Ratepayers in urban areas will be worst affected over the proposed new scheme of calculating assessment rates, valuation experts warn. Under the mooted new scheme the property value would be its market price on the date of valuation, which is known as its capital value.

At present properties are valued on the basis of annual value, which is the cost incurred to occupy or rent the property for one year.
Experts predict the amounts as property tax payable by occupants, especially in town and city areas will shoot up if the proposed system is approved by Cabinet and implemented by the local authorities.

“Even if the tax percentages are to be reduced some people will be paying a lot beyond their economic capabilities,” one government valuer warned. ”Take Colombo: there are people from a range of economic backgrounds living in the city. Previously, a person who was living in a luxurious house was given a different value to that of a person managing a small betel leaf shop on the same street as it was valued at the annual rent value of the property.

“If the new system is implemented the land along that street will be given an equal valuation and all parties will be paying similar amounts based on the market value of their property,” the government valuer, who spoke on the basis of anonymity, told The Sunday Times.

Many residents from the low or medium income category will be faced with thumping rates bills from their local councils.
“Land values in Colombo and immediate suburbs are very high, but people from different economic backgrounds live there,” the government valuer interviewed by The Sunday Times pointed out.

“Pensioners living in their old houses are not able to foot the high tax bills that the new system would bring in. Similarly, many low-income residents will be affected by the new system.”

The proposed valuation system will also require the extent of land in each property to be stated in order to assess its market value but as proper survey plans are not available for all properties the authorities will be required to carry out comprehensive surveys of the entire area – a huge cost to government.

A member of the Institute of Valuers Sri Lanka who also wished to be anonymous agreed that the the government would incur “colossal amounts of money unnecessarily” if the system was adopted. “This system is good for post-colonial countries like Australia where they have proper survey plans but not for a country like ours,” he said.

The Institute of Valuers is opposed to the proposed system and plans to brief the government on its pitfalls. “We are not sure why the government is proposing to change the system as it is working well and we plan to write to the government to highlight the shortcomings of implementing such a system in Sri Lanka,” institute President S. N. Wijepala said.

The Secretary of the Ministry of Local Government and Provincial Councils, R. Ranawake, initially denied the existence of the proposal before Cabinet but after being told that the copy of the Cabinet paper was available admitted that such a proposal had been presented.
He said the ministry had been asked to amend it to include the concessions given to small enterprises under the 2014 Budget.

The concessions are on levies and licence charges imposed by local authorities. “We are to incorporate this into the current proposal and resubmit the paper,” Mr. Ranawake said. He denied that the tax payable by people would increase if the system were changed.
“The tax percentage will be amended to ensure the tax amount payable by people will be the same (as before). This was not proposed to increase revenue but to change the system as the current system is outdated,” he said, adding that the change would be useful to property owners applying for financial assistance who needed to use their property as security and would be able to submit a certified valuation to lending authorities.

Contrary to Mr Ranawake’s assurances The Sunday Times has learned that a concept paper submitted with the Cabinet proposal states that “the demand by taxpayers to reduce tax” is a negative in the current system. Further, outlining the benefits of the proposed new system, the concept paper states that it would reduce the losses government currently incurs in deed transfers as many quote low market assessment to evade high stamp duty charges.

Neither the Minister of Local Government and Provincial Councils A.L.M. Aththaullah nor Deputy Minister Indika Bandaranayake were available for comment despite repeated attempts to reach them during the week. A spokesperson for the minister said the proposal had not yet been approved as the minister had been asked to resubmit it after including the new Budget proposals.