Innovations in Local Revenue Mobilization

1. Innovations in Local Revenue Mobilization Lessons Learned from Property Tax Reform: The Peruvian Institutional Approach LUIS ALBERTO ARIAS M.

2. 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

3. 1 0.7 More than 500 mil inhab. 6.8 25 From 150, to 500, inhab. 445 13 From 10, to 150, inhab. 1319 4.6 Less than10, inhab. 80% 60% 40% 20% 20% 40% 60% 80% 0% N° of inhab. (Millions) N° of districts PERÚ - Year 2000 Population and Districts

4. Lima: Monthly Familiar Income(Year 1998)

5. THE LOCAL GOVERNMENT MAIN REVENUES

6. Real Property Tax • The realproperty 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

7. Real Property Tax:Tax Base • The tax base is determined according to the reference values that Housing and Transport Ministry publishes.

8. 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

9. 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.

10. Property transfer tax • The propertytransfer tax levies the real estate transfers from one person to another either for burden or for free.

11. 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.

12. 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.

13. Property transfer tax: Tax rate • The tax rate is 3%. • The taxpayer is the real estate buyer.

14. Motor vehicles tax • The motorvehicles tax levies the ownership of automobiles and station wagons not older than three years

15. 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.

16. Motor vehicles tax: Tax Rate 1 %

17. Motor vehicles tax Tax Administrator • The tax administrator is the provincial municipality where propietor tax home is located.

18. User charges • 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.

19. 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.

20. THE CREATION OF THE LIMA TAX ADMINISTRATION SERVICE (SAT)

21. On May 1996, the Council of the Metropolitan Municipality approved the creation of the Lima Tax Administration Service (SAT). SAT is a descentralized public institution of the municipality, which has economic, administrative and financing authonomy. 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 SAT

22. CHIEF DEPUTY CHIEF INTERNAL AUDITING FINANCE PLANNING AND INFORMATION SYSTEMS LEGAL ISSUES OPERATIONS TAX DEVELOPMENT INFORMATION SYSTEMS DEVELOPMENT LA VICTORIA ATE LIMA SAT Organization Chart

23. Human 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.

24. Employee selection process

25. 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.

26. Ate Office Plaza Vitarte La Victoria Office Nicolás Arriola Jockey Plaza Office C.C.Jockey Plaza

27. IMPROVEMENT OF TAXPAYERS SERVICES

28. 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.

29. 24 hour Service Every working day • Aló-SAT : 332-2828 • Web SAT : www.sat.gob.pe • Fax SAT. • Accounts emission. • Tax payments

30. NUMBER OF TELEPHONE CALLS 1997 - 2000 400.000 335.382 350.000 300.000 259.860 250.000 200.000 150.000 90.610 100.000 27.448 50.000 - 2000 1997 1998 1999 Aló-SAT : 332-2828

31. Web SAT:www.sat.gob.pe • Vehicles with capture order. • Transit fines. • Conductor record. • Tax accounts. • Payment facilities.

32. NUMBER OF VISITS JANUARY 1999 - MAY 2000 20,000 16,000 12,000 N° of Visits 8,000 4,000 - J- F M A M J J A S O N D J- F M A M 99 00 Web SAT:www.sat.gob.pe

33. 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.

34. Complains and Refunds Services • Files Reception and immediate registration in information systems. • Taxpayer assistance about their complaints or refunds. • Simplification and continuous processes improvement.

35. Other Taxpayer Services • Monthly report of taxpayer debtors. • Statistic Reports on management and revenue results.

36. TAX COMPLIANCE ENFORCEMENT

37. Tax Compliance Processes • Implementation of large taxpayer unit. • Tax gap control. • Selective audit programs.

38. 47,0% 8,5% More than S/. 20.000 31,7% 17,0% From S/. 1.000 to S/. 20.000 11,1% 17,5% From S/. 200 to S/. 1.000 57,1% 10,2% From S/. 0 to S/. 200 60% 45% 30% 15% 15% 30% 45% 60% 0% REAL PROPERTY TAX DISTRIBUTION (According to tax amount) % Potential revenue % Real properties

39. 15.7% 1.2% More than 45 TRUs 12.7% 27.7% From 17 to 45 TRUs 40.1% 37.8% From 6 to 17 TRUs 16.5% 48.3% From 0 to 6 TRUs 60% 45% 30% 15% 15% 30% 45% 60% 0% % Potential revenue % Real properties RESIDENTIAL USER CHARGES DISTRIBUTION (According to property value)

40. 0.8% 36.1% More than 410 TRUs 46.5% 5.8% From 45 to 410 TRUs 5.1% 7.9% 6.4% 22.0% From 17 to 45 TRUs 63.5% 5.9% From 6 to 17 TRUs From 0 to 6 TRUs 80% 60% 40% 20% 20% 40% 60% 80% 0% % Potential revenue % Real properties NONRESIDENTIAL USER CHARGES DISTRIBUTION (According to property value)

41. Unpaid taxes processes • Implementation of unpaid taxes unit. • Employees selection through transparent processes. • Preventive collection strategy. • Taxpayers segmentation.

42. THE MAIN RESULTS

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

44. MUNICIPALITY OF LIMA: Financing Sources

45. Real property tax: 1995 - 2002Effectiveness Rate

46. Motor vehicle tax: 1995 - 2002 Effectiveness Rate

47. User charges: 1995 - 2002 Effectiveness Rate

48. Infringement of the NTC: 1997 - 2002 Effectiveness Rate NTC: National Traffic Code.

49. Infringement of the UTC: 1997 - 2002 Effectiveness Rate UTC: Urban Transport Code.

50. Municipality of Ate - Real property tax: 1999 - 2001Effectiveness Rate