Agenda item

            The Committee considered the undernoted report and associated consultation response:

 

“1.0     Purpose of Report or Summary of main Issues

 

1.1       This report provides a draft Council response to the Department of Finance and Personnel’s consultation paper on the ‘Review of Northern Ireland’s Non-Domestic Rating System.’ The consultation period ends on the 25 January 2016.

 

2.0       Recommendations

 

2.1       Members are asked to:

 

·        Agree the draft Council response provided at Appendix 2.

 

 

3.0      Main report

 

3.1       Review of the Business Rates System

 

            In November 2013 the then Finance Minister, Simon Hamilton, announced to the Assembly his intention to undertake a full review of the non-domestic taxation system. It was intended that this would commence once the non-domestic revaluation had bedded in and would consider whether the current system is fit for purpose and whether there are alternative ways of raising revenue from those who do business in Northern Ireland.

 

3.2       In May 2015 Minister Foster announced to the Assembly her intention to proceed and in June 2015 the review was initiated with an Innovation Lab (or policy symposium) attended by a broad range of interest groups, business organisations, the voluntary sector, local government, academia and professional bodies.

     

3.3      In October 2015 the Department of Finance and Personnel published a consultation paper on the review which focuses on the current system of non-domestic taxation i.e. business rates, but also considers and welcomes views on any alternative system which could be used to replace or supplement part of the revenue currently from the business sector through the rating system.

     

3.4       Overview of the Consultation Paper          

 

3.5       Key Principles of the Review: The consultation paper set out key principles under which the suitability of alternatives or potential changes to the existing system will be considered. These key principles are that the system should be:

 

·        Revenue Neutral

·        Efficient and Cost Effective

·        Certain and Simple

·        Flexible

·        Equitable and Fair  

     

3.6       The consultation asks a number of questions in relation to the review. These cover areas such as:

 

·        the key principles of the review

·        the frequency of Non Domestic Revaluations

·        whether criteria / priorities should be applied to existing and future rate relief / exemption

·        the review of current rate reliefs exemptions

·        whether the rating system should be used to pursue economic development objectives

·        whether district councils should take on powers for granting reliefs

·        whether district councils should be able to strike separate domestic and non domestic rates

·        whether the system should tax the owner rather than the occupier of non domestic properties

·        whether there should be a derelict land tax

·        whether public sector organisations should pay rates

·        whether other forms of local tax should be pursued

 

3.7       A key area of the Council’s response is the use of the non-domestic rating system as an economic regeneration tool.  The response recommends that this should ideally involve a combined central and local government package of measures to support regeneration, especially in city centre areas. With relief subject to a proven business case, sectors to target could include hotel developments, Grade A office space development or retail developments and the redevelopment of vacant properties or derelict land.

 

3.8       In response to the frequency of re-evaluations it is the Council’s proposal that increasing the frequency of re-evaluations (3 yearly) would help ensure rateable values are better aligned to passing rents and the local economy and potentially reduce the number of appeals. More frequent revaluations would generally result in a more acceptable change to rate poundage levels; thereby giving rateable occupiers a greater degree of certainty.

 

3.9       We also agree with the principle of a derelict land tax as an incentive for owners of such sites to bring them back into use. As well as encouraging investment and better use of assets this approach, when combined with the introduction of corporation tax, should help mitigate the risk of land-banking.

 

3.10     A full copy of the Council’s response is attached at Appendix 2.

 

3.11     Financial and Resource Implications

 

            District rate income represents 75% of the Council’s total income.

 

 

3.12     Equality or Good Relations Implications

 

            None.”

 

Belfast City Council Response to the Review of the

Business Rating System

 

Question 1 - Key Principles: Are there any additional criteria that should be used to judge the suitability of the system for raising revenue locally?

 

In addition to those considered in the consultation document it is essential that the tax base fully reflects the rate liability of all properties and liable persons to ensure equity and fairness. The tax base should therefore contain all properties liable for the tax whether they be domestic or non domestic. It logically follows that all properties in the valuation list must have a debit prescribed to it irrespective of whether it results in a liability. Also, the system should encourage investment and productive of use of assets.

 

Question 2 - Revaluation of Non Domestic Properties: Do you think that more frequent revaluations would lead to a more equitable rating system and improve the current rating system?

 

We contend that shorter periods between revaluations would be preferred by the majority of ratepayers as this would help to even out some of the changes in levels of value which can occur within the revaluation cycle.

 

It may assist ratepayers to move towards a three-yearly revaluation cycle; possibly as a stepping stone to annual or two-yearly revaluations.  We accept however that these changes would probably only be achieved if all leases are supplied as a matter of course to Land and Property Services (LPS). Such a move to more frequent revaluation would generally reduce the number of appeals and keep rateable values more aligned to passing rents and the local economy. Frequent revaluations would also negate any need for transitional relief schemes. 

 

More frequent revaluations would generally result in a more acceptable change to rate poundage levels; thereby giving rateable occupiers a greater degree of certainty. 

 

Question 2a: If yes, how often should revaluations occur?

 

Revaluations should move towards a three-yearly revaluation cycle.

 

 

Question 2b: Should the date and/or frequency of revaluations be written into legislation?

 

Yes that would create certainty for ratepayers and create stability in the system.

 

Question 3 - Defined Criteria for Reliefs: Do you think that all current and/or future rate supports should adhere to clearly defined criteria?

 

We believe all forms of rate support should be examined to judge whether they are fit for purpose in the modern context. The following questions (question 4 through to question 11) have been answered in the context of each of them being subject to an individual review. We also believe that future rate support criteria should include economic regeneration which supports job creation and enhancement of the rate base itself.

 

Question 3a:  What should these criteria be and what do you consider to be the most important?

 

We believe they are all equally important and provide a firm foundation to review all reliefs and exemptions.

 

Question 4 - Industrial De-Rating: Should industrial de-rating be retained in its current form?

 

Industrial de-rating should be kept in its present form. We believe it is critical to maintaining the economic health of manufacturing in Northern Ireland and together with the proposed changes in corporation tax provide a stable foundation to attract and maintain economic activity in this important sector.

 

Question 4a: If you disagree, what would you recommend instead and why?

 

N/A

 

Question 5 - Sports and Recreation Relief: Do you consider that rate relief for Sport & Recreation should be awarded as at present and maintained at the current level of 80%?

 

We believe that the current level of relief should not be reduced as it is important in maintaining the social fabric of our communities.

 

 

Question 5a:  If you disagree, what would you recommend instead and why?

 

N/A

 

Question 5b: Should the criteria to disregard social facility apportionment be removed or reduced from the current level of 20%?

 

We can see no reason for making any change. It should remain at the current level.

 

Question 6 - Freight and Transport Relief: Should Freight & Transport relief be removed?

 

We believe it should remain as it is part of the framework that enhances the economy of Northern Ireland. Even though it is a relatively low amount impacting on a small number of ratepayers this should not diminish its importance.

 

Question 6a: What would be the potential consequences of such move?

 

We believe it could damage economic well-being of Northern Ireland and would send out the wrong signals to this important activity.

 

Question 7 - Residential Homes Relief: Is residential homes relief still necessary to encourage the provision of care homes by the private sector?

 

We believe this relief should be subjected to a rigorous review which should include an examination of where the relief actually goes. Is it a direct influence on the charges made by the provider to the person receiving the support or is it just rolled into the profits of the provider. We are not convinced that the award of the relief is necessary to encourage the provision of this accommodation in the private sector. However there is a case to consider specialist providers associated with national charities.

 

Question 7a: Should it be limited to organisations that can demonstrate charitable status?

 

Yes, there is an argument for limiting it to charitable organisations who are providers or to providers who have formal nomination arrangements with national charities.

 

 

Question 8 - Non Domestic Vacant Rating: Should empty property relief continue at 50%?

 

Given the improved economic outlook we believe that a reduction in the level of exemption would be appropriate, especially given the lower level of relief provided in other parts of the UK. Consideration should also be given to linking the scale of the relief to the length of time a property is vacant.

 

We believe that the review of this relief should be given priority.

 

Question 8a: Should any of the current NDVR exemptions (listed in Annex E) be removed?

 

We believe they should be considered as part of the overall review.

 

Question 8b: Should there be any additional exemptions within the policy?

 

We can see no case for increasing the number of exemptions.

 

Question 9 - Empty Shops Relief: Is there any evidence that the parameters (qualifying criteria or duration) of the empty shops rates concession should be changed?

 

We believe it is important that every possible form of support is given to regenerate high streets and city centres. The current relief goes some way to helping to address empty retail properties in the City Centre and the current criteria and duration should remain.

 

Question 9a: If yes, to what should they be changed to?

 

Any review of the scheme should be undertaken in partnership with the retail sector to devise schemes that give real value and encourage change.

 

Question 10 - Charitable Exemption: What changes (if any) should be made to the current level of 100% non-domestic exemption?

 

We believe all exemptions and reliefs should be reviewed in the modern context. As stated in the consultation document there are special conditions that have to be satisfied for properties occupied by charities. In examining all the reliefs and exemptions regard should be had to the overall level of relief. The award of 100% relief should be reviewed particularly as it is a loss on collection where the tax base bears the burden thus passing the cost to all ratepayers

 

Question 10a: Should a reduced exemption or cap apply to those organisations competing with commercial interests?

 

Yes

 

Question 10b: Should all charity shops pay some rates?

 

Charity shops located in the high street should pay some rates.

 

Question 10c: Should charities have their relief capped so that they do not take over expensive properties simply to help the owner avoid empty property rates?

 

Yes

 

Question 11 - RURAL ATM Exemption: What, if any, changes should be made to both the hardship relief and Rural ATM exemption?

 

We believe rural ATM exemption is a legitimate approach to utilising rating powers to support the community. We believe it should become a permanent feature of rating exemptions.

 

Question 12 - Pursuing Economic Development: Should the rating system be used to pursue economic development objectives or should its primary function be to simply raise revenue? If yes, what sectors should be targeted?

 

Yes, we believe that the rating system should be used to support economic regeneration and in particular where it leads to job creation and further enhancement of the rate base. This should not only be an issue for local government but rather a combined central and local government package of measures offered to support regeneration, especially in city centre areas. This type of relief would be subject to a proven business case, which prohibits relief where displacement of existing ratepayers occurs. Sectors to target could include hotel developments, Grade A office space development or retail developments and the redevelopment of vacant properties or derelict land.

 

Question 12a: What are the disadvantages of such approach and do you feel that using the rating regime in this way would make a material difference to Northern Ireland’s economic performance?

 

We believe that provided the relief is subject to a robust business case process then there is no disadvantage in this approach. The key issue will be to ensure that state aid rules are complied with.

 

Question 13 - Powers of Relief for District Councils: Would it be advantageous for District Councils to take on powers for granting reliefs?

 

This is an area of rating which should be explored further. One of the key determinants would be the availability of rating information in order to model the impact of a relief on the level of overall rates collected.

 

Question 13a: In what areas are it considered that this would be beneficial?

 

We believe this could be a key factor in economic regeneration especially in the City Centre Regeneration.

 

Question 14 - Ability to Strike Separate Domestic and Non Domestic Rate: Should District Councils have the ability to strike separate domestic and non-domestic rates?

 

We believe that this should be kept under review; however, at a time when there is little growth in the rate base, the impact of any rebalancing would be marginal.

 

Question 14a: What would be the advantages and disadvantages of such an approach? Should District Councils continue to be compensated in full for the elements contained within the de-rating grant?

 

We further believe district councils should continue to be compensated in full for the elements contained in the de-rating grant.

 

Question 15 - Ability to pay: To what extent do you feel that a rate bill based on a property’s NAV is a fair reflection of the occupying business’s ability to pay?

 

We do not believe it reflects the ability to pay. Other forms of taxation, such as corporation tax and income tax are based on ability to pay.

 

Question 15a: Should local revenue be raised using an alternative method that would better reflect an ‘ability to pay’?

 

There is no evidence (compelling or otherwise) in favour of a move away from property based business taxation.  The yield from these taxes in Northern Ireland is adequate to meet current Treasury demands and without them, significant alternative sources of revenue would have to be found.  In simple terms, the only remedy available to wholly replace the two recurring property taxes would be either an increase Income Tax or Value Added Tax.

Public finance experts regard taxes on immovable property as a suitable source of revenue for local governments. They also believe that they contribute to a well-balanced revenue system. Revenue systems that include a mix of taxes and other sources of revenue make it easier to find a balance among competing policy objectives, weather economic difficulties, and compete effectively in the global economy.

Local government services often are provided to properties or their owners and occupants. The tax captures for local government some of the increases in the value of land that are partially created by public expenditures. A dedicated source of revenue promotes local autonomy. The visibility of property taxes focuses attention on the overall quality of governance and promotes accountability. Information on land, buildings, and market prices collected in the course of administering taxes on immovable property becomes part of a valuable fund of information that has numerous governmental and private uses. If up-to-date and publicly available, this information can facilitate orderly real property markets.

Furthermore, all surveyed European countries have at least one tax on property, and most have several. Of the forty-six countries surveyed, at least forty-four have at least one recurrent tax on immovable property (Malta and San Marino do not). Source Institute of Revenues Rating and Valuation (IRRV)

 

Question 15b: What method should be used and what are the advantages and disadvantages of such an approach?

 

N/A.

 

Question 16 - Taxing Ownership Instead of Occupation: Should we consider taxing ownership instead of occupation for the Non?Domestic sector?

 

We believe there are numerous disadvantages in taxing the owner rather than the occupier even though at first sight it appears to be a more efficient option. The first hurdle to overcome would be the definition of owner. Any building or land is subject to numerous legal interests. These are layered with absolute ownership at the base. If the absolute owner were to be the liable person you would have to determine which interests in the property he / she was liable for. In the City of Belfast the number of plots in absolute ownership would be relatively small in relation to the current number of rateable hereditaments but the number of legal interests associated with those plots would be numerous. This situation would create an uncertain tax base riddled with inconsistency. To unravel these complexities would certainly involve litigation which would no doubt render the tax uncollectable. If you contrast this with the current approach of taxing the occupier on the legal interest they actually occupy is far more certain. Add to this the mountain of established case law on rateable occupation it hard to see any logic in considering any other approach to liability.

 

Question 17 - Capital Value or NAV: Should a switch to capital value be considered in more detail for Non-Domestic property?

 

No, we can see no point in pursuing this objective particularly as there is little evidence of capital values on which to base assessments.

 

Question 18 - Derelict land tax: Do you agree with the principle of a derelict land tax?

 

Yes, we believe it would encourage the owner of such sites to bring them into use and should play a key role in encouraging investment and the productive use of assets. Also, with the introduction of corporation tax and the potential for a rising market, derelict land tax would mitigate the risk of land-banking.

 

Question 18a: What should the scope of the tax be?

 

We believe all derelict land apart from that which is contaminated should be liable.

 

Question 18b: Should it apply to all unused and derelict sites or should it be restricted to land that is zoned for a particular development.

 

We believe it should apply to all derelict land apart from that which is contaminated

 

Question 19 - Public Sector Rates Liability: Should public sector organisations that are funded from central government continue to pay rates?

 

We believe it is critical to a fair property tax system that public sector organisations should pay property tax where they are located.

 

Question 19a: What are the potential consequences of moving away from such an approach?

 

We believe it would be grossly unfair to the local authority which hosts these public sector organisations. It they did not receive a direct contribution from such bodies they would have to seek compensation from the Assembly.

 

Question 20 - Land Value Tax: Not withstanding some of the fundamental policy concerns expressed above, is their support for exploring the issue in more detail?

 

Given the complexity and practicalities of implementing a land value tax system, we believe this would require further exploration and assessment of the benefits, costs and practical issues with such a tax.

 

Question 21 - On Line Sales Tax: Would an online sales tax benefit businesses operating within Northern Ireland? How could this be practically implemented?

 

Over the last three years, Governments in many countries have become more concerned about the impact of the internet retailer on the bricks and mortar retailer. 

Any internet retailer operating in Northern Ireland will have an administrative centre, which would consist of call centre facilities, administrative buildings and a distribution warehouse.  Any of these facilities that satisfy the four ingredients of rateable occupation would attract non-domestic rate liability. Many of the major on-line providers use outsourced facilities and again these would attract non-domestic rate liability. However, the actual internet traffic determining the transaction itself would escape liability. There are situations where on-line retail activity is operated from a dwelling house, in these circumstances an effort would be made to place a value on the commercial part of the building and then the retailer could be charged rates in the normal way however the difficulty is in finding the location and then identifying a separate rating assessment.

Many have considered if the pulses on the internet could be measured and if some form of virtual rating assessment could be created but under the current legislation and case law in all parts of Great Britain and Northern Ireland this would be most unlikely.  The problem is that this sort of traffic already attracts rate liability through the providers of telecommunications.  In these circumstances major providers of cables are rated on a basis which attempts to place a value on the volume of activity.  The later situation means that any attempt to create an assessment based on virtual traffic could amount to double taxation. 

There are also difficulties with the majority of the bricks and mortar retailers, who run online services, alongside their normal retail activity.  These retailers, range from major chains through to small high street retailers.   If there is a desire to level the playing field between the bricks and mortar retailer, and the online retailer, this can only be achieved by a form of sales tax or a transaction tax.  In Europe, it is often said that a sales tax would be in conflict with European Law because of the levy of value added tax.  This only leaves the option of a transaction tax which would be relatively easy to administer and collect because it could be operated by the retailer themselves as part of the selling processes. These matters have attracted some interest in the media and the wider on line industry.

The approach of a sales tax or a transaction tax does exist in countries around the world. In the USA each individual municipality has the option to levy a sales tax in addition to conventional property taxes. This has been the practice for a number of years however in the last two years there have been significant moves to raise a levy on internet retail transactions.

 

Question 22 - Other / Additional Tax Systems: Should DFP pursue an assessment of other/additional systems for raising revenue within Northern Ireland? If yes, what tax should be examined in more detail? What would the potential benefits of such an approach?

 

We have expressed our views on other tax systems in response to the preceding questions.

 

            The Committee approved the draft response, subject to the following:

 

Article 42 (2A) of the Rates (Northern Ireland) Order 1977 provides rates exemption for University Halls of Residence.

 

The legislation allows for full exemption where nomination agreements exist between the University and an accommodation provider provided certain conditions are met.  This can result in full exemption on rates for the accommodation where the majority of accommodation is occupied by students.

 

The accommodation provider can therefore incur no rates liability for part of the accommodation which is not occupied by students or which is let to non-students during term holiday periods.

 

The Council therefore recommends that the full exemption currently provided by the legislation be reviewed to ensure that only part exemption applies where there is no non-student use.

 

            The Committee also agreed to request a meeting with the Finance Minister to discuss the Council’s consultation response.