Hungary is a small country with a very fragmented system of local government. Since 1990 the role of these governments has changed radically as has their level of responsibility. By contrast, the local taxation system still reflects the residue of the previous system. In the context of accession to the European Union, and decentralization initiatives being advocated by international agencies, there is a need to introduce different forms of local taxation. A value-based property tax would serve this purpose. Drawing upon North American experience, we analyze the issues involved in implementing such a system. The local capacity and the legislative parameters to make such a system work are also discussed.