Presentation by Dr. Nyah Zebong Asaah at the Urban Age “Developing Urban Futures” conference in Addis Ababa on November 30th, 2018.
Watch his presentation on YouTube: https://youtu.be/e3eJjouc4mc
2. HOW CRUCIAL IS
TAX REFORM TO
AFRICAN CITIES?
2
African Property Tax Initiative
Local Governments
LGR System Input
Property / Other Tax
Payments
3. FULL PERFORMANCE PICTURE
Citizens Get
No
Schools
Potholes
Garbage
Piles
No Water /
No lights
Corrupt /
Rich
Officials
Local Governments
LGR System Input
Property / Other
Tax Payments
Dissatisfaction
Voices Get Louder
Perceptions
Schools
Garbage
Roads
Utilities
Public
Services
LG’s Promise
LGR
Expenditures
Collection Component Expenditure and Taxpayer Perception Component
AA BB
4. LG Revenue Systems
African Property Tax Initiative
Proliferation of small taxes, creating complexity
Highly complex systems: Different taxes and rates between / within
countries
Nuisance taxes: Psychological burden, facilitate corruption, but raise
little revenue
Overall revenue collection far below potential
LGR to GDP 2007–2010: Germany 7%; France 12%; Morocco 4%;
Madagascar 0,4%
Growing focus on more classic LG taxes
Reliance on more classic sources – property tax
Abolish many forms of nuisance taxes –Sudan, Ethiopia
5. Governance and PT Reforms
African Property Tax Initiative
Tax system should generate revenues
effectively, efficiently and fairly
Entails effective governance: Tax laws, admin, enforcement
Also improving voluntary compliance: willingness to pay
Optimal revenue mobilization tied to good governance
Tax systems should ensure revenues are
translated into public benefits
Problem: Weak links between revenue raising and public benefits,
leading to public discontent and resistance
Opportunity: Strengthening taxation can offer an opportunity for
citizens to engage with governments, and push for accountability
The challenge: How can governance concerns be incorporated into
ongoing reform efforts/frameworks? Engagement, transparency, equity
6. Challenges to effective LGRMS
African Property Tax Initiative
Collection and enforcement challenges
Identifying taxpayers is difficult; enforcement often more so:
Difficult to enforce on political elite, Poor citizens who can’t pay –e.g. Poll
Tax
Economic efficiency concerns
Enormous numbers of small taxes are costly to collect
Nuisance taxes and corruption can be a major drag on business
High levels of complexity
Different taxes, levies, charges –tailored to types & sizes of
businesses, properties, locations, social impact, etc.
Weak implementation capacity, for complex laws
7. Challenges…
African Property Tax Initiative
Little space for public engagement
In some countries centralized collections
Limited taxpayer involvement in decision-making processes –how
much to pay and how it should be spent
Intermittent / irregular remittances to local governments
Weak links between revenues & spending
Increased taxation, unimproved public services
Tax perceived as unjust extraction of revenue from taxpayers
High levels of corruption
Local revenues sometimes “kept off the books”
Bribes paid to be maintained on lower tax bands
9. Potential: Property Tax Increases
African Property Tax Initiative
Internationally, Africa lags behind
Generally 1-2% of GDP from recurrent property taxes in most OCED countries,
frequently 0.2% of GDP or lower in Africa
Highly uneven application of the law, poor coverage
Evidence that large and rapid increases are possible
Bo City Council, Sierra Leone
Six-fold increase in collections (3.5 fold in real terms) from 2008-2011
Mzuzu City Council, Malawi
Property Coverage increased from 8000 to about 40,000
Doubled tax collection from US$ 162,090 to about US$ 297,164
Arusha City, Tanzania: 2012-2014
Eligible taxpayers increased from 31,160 to about 104,629 in 15 months
Tax collection increased from US$ 1,129,180 to about US$ 1,997,790
Freetown City Council, Sierra Leone: by 2020
Projected property coverage - increase from 70,000 to 300,000
Projected revenue gains -from about US$ 1 million to US$ 3.7million
10. Implementing LGRM Reforms
A general agenda for reform
Significant untapped revenue potential to fund services
Eliminate many small and nuisance taxes to support businesses
and build public support
Simplify tax laws wherever possible to improve implementation
Strengthen transparency: Increases accountability, curbs
corruption, links revenue and expenditures
Build local capacity: Facilitate effective transfer of competences;
reinforce local skill sets to self-mobilize LG revenues
Strengthen Property Taxes as an economically efficient,
equitable, tax with significant revenue potential.
African Property Tax Initiative
11. Reforming …
African Property Tax Initiative
Strengthen PT Systems
Potential backbone of effective LGRS reforms
Improve simplified valuations: traditional approaches are costly
and low, simplified CAMA approaches – i.e. points based valuation
– can unlock new potential
Increase use of ICTs that are simple, low cost and well suited to
local context
Clarify central / local government roles and improve
collaboration
Link PT to PS more effectively
Focus on local capacity, effective enforcement and practical local
solutions.