1. Mihaly Kopanyi Municipal Finance Advisor

2.  Own-source revenues (OSR) about 10%;  The bulk of transfers are earmarked grants;  OSR collection is about 20% of the revenue potential;  Narrow property tax base – about3% of properties are subject of Fixed Asset Tax;  Low tax rate (0.1%);  Central government has no funds or intention to increase transfers to local governments;

3.  Increase local own revenues;  Tax equitably, improve fairness;  Broaden tax base,  Increase tax rate;  Cost-efficient Central tax administration;  Improve collection efficiency;

4.  Rwanda Revenue Authority (RRA) assigned to administer and collect all local taxes;  Revenue Software acquired;  New Property Tax Law drafted;  RRA hired 200 new staff;  MoU signed between RRA and Districts (Local Governments);

5.  Value-based property tax with two forms: ◦ Value of land and improvement (over RWF40mo value); ◦ Area-based tax linked to market value (below 40mo);  Elimination of tax exemption of unregistered properties;  Individual valuation of properties;  Self-valuation and self-reporting by taxpayers,  If owners fail to declare or declare false value, RRA must initiate revision;  Double the tax rate from 0.1% to 0.2%;

6.  Analysis of alternative tax systems, scenarios, and instruments;  Simulation of potential impacts and reaction of taxpayers;  Institutional analysis;  Key policy issues to decide (e.g. rate after base);

7. A. Market value-based tax with individual valuation and self-assessment; ◦ Shallow market, limited information; ◦ Owners know less than experts =>honest mistakes predicted w self-assessment; B. Land-only taxation; ◦ Improvements generate property value in urban areas; ◦ Fairness (small and big houses pay the same)? C. Hybrid area-based system with GIS and mass-valuation; ◦ Works with limited market information; ◦ Easy for owners to understand and report; ◦ Basis for a future market value based system;

8.  Number of taxpayers (currently 3% of 1.1mo properties pay value-based fixed asset tax);  Volume of collectible taxes in scenarios;  Increase of tax liability after revaluation and new rate =>Adequate tax rate?;  Tax burden vs. family income; THERE ARE DATA! (land office, sales transactions, building permits, household survey) The only assessment  The RRA’s estimates of expenditure budget based on 5% commission based on previous years tax collection (no tax revenue increase!) [Fiscal Decentralization Strategy paper RRA]

9.  RRA present capacities  RRA required capacities ◦ Administration capacity; ◦ Number of expected revisions might be huge (small risk management team), ◦ Enforcement procedures and capacities;  The role of the Districts/local governments ◦ Avoid free ridership; ◦ Support decentralization; ◦ Support downward accountability;

10.  Change the planned tax system?  Replace individual self-valuation and use GIS and CAMA by RRA;  Set rate after tax burden is estimated;  Set adequate budget for the reform;  Plan 4 year transition;  Revise the Law (legislate Enforcement, Remedies, role of districts);  Incentive mechanisms for collecting more revenues (expand MoU between RRA and LGs);

11. Made for Kigali city  MACRO-SIMULATION: Top-down from main macro figures  MICRO-SIMULATION: from sample of typical housing unit ◦ Tax potential RWF 10-12billion, US$ 15-16mo/yr ◦ About three-fold increase of property tax revenues  Needed Investment : ◦ Initial investment: RWF2.3bn US$3.4Mo ◦ Investment would recover less than half year!