Project R-8748

RETAX - Rethinking Real Estate Taxation in Flanders (Research)

The RETAX project addresses one of the most critical and long-lasting issues in real estate taxation in Flanders: the reevaluation of the cadastral income (CI). The CI is an estimate of the rental value of a property and serves as the base of the property tax. The tax code states that the CI should be revised every ten years. Despite the initial intention to do so, they have never received an update since their first valuation in 1975. The growing discrepancy between the CI and the actual market rent causes several distortions and leads to inequitable situations in which tax payers enjoying similar housing services are taxed differently. Although the lack of a proper reevaluation is the most pressing issue for the Flemish property tax, the OECD and others also point to the design of the property tax as an important opportunity to increase economic efficiency of the tax. The lack of attention for its design is a second reason why this instrument is underutilized in many countries, despite the fact that it could be an important source of revenue. Therefore, the first objective is to study the optimal design of the property tax. This objective gathers all questions related to both theoretical and practical issues with regard to the composition of the tax base. Furthermore, we will look how we can adjust the design in order to support the long-term policy objectives from the Flemish government like increasing the energy-efficiency of the housing stock and stimulating sustainable land use. The second objective is to develop econometric models that can estimate the new tax base and allow a regular reevaluation in a cost effective manner. Since every property has its own CI, every household is affected by the inequity and the distortionary effects of the current system that was adjusted for the last time more than 4 decades ago. Therefore, a transition from the outdated CI to a new tax base will affect every homeowner, landlord and tenant in Flanders for decades to come.

01 January 2018 - 31 December 2021