1. PROPERTY TAX REFORM IN AFRICA: CHALLENGES AND POTENTIAL William J. McCluskey and Riël C.D. Franzsen African Tax Institute, University of Pretoria South Africa

2. Introduction Importance of the property tax Property tax reform Revenue performance Factors to consider Areas of concern Good practices Conclusions

3. Importance of the Property Tax Property taxation has tremendous potential for mobilizing improved revenue and equity, especially in transitional and developing countries (Kelly, 2013; Norregaard, 2013) The recurrent property tax is perceived to be an ‘ideal local tax’ (Bird and Slack, 2004; Bahl, 2009; McCluskey and Franzsen, 2013) In realty, revenue is poor or at best modest in developing and transition countries; the property tax generates 0.3-0.6% of GDP for developing and transitional countries and up to 2-3% of GDP for OECD countries (Bahl, 2009; Norregaard, 2013) At metropolitan/city level, the property tax may, however, be quite important (Africa: McCluskey and Franzsen, 2013; Latin America: De Cesare, 2012)

4. MetroPopulationProperty tax Country (million) Metro (million) Metro % of total Country total Metro Metro % of total Accra25.23.915.483.73 (2007)1.9351.74 Cape Town48.93.06.13 26.492 (2009) 3.24112.23 Dar es Salaam43.62.76.197.580 (2010)4.21255.57 Durban (eThekwini) 48.93.57.16 26.492 (2009) 3.91214.77 Johannesburg48.97.515.34 26.492 (2009) 3.33112.57 Kampala35.91.74.7443.30 (2008)4.9811.5 Pretoria (Tshwane) 48.92.55.1126.492 (2009) 2.2578.52 Importance of Metropolitan Property Tax in selected African Cities McCluskey and Franzsen, 2013.

5. Property Tax Reform (1) Reasons Generate more revenue To support fiscal decentralization To redress the imbalance in fiscal transfers from the centre (over-reliance on the centre, timing on receipt of grants) To improve inequities in the current system

6. Property Tax Reform (2) Problems with the current system Poor coverage Inequities between taxpayers Out-dated valuations and lack of revaluations Basis of valuation – inappropriate in certain cases Inappropriate tax policies

7. Recent or Current Property Tax Reforms Developed countries Developing/transition countries Map image: http ://commons.wikimedia.org/wiki/File:BlankMap-World-v2.png Franzsen, 2014

8. Property Tax Reform in Africa 1995 – 20002001 – 20102011 – 2015 Cape Verde Liberia Malawi Swaziland Zambia Cameroon Central African Republic Congo Egypt Madagascar Mauritius Mozambique Namibia Nigeria (Lagos State) Rwanda Senegal Sierra Leone South Africa Tanzania Uganda Ethiopia Lesotho Kenya Nigeria (Abuja Capital Territory) Rwanda Somalia (Puntland) South Africa Zimbabwe (Harare) Sources:Fjeldstad and Heggstad 2012; Franzsen 2014b.

9. Revenue Performance Generally poor Improving revenue performance – Policy choices – Tax rates – Administrative weaknesses Property tax as part of broader tax/institutional reform (Kelly 2013) Political, institutional and capacity constraints

10. Factors to Consider Current system Timing Strategic vision Institutional arrangements Transparency – Egypt versus South Africa Leadership – Political champion

11. Land Value Only Improved Value Land & Buildings Buildings Only Banded Values Annual Value Area Calibrated Area No Property Tax Franzsen and McCluskey, 2005; UN-Habitat, 2011; Fjeldstad and Heggstad, 2012; Franzsen and McCluskey, 2013; McCluskey and Franzsen, 2013b; Norregaard, 2013 Map image: http://commons.wikimedia.org/wiki/File:BlankMap-World-v2.png Property Tax Systems

12. Franzsen, 2014 Map image: http://www.worldatlas.com/webimage/countrys/af.htm Property Tax Systems in Africa Land Value Improved Value Land & Buildings Buildings Only (CV) Annual Value Buildings Only (AV) Area/Calibrated Area Flat Tax No Tax Algeria Angola Benin Botswana Burkina Faso Burundi Cameroon Cape Verde Central African Republic (CAR) Chad Comoros Congo Côte d’Ivoire Democratic Republic of the Congo Djibouti Egypt Equatorial Guinea Eritrea Ethiopia Gabon The Gambia Ghana Guinea Guinea-Bissau Kenya Lesotho Liberia Libya Madagascar Malawi Mali Mauritania Mauritius Morocco Mozambique Namibia Niger Nigeria Rwanda São Tomé & Príncipe Senegal Seychelles Sierra Leone Somalia South Africa Southern Sudan Sudan Swaziland Tanzania Togo Tunisia Uganda Zambia Zimbabwe

13. Considerations for Selecting Property Tax Bases Tax BaseAspects to considerExamples Capital value of land and improvements collectively – as a single taxable object Functions effectively if there is a relatively vibrant property market with significant sale transactions which can be objectively observed. Typically residential property will have more transactions than commercial property. South Africa, Zambia Capital value of land and improvements as separate taxable objects (i.e. a ‘split- rate system’) Functions effectively if there is a relatively vibrant property market with significant sale transactions which can be objectively observed. Typically residential property will have more transactions than commercial or industrial property. Cost to determine credible values for both land and building components may be an issue. Namibia (urban property tax), Swaziland Annual rental value Where the property market is dominated by rental transactions this basis can be applied. Arm’s length rental transactions are better than transactions affected by rent controls. Generally commercial and industrial properties tend to be traded within a rental market offering a larger body of evidence. Côte d’Ivoire (non-residential); Uganda Capital value of land only This approach can be used if there is sufficient land sales on the open market upon which valuation estimates can be based. It obviates the need to value improvements. Kenya, Namibia (agricultural land tax) Value of buildings only Where land is deemed to be state owned what can be assessed is the infrastructure built on the land. Buildings do provide a visible asset. Lack of sales would lead to the use of cost based assessment approaches. Egypt (urban property tax), Mozambique, Sierra Leone, Tanzania Area based (non-value)This approach can be applied where no formalized real property market exists or where the market is immature with the absence of comparative sales data on which to base estimated market values. It accommodates challenged tax administrations due to its inherent simplicity and provides a good initial stepping stone towards a market value-based property tax regime. Burundi, Congo, DRC, Eritrea Source: Authors compilation. Note: The country examples mentioned do not necessarily imply that these countries are using the most appropriate system(s).

14. Areas of Concern (1) Egypt – Transparency – Too significant value-threshold exemption Kenya – Base coverage E.g. Nairobi – Out-dated valuation rolls E.g. Nairobi, Mombasa Lesotho – Poor base coverage E.g. Maseru

15. Areas of Concern (2) South Africa – Procurement of valuation service providers – Valuation rolls – lack of proper external review Tanzania – Base coverage E.g. Arusha, Moshi, Mtwara – Collection levels E.g. Arusha, Moshi Uganda – Valuation – skills and capacity Country-wide – Exemption of owner-occupied residential property E.g. Kampala

16. Good Practices Liberia – Shifting responsibility for obtaining valuations to owners of commercial properties Rwanda – Comprehensive cadastre – Self-declaration of property values South Africa – Cape Town: Regular revaluations and external auditing of the valuation roll Often at city rather than country level

17. Conclusions Lack of – Political will – Skills and capacity – Financial resources Inappropriate tax base choices Fragmented and/or poor data Decentralization and recentralization Not ‘one size fits all’ – More strategic approach, backed up by proper project management