Property tax in Malaysia and South Africa : a question of assessment capacity and quality assurance

Many developing countries have been strengthening subnational government through decentralisation policies (Shah 2004). The supporting argument is based on the increased efficiency and welfare gains that come from moving governance closer to the people (Bahl 2009). Fiscal decentralisation can increase revenue mobilisation because it involves subnational government more directly in taxation, and, in many respects, a lower tier of government can reach wealth-based taxes in ways that central government cannot. The broadening of the local tax base, particularly with property taxes, gives subnational government a potentially lucrative revenue source (Cornia 2013; Kitchen 2013; Walters 2013). In terms of revenue mobilisation, the tax bases that are efficient and simple to administer at a subnational level tend to be few (Bird and Slack 2008; Mikesell 2013). Non-tax revenues (including user charges, licences, rents, and fees) tend to be limited in scope and revenuegenerating capacity. Local tax bases, according to Bird and Slack (2003), are narrow due to the possibility of tax exportation, externalities in the provision of public goods and services, factor mobility, and economies of scale. Broad tax bases, such as personal income tax, corporate income tax, and value-added tax (VAT), are generally best managed at higher levels of government. As a result, if subnational governments are to be important providers of public goods and services, it is necessary for higher level jurisdictions to share part of their revenues with subnational governments through transfers and grants to bridge the gap between spending and revenues mobilised locally (Bahl and Cyan 2010).