Mayor Marion Barry's administration will not have to seek an increase in city taxes next year to balance the fiscal 1986 budget because of a projected 5 to 7 percent growth in revenues due to an improving economy, according to Melvin W. Jones, the new director of the D.C. Department of Finance and Revenue.

Jones, the city's former controller, said yesterday that the city anticipates continued growth in revenues from taxes on retail sales, individual income and real estate, which usually provide 70 percent of the District's total revenues.

He also said that businesses that appealed their higher tax assessments this year received $1 billion in commercial assessment reductions, meaning a net $20 million loss to the city. However, Jones said that the continued growth in District revenues has offset that loss and enabled the city to set a lower commercial property tax rate than it had originally sought.

"At this point, I don't anticipate any tax increases," Jones said. ". . . The economic indicators we look at are fairly stable and we're anticipating a modest growth in 1985 and 1986."

However, Jones cautioned that the Reagan administration's economic policies will have a major impact on the actual revenues collected by the city, and if the economy goes into an unexpected tailspin then the city's current revenue projections could be wrong.

"If unemployment goes up we're in trouble," Jones said, adding that as unemployment has gone down revenue derived from sales and income taxes has gone up.

The final decision on the proposed tax package will be made by Barry, who will submit his budget proposal to the D.C. City Council Feb. 1. The 1986 fiscal year begins Oct. 1 of next year.

Betsy Reveal, the mayor's budget director, yesterday declined to discuss the tax package that would likely accompany the budget.

Jones said that he has been holding discussions with members of the Board of Equalization and Review, the independent agency that decides property tax appeals, to try to work out differences on how to determine a building's fair market value.

This year the board reduced the original tax assessments set by Jones' agency by about $1 billion on major downtown commercial properties, particularly office buildings and hotels. Appeals to the board by commercial property owners were particularly intense this year because the city sought to increase them by an average of 40 to 50 percent.

All property is supposed to be taxed at its full value, but city officials said they found that commercial properties were being significantly underassessed while residential property was being assessed at nearly its full value.

The city reassesses property every year based on a variety of factors, including actual sales and the amount of rental income a property generates. This year the city relied more heavily on actual sales in computing new assessments.

However, the board of equalization disagreed with the city's decision to rely on actual sales, feeling instead that the amount of rental income a property generates was the critical factor in determining a building's value, according to board chairman Samuel C. Reynolds.

On a different subject, Jones said his department has developed a proposal, subject to City Council approval, for making it easier for the District to sell land confiscated for back taxes.

The city currently sets aside one day a year in January to auction off property whose owners have failed to pay back taxes. Those who purchase the property must wait two years to take possession -- to give the previous owner additional time to reclaim the property -- and also pay the city at minimum the total amount of back taxes and other penalties.

In many cases, potential buyers refuse to pay even that amount, leaving the city holding large numbers of underutilized parcels that are not generating any tax revenues, according to Jones.

Under the new proposal, the city could auction off the property throughout the year and accept the highest bid, even if it doesn't fully cover the back taxes and penalties.