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The African Tax Administration Forum (ATAF)
5th International Workshop on Domestic Revenue Mobilisation in Developing Countries
“Implementing the 2030 agenda – the role of subnational taxation”
Bonn, 13-14 September 2016
Dr Nara Monkam
ATAF: Director Research
What revenue sources are good candidates for Local Governments?
Property tax
Property tax burdens are not easy to be exported because of the immobile base
Non-tax revenues: they respect the benefit principle
User charges/fees on services (e.g. refuse collectionfees)
License and registration fees (e.g. marriage, business,vehicle, etc.)
Public prices (e.g. use of public utility charges,admissions to recreation facilities, etc.)
Other Sources of revenue sources for Local Governments?
Intergovernmental fiscal transfers Central governments may provide regional and local
governments with additional resources through a system ofintergovernmental fiscal transfers or grants to:o Improve the vertical fiscal balance (transfer system): Vertical
imbalance occurs when the revenues assigned to each level ofgovernment do not match their expenditure responsibilities.
o Improve the horizontal fiscal balance (equalization grants):Horizontal imbalance occurs when different regions of a countryhave different abilities to provide services due to differentabilities to raise funds.
Also found in cities/communes/municipalities where CGs arereluctant to devolve tax authority to local governments toaccompany their expenditures responsibilities for fear ofempowering the opposition and losing political power
Other Sources of revenue sources for Local Governments?
Subnational borrowing and debt If SNGs do not carefully balance their annual
expenditures with revenues and transfers, this will result in subnational deficits and the incurrence of subnational debt.
“Golden rule”: SN borrowings must be used to finance capital expenditures, not current expenditures.
Current revenues (own collections and transfers) should be enough to cover current expenditures. If not, structural deficit => accumulation of debt.
Property Tax
What is Property?
Immovable or real property (e.g. land and buildings)
Movable or personal (e.g. vehicles, books and jewellery)
Tangible property (e.g. vehicles and land)
Intangible property (e.g. shares and rights)
What is Property-related Tax?
A tax on the ownership, occupation, or transfer of“property.”
What is property tax?
In most jurisdictions, “property tax” only refers to anannual tax/recurrent tax on the ownership and/oroccupation of immovable (i.e. real) property
Why Property Tax?
Advantages: Property is fixed in location/immobile
Regarded as highly progressive because the sum due isdetermined by wealth rather than being a % on transactions
Fair as long as it is used to finance public services andinfrastructure reflecting the needs of local communities
Highly visible enough to ensure accountability and transparency
Land has an inherent value
With well-administered property tax, local authorities can counton a predictable, autonomous, and potentially lucrative sourceof income.
Why Property Tax?
Disadvantages:Highly political
Unpopular
High administrative costs (coverage, valuation,collection and enforcement)
Cumbersome to maintain
Property tax as a major revenue source for local government?
It has been widely suggested that property taxationwould represent an important, if not the best, sourceof stable revenue at the SN level in both developedand developing countries (Bahl 2009, Martinez-Vazquez2011, McCluskey & Franzsen 2013)
However, it remains true that property taxes accountsfor a small proportion of tax revenue in many Africancountries.
Property taxation is “one of the most lucrative . . . yet leasttapped sources of tax revenue to support urbangovernment in Africa” (Mou, 1996 p.6)
Property tax as a major revenue source for local government?
Revenue from the property tax is poor or at bestmodest in developing and transition countries where itgenerates 0.3-0.6% of GDP;
Whereas in OECD countries it generates up to 2-3% ofGDP (Bahl 2009, Norregaard 2013)
If properly implemented, at metropolitan/city level inAfrica the property tax may indeed be important(McCluskey & Franzsen 2013)
Property Tax as Percentage of GDP in Selected OECD Countries
Country Year All property taxes as % of GDP
Recurrent property taxes as % of GDP
Australia 2009 2.48 1.45Belgium1 2010 3.00 1.24Canada 2010 3.49 3.04France 2010 3.65 2.46Germany 2010 0.85 0.46Greece2 2009 1.24 0.17Ireland3 2010 1.56 0.88Israel 2010 3.12 2.32Japan 2010 2.70 2.14Luxembourg4 2010 2.65 0.07Mexico 2009 0.30 0.19New Zealand 2010 2.16 2.11Switzerland 2010 2.22 0.09United Kingdom 2010 4.23 3.42United States 2010 3.21 3.07
• Source: OECD Revenue Statistics 2011 (as reported by Norregaard 2013).
• Notes:
• 1. In Belgium property transfer taxes, levied within a range of 10 percent to 12.5 percent, are high.
• 2. Until recently (2014) Greece relied heavily on property transfer taxation (Norregaard 2013). In 2010 the recurrent tax
was in a dilapidated state, base erosion problematic and collection poor.
• 3. Ireland abolished its residential property tax in the 1970s. In 2012, as a response to the aftermath of the 2008 financial
crisis, it reintroduced a property tax on residential property (Franzsen & McCluskey forthcoming).
Total Taxes & Property Taxes as a Percentage of GDP in Selected Countries (Sources: IMF 2014, 2016; World Bank 2016)
Country Total Taxes as % of GDP (2012)
Fiscal Year Property Taxes as % of GDP
Income Level(2016)
Algeria 37.4 2011 0.00 Upper-middleAngola 43.8 2012 0.15 Upper-middleBenin 15.5 2012 0.24 LowBotswana 26.9 2011 0.06 Upper-middleBurkina Faso 15.6 2012 0.10 LowCongo 9.5 2008 0.32 Lower-middleCôte d’Ivoire 16.0 2013 0.07 Lower-middleEgypt 13.2 2012 0.83 Lower-middleEquatorial Guinea 11.9 2009 0.03 HighKenya 15.6 2012 0.01 Lower-middleLiberia 21.1 2012 0.15 LowMali 14.2 2011 0.70 LowMauritius 18.9 2012 1.39 Upper-middleMorocco 24.5 2010 1.75 Lower-middleMozambique 19.1 2011 0.70 LowNiger 14.5 2010 0.06 LowSenegal 19.3 2012 0.10 Lower-middleSouth Africa 23.2 2013 1.60 Upper-middleTanzania 11.6 2011 0.08 LowTogo 15.4 2010 0.24 LowTunisia 21.0 2012 0.53 Upper-middleZambia 15.0 2008 0.03 Lower-middleZimbabwe 26.3 2012 0.00 Low
Franzsen, 2014.Map image: http://www.worldatlas.com/webimage/countrys/af.htm.
Land Value
Improved Value
Land & Buildings
Buildings Only (CV)
Annual Value
Buildings Only (AV)
Area/Calibrated Area
Flat Tax
No Tax
AlgeriaAngolaBeninBotswanaBurkina FasoBurundiCameroonCape VerdeCARChadComorosCongoCôte d’IvoireDRCDjiboutiEgyptEquatorial
GuineaEritreaEthiopiaGabonThe GambiaGhanaGuineaGuinea-BissauKenyaLesothoLiberia
LibyaMadagascarMalawiMaliMauritaniaMauritiusMoroccoMozambiqueNamibiaNigerNigeriaRwandaSão Tomé &
PríncipeSenegalSeychellesSierra LeoneSomaliaSouth AfricaSouthern SudanSudanSwazilandTanzaniaTogoTunisiaUgandaZambiaZimbabwe
A spaghetti soup of property tax systems in Africa
How Property Tax Would Benefit Africa
A glimpse of the African Context:
The reach of national government beyond capital cities is often limited inAfrica
Urbanisation:
o The share of Africans living in urban areas is projected to grow from 36% in2010 to 50% by 2030 (the highest urbanisation rate in the world).
o The fastest growing cities would be: Dar es Salaam, Luanda, Lagos, Nairobi,Kinshasa, Douala, Dakar, Abidjan, etc.
o It can lead to economic growth, transformation, and poverty reduction but alsoincreased inequality, urban poverty, and the proliferation of slums.
Continued urbanization is accompanied with increased demand for thereal estate industry in Africa
How to harness urbanization for sustainable and inclusive growth?
More specifically, how to provide cities enough resources to invest inphysical infrastructure and human capital, to provide basic services,and to avoid congestion, pollution, the emergence of slums?
How Property Tax Would Benefit Africa
Actions:
Some measures would include:
o Efficient use of land
o Institutions to strengthen property rights, recordmarket transactions, and move toward more efficientland markets
o Finance from the central government will be required
o Investment for green strategies for urbanizing Africa.
How Property Tax Would Benefit Africa
Land-based taxes including property taxes and user chargeswould play a crucial role:
Subnational taxation would provide means to finance itsdevelopment agenda and promote sustainable economicgrowth
However, reinforcing local revenue generation and collectionwould also:
o Enhance state-building and ensure that the potential benefitsof decentralisation policies are realised
o If governments were to invest in establishing mutualdependence with taxpayers, and enhancing the administrativecapacity of the state, improvements in policymaking and localservice delivery would follow.
How Property Tax Would Benefit Africa
Taxation plays a critical role in state-building:
It helps to forge a social contract between citizens and the statethrough bargaining processes between those subject to taxationand the government collecting the revenue
The experience of being taxed engages citizens, incentivisingthem to collaborate to ensure their money is well spent
Civic activism establishes norms of accountability and scrutinythat encourage the establishment or strengthening ofrepresentative assemblies.
• Fiscal decentralisation brings government “closer to the people”and property tax is closely associated with financing municipalgovernment because of the immediate connection betweenproperty values and services funded at the local level
How Property Tax Would Benefit Africa
In a context where the major problem in reforming theproperty tax in many African countries or in introducing the“real” property tax appears to be a lack of political will and apoor tax compliance culture, the following important questionmay be raised:
How to effectively “sell” the property tax to the centralgovernment, to local governments, to officials that must runthe system, and above all to the businesses and residents,who must pay for it?
How Property Tax Would Benefit Africa
Make the property tax more attractive and politicallyacceptable by clearly tying it to identifiable and tangiblepublic goods and services received:
Present the property tax as a benefit charge or a user fee, i.e. asthe cost of purchasing public goods and services and specificjurisdiction amenities.
Property tax revenues would therefore be clearly earmarked tofinance:
o Public infrastructure, public goods and service provision (such aseducation, police protection, primary healthcare facilities, qualityroads, water, electricity, sewerage, waste collection, etc.)
o Activities (such as recreational activities, development andpreservation of parks, open spaces, and greenways, and othersimilar amenities) that obviously benefit taxpayers.
Investing in Reform
The first step is muster political will for a significantimpetus to be given to the fiscal decentralization process inmany African countries…
In the absence of strong political will, efforts to implement aneffective local property tax revenue mobilisation would be moot
Reluctance to devolve tax authority to local govts to accompanytheir expenditures responsibilities for fear of empowering theopposition and losing political power, especially in the case ofcapital cities and regional govts
Investing in Reform
Property tax policy and administration reform processes must beimplemented through:
Capacity building in the areas of fiscal decentralisation, governance,technical and management skills, training, computerisation, collection andenforcement procedures
Some suggested approaches may yet increase the potential of propertytaxes in Africa:
o Self-assessment of property value: Potential to pass on assessment fromgovernment to owners of property
o Accepting third-party valuations done for accountancy, or audit purposeswithin a certain period of time (e.g. 3 years) for properties like retails,industrial, and malls where the cost of valuation can be deducted for taxpurposes
o Possibility to include the value of property in the title deeds (e.g. Argentina)
o This will solve the issues around valuation – evidence, scale, revaluations,valuation expertise
Investing in Reform
Some suggested approaches may yet increase the potential ofproperty taxes in Africa:
“Calibrated” area-based systems where assessment is done on the basisof the size of the property adjusted for use (whether commercial orindustrial, residential, non-residential, and rural), age of the property,location, condition of the property, etc.
Flat Tax or Flat Rates (e.g. Tanzania, The Gambia) where a fixed amount islevied per property irrespective of size or value
Greater emphasis on land reforms and improvements of propertymarkets
The close involvement of taxpayers in the budget developmentprocess (formulation, legislation, implementation and assessment)
It leads to more accountable and responsive municipal government, withcommensurate improvements in local service delivery and the fiscal socialcontract.
Investing in Reform
Achieving as comprehensive fiscal cadastres aspossible through:
Automation in the tax administration
Investing in topographical equipment such as Total Stationsand GPS units, aerial and satellite photography, andGeographic Information Systems (GIS)
Investing in Computer Assisted Mass Appraisal (CAMA)systems
Investing in skilled staff, registered appraisers
“For there is nothing that God cannot do” (Luke 1: 37)
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