Calculation of Property Tax on the Basis of Cadastral Value May Become Unfair

Introduction of new rules of calculation of the property tax on the basis of a cadastral value and not the BTI estimate may happen to be unfair.

The thing is that correlation between the cadastral valuation of property and its market value is not recognized legislatively. So, as each region seeks to increase its tax base and tax revenues, they overestimate one way or another the cadastral valuation, that is, they set technical assignments to appraisers in such a way that the cadastral valuation is overstated, to say nothing of the fact that at present a cadastral valuation based on the pre-crisis property value indicators is used to increase the tax base. For example, they use the data not as of 1 January 2016, but as of earlier periods and such a practice creates imbalances. So, introduction of the property tax for individuals on the basis of such results of cadastral valuation is unfair and unconstitutional.  Cadastral valuation inadequacy is in conflict with the norm of Article 3 of the Tax Code of the Russian Federation as it is required that the tax should be substantiated  in economic terms and cannot be arbitrary.

Also, taxes and duties which prevent individuals from fulfilment of their constitutional rights are inadmissible. As was stated by the Constitutional Court (Resolution No.5-P of 21 March 1997 and Resolution No.9-P of 4 April 1996 of the Constitutional Court), for the purpose of ensuring regulation of taxation in compliance with the Constitution the principle of equality requires that actual potential to pay taxes proceeding from the legal principles of fairness and adequacy is to be taken into account.

Even if cadastral valuation is made by state cadastral appraisers – it is to be noted that the reform is being carried out in that direction – due to a lack of control over the quality of cadastral valuation taxpayers will be hostages of one or another economic situation.

At the same time, individuals may appeal against the output of cadastral valuation, thus making an effort to reduce the property tax. A taxpayer may first appeal against the result of cadastral valuation and if the result fails to suit the taxpayer, the latter may appeal against it in court. But to do that the taxpayer has in any case to order valuation with independent appraisers, that is, to assess the market value of the property. With the above procedure fulfilled, it would be possible to adjust the tax because for the purposes of taxation the results of market price valuation are acceptable.

No other methods are available to individuals.  The state lacks other methods either because the mechanism of adjustment of cadastral valuation amid market decline is not envisaged by the law. It actually does not exist.

Natalia Kornienko, PhD, Law, Tax System Development Department