenue structure, property-tax revenues account for only a share of municipal budgets, but they remain an important source of own-source income. Land and real estate taxes are among the main components of municipal own-source revenues from property taxation.
The gap in municipal property-tax revenues is assessed by comparing municipal tax rates, tax reliefs and tax-base indicators with the cluster or national average. This gap reflects a municipality’s ability to increase revenue by revising tax rates that are below the cluster or national average and/or by reducing tax reliefs that exceed those averages. While land and real-estate values—and the resulting tax-base indicator gap—are not directly determined by municipal decisions, the assessment shows the potential revenue level that could be reached if this gap were reduced.
Gaps in municipal property-tax revenues are driven by three main factors: tax rates, tax reliefs and the tax base. Tax rates indicate the percentage of taxable land or real-estate value that must be paid. Tax reliefs include various reductions or exemptions that municipalities may apply. The tax base comprises the total value of land and real estate from which revenues are actually collected into the municipal budget. Municipalities can adjust tax rates and reliefs, but they cannot directly influence the value of the tax base.
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