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1.1 This guide reflects the increasing recognition that rural property taxes can play a significant part in promoting sustainable rural livelihoods in transition countries in Central and Eastern Europe. Governments are facing increasing public demands and expectations for public sector revenues. One factor of many is the ageing populations in European countries which is leading to increasing costs of pensions. At the same time, governments face limitations because tax systems must react to pressures of public acceptance and, increasingly, on the need to be internationally competitive.

1.2 One potential source of public revenue is property taxes. Property taxes have declined in importance as a source of revenue in many countries; for example, in OECD countries they have declined from an average of 8 percent of tax revenues in the mid-1960's, to about 5 percent today. Much of this decline has been caused by the increase in the relative importance of other taxes in the 20th century. There is thus scope for significantly increased revenues from better designed and more efficient property taxes in most countries.

1.3 Property tax is an annual tax imposed on real property usually by reference to an ad valorem tax base (i.e., the tax is calculated according to the value of the property). Such taxes have been in existence for millennia and their benefits are well known. They are transparent, cheap to administer, efficient to collect and well understood by the taxpaying public. They are administratively feasible in virtually any circumstances and, being locationally fixed, are particularly suitable as a source of locally generated revenue for local government. Although the very transparency of a property tax can make it unpopular, well administered property taxes have the potential to generate significant revenues and reduce opportunities for corruption.

1.4 The relevance of rural property taxes lies in their local importance and in their ability to allow local communities to provide for locally determined needs. This is particularly relevant in transition countries because central governments may find it increasingly difficult to respond to local rural needs. Rural livelihoods are inhibited without sound rural infrastructure. Property tax has an important role in helping to provide it.

1.5 This guide provides support to those who are involved with the technical design and implementation of rural property taxation systems in transition countries in Central and Eastern European, and to project officers in multi-lateral and bi-lateral agencies. It explains the relevant property tax issues with which they need to be concerned. It makes the reader aware of the political benefits and problems, the relation to other taxes, the organisational obstacles, and the timetable for reform or introduction. The guide identifies issues that should be considered in the design and implementation of rural property taxes. The overall message is that property tax in rural areas is technically feasible and will benefit the rural economy.

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