The Valuation Act 2001, recently passed in the Dβil, incorporates statute law on valuation into a single code, replacing fragmented elements of law extending over the past century and a half.

Valuations of property for rating are administered by the Valuation Office under the direction of the Commissioner of Valuation, who also adjudicates on first appeals. Moving the second reading in Dβil ╔ireann on February 15th of this year, the Minister of State at the Department of Finance, Martin Cullen TD, said the Valuation Bill was designed "to improve, streamline and modernise the operation of the valuation system". It would align the system "with the contemporary commercial environment" and render it "more transparent and equitable for the taxpayer". The urgent need for revaluation was a key factor.

The valuation base consists of industrial and commercial property only. Traditionally all land, buildings and other fixed property were rateable with exemptions for buildings used for charitable, cultural and related purposes.

The first significant change was a decision by the Government in 1977 to terminate domestic rates from r building used for public religious worship. With few exceptions, machinery is excluded but plant, as defined in the Act, is rateable. Also excluded are properties used for medical, educational, cultural or charitable purposes - provided that the activities are not conducted for private profit. Properties occupied by the State will not be rateable (section 15(3)).

The Republic has had no national revaluation for 150 years. In its absence, alternative methods have been used to take account of economic progress, a fluctuating market milieu and inflation. For example, the net annual value (NAV) on a current rental basis is reduced by a factor which will bring it into line with rateable values (RVs) of similar properties in the same locality which were recently rated.

During the 1990s, the Valuation Office conducted pilot studies to establish standard RV/NAV ratios for the country as a whole. Following this research programme, two adjusting factors were adopted - 0.63 per cent for cities and 0.50 per cent elsewhere.

In other words, if the RV of a property in Dublin city were £50,000 (63,490) as computed on current rentals, the NAV would be £50,000 x 0.63/100 or £315 (400). This formulation is recognised by the Valuation Tribunal and the Courts, but, for many years, both the Valuation Office and valuation consultants have persistently advocated a full-scale revaluation.

A countrywide revaluation is now proposed to be conducted on the basis of local authority areas to allow for flexibility in managing the process (Sections 19 and 25). While many such areas will be examined contemporaneously, each will be treated as a unit in relation to base dates and comparability of values. The intention is to complete the revaluation for any areas within a three-year period and to have further revaluation within five to 10 years thereafter. The occupier has a right of consultation before publication of a valuation list to make representations on the proposed valuation (section 26).

Revaluation as such inevitably results in valuation changes including a redistribution of the rates burden. Furthermore, because of the circumstances of the revaluation, it is estimated that the adoption of current rentals will, on average, increase valuations by 300 per cent. Clearly, rates in the pound, which range from £33.88 to £61.46 (43.02-78.04) this year, will be adjusted accordingly. To prevent any substantial increase in rate bills, a statutory ceiling will be imposed on rates income raised by local authorities (section 56). Increases in the year following revaluation may not exceed that of the consumer price index. Otherwise, the Bill does not allow for any transitional relief for ratepayers.

The traditional basis of valuation will be maintained. "The value of a relevant property shall be determined ... by estimating the net annual value of the property" (section 48(1)). Net annual value is defined as "the rent for which, one year with another, the property might, in its actual state, be reasonably expected to let from year to year" on the assumption that the tenant bears the probable average annual cost of repairs, insurance and other expenses and charges associated with the property (section 48 (3)). If the contractor's basis of valuation is used, the NAV shall be "an amount equal to 5 per cent of the aggregate of the replacement cost, depreciated where appropriate, of the property ... and the site value" (section 50) Section 53 provides the global valuation of properties occupied by public utilit8ies and for the apportionment of such valuation between the relevant local authority areas. The existing appeal system is continued. There is a first appeal to the Commissioner of Valuation (section 30-32). The appellant must specify the grounds of appear and indicate, by reference to other comparable values on the valuation list, the value deemed appropriate.

A decision of the Commissioner may be appealed to the Valuation Tribunal, a statutory body whose members (13 at present) are appointed by the Minister for Finance (section 34 and schedule 2).

The Tribunal operates in divisions of three members, sittings must be held in private and it is obliged to "issue a written judgement setting forth the reasons for its determination in each appeal". There is a further right of appeal on a point of law to the High Court and Supreme Court (section 39).

The Valuation Act clarifies and consolidates the law on property valuation for rating. As such it will be welcomed by ratepayers, policy makers, administrators and professional valuers. The prospect of an early revaluation is particularly encouraging. Ideally, the entire state should be dealt with as one unit but, in present circumstances, it is preferable to proceed by local authority area in the interest of rapid progress. The introduction of a consultation stage before a valuation list is finalised is a commendable development. It will promote good customer relations and should reduce the number of formal appears.

Some criticisms may be expressed from the standpoint of public policy and taxation theory. The taxation base in Ireland is exceptionally narrow. Any proposals to restore rates on domestic property and agricultural land meet with stern resistance. A residential property tax at a very modest rate was charged on expensive houses from 1983-84 to 1996-97 but was abolished in response to pressure group agitation.

Property taxes are politically sensitive, but taking a long-term perspective, the Government should review the taxation of property as a means of expanding the tax base. In particular it should reintroduce rates on domestic property, agricultural land and farm buildings. Such a move would promote greated tax equity and generate substantial income for local authorities.

Another cause of complaint is the failure to impose rates on property occupied by government department. The Minister explained that local authorities get a payment in lieu of rates on such properties - the payment is ostensibly subsumed in the rate support grant payable to local authorities, the Local Government Fund. But what about transparency? Rates should be charged and seen to be charged on such public properties. The amounts could then be credited to the budgets of the local authorities and charged as a genuine expense in the accounts of the occupying state departments.

Despite these reservations, the statutory regime for the valuation system is now on a clear and firm foundation.

Tom O'Connor, a former Commissioner of Valuation, lectures on public administration at University College Cork and the Institute of Public Administration, Dublin.