How property tax would benefit Africa

This paper makes a case for strong property tax systems in Africa. It addresses the following questions:

Why is taxation beneficial?

Tax gives people a stake in local government, strengthening relationships between citizens and authorities. It also provides much-needed income that is predictable and encourages the government to invest domestically.

Why should property tax be emphasized?

The authors call for prioritization of property tax because it is locally driven, making municipal governments less dependent on central funds. It is a source of substantial revenue that is based on wealth, and therefore a progressive tax. Additionally, property tax is difficult to avoid as land and buildings have fixed locations and are highly visible. In an increasingly urban and middle-class Africa, the authors see many opportunities for the citizenry and municipal authorities to work toward local improvements. They point to Lagos as an example of success, where the property tax regime has been made more efficient.

What is the state of property tax in sub-Saharan Africa?

Property tax systems vary across the region. There are differences in the definition of property (land, buildings or both), the assessment method (plot area, capital value or rental value), and the party responsible for managing property tax (local government, central government or private company). Poor records, the high share of informal activity, and the shortage of qualified valuers contribute to the small amount of tax revenue collected from property; “levies on land and buildings are estimated to account for 0.5% of GDP in sub-Saharan Africa”.

What do local authorities need to do?

The authors recommend that local authorities in sub-Saharan Africa take the following steps:

·         Carry out cadastral surveys with high coverage (after strengthening the technical skills and increasing the resources needed)

·         Issue tax bills

·         Collect payments

·         Follow up on missing payments

·         Create an appeals process

Overall, it is argued, the system needs to be simplified. To raise awareness of the importance of taxation, governments should establish a connection between payment of tax and service delivery, so that people feel incentivized to pay. Some have done this in creative ways, as in the taxpayers’ appreciation week that occurs annually in Rwanda. Ultimately, the authors stress that property tax administration should not be outsourced. Local management is seen as key to fostering trust in municipal authorities and collaboration with them, leading to improved local conditions.

Available at http://www.africaresearchinstitute.org/publications/property-tax-benefit-africa/

Further reading:

Andreasen, Jørgen, Jørgen Eskemose Andersen and Daniel K B Inkoom (2011), “Land and revenue in a “traditional town” in Ghana: the case of the Nkwanta sub-division in Mpasatia”, Environment and Urbanization Vol 23, No 2, available at http://eau.sagepub.com/content/23/2/539.abstract.

Rakner, Lise and Siri Gloppen (n.d.), “Tax reform and democratic accountability in sub-Saharan Africa”, Institute of Development Studies, Brighton, available at http://www2.ids.ac.uk/futurestate/pdfs/Rakner-Gloppen.pdf.

Book note prepared by Christine Ro