Africa’s rapid growth and urbanization will require stable local governments to deliver goods and services to billions of people, and the continent can look to an underutilized source of revenue, the property tax, write the authors of a book published by the Lincoln Institute of Land Policy.
In Property Tax in Africa: Status, Challenges, and Prospects (Paperback $40.00, 625 pages: ISBN: 978-1-55844-363-1), Riël Franzsen and William McCluskey of the African Tax Institute at the University of Pretoria provide the first comprehensive study of the property tax in Africa, laying out challenges, opportunities, and pathways to improvement. They analyze property tax systems in 29 countries and offer four regional overviews, highlighting the key political, administrative, and technical issues that affect how these systems function.
The book comes at a critical time for Africa. The world’s fastest growing continent, Africa has added more than 500 million people since 1990, and by 2050 it will hold a quarter of the world’s population. The continent is rapidly urbanizing, and together with Asia will absorb most of the world’s urban growth in the coming decades.
“Nowhere are the fiscal challenges of urbanization more pronounced than in Africa,” Lincoln Institute President and CEO George W. “Mac” McCarthy writes in the book’s forward. “Establishing high-functioning systems capable of delivering reliable annual revenue flows to help cities make ends meet will require a lot of work. But there is plenty of room for optimism.”
The property tax contributes relatively little revenue in most African countries, representing only 0.38 percent of gross domestic product, on average, compared to more than 2 percent the mostly developed countries that make up the Organisation for Economic Co-operation and Development (OECD). Property Tax in Africa identifies many common challenges, including poor tax collection and enforcement, weak administration, and inadequate systems for assessing property values.
Despite the relatively low utilization of the property tax in most African countries, some cities generate significant revenues from the tax. The property tax represents 42 percent of all locally generated revenue in Freetown, Sierra Leone, 23 percent in Nairobi, Kenya, and 21 percent in Accra, Ghana, for example.
The book also highlights some successes in cities that have been able to bolster their property tax systems. The city of Kitwe, Zambia undertakes supplementary valuations, which have increased the number of properties on the tax rolls and increased assessed values, leading to greater revenue. In Kampala, Uganda, officials from the national Uganda Revenue Authority and the Ministry of Finance collaborated with the local government to set up a new office for revenue collection, which more than doubled the collection of property tax in four years.
A resource for property tax scholars as well as public officials and practitioners on the ground, the book makes recommendations for improving the performance of the property tax in Africa, including the following: Thoroughly analyze the property tax system and decide how it relates to national economic development goals; Audit the legal underpinnings of the property tax and redraft laws, as needed, to lay the groundwork for more effective systems; In most countries, concentrate reform in the largest cities; Focus on collection and enforcement systems first; and Plan gradual transitions that allows the tax administration to catch up and taxpayers to get used to the new system.
In addition to continent-wide and regional overviews, the book includes detailed analyses of the 29 countries: Benin, Botswana, Cabo Verde, Cameroon, Central African Republic, Cote d’Ivoire, Democratic Republic of the Congo, Egypt, Equatorial Guinea, Gabon, The Gambia, Ghana, Kenya, Liberia, Madagascar, Mauritius, Morocco, Mozambique, Namibia, Niger, Rwanda, Senegal, Sierra Leone, South Africa, Sudan, Tanzania, Uganda, Zambia, and Zimbabwe.
Praise for Property Tax in Africa
John Norregaard : "This one-of-a-kind study is an indispensable source for academics and policy makers who seek to explore the virtues of the property tax. The relevance of this volume clearly transcends the continent it embraces, and pertains to the large majority of countries at the global level that are now engaged in developing a property tax. This is a very impressive book.” John Norregaard is Tax Policy Consultant and Former Member of IMF Tax Policy Team
Lawrence Walters: “Property Tax in Africa is a remarkable book. Those interested in improving urban services, land administration, and tenure security in Africa will find this book invaluable. There is no comparable resource available in terms of breadth or depth of insights into land taxation, administration, and policy in Africa.” Lawrence Walters is Emeritus Professor of Public Management, Romney Institute, Brigham Young University
Peadar Davis: “Property taxation is high on any list of possible solutions to harness Africa’s wealth for the betterment of its people. The authors greatly add to our understanding of the challenges faced and have created an invaluable resource to guide policy development. This book will rapidly become required reading for all students of the property tax in Africa.” Peadar Davis is Senior Lecturer in Property Appraisal and Management School of the Built Environment, Ulster University About the Authors
Riël Franzsen occupies the South African Research Chair in Tax Policy and Governance and is also director of the African Tax Institute at the University of Pretoria, South Africa. He has a doctorate in tax law from the University of Stellenbosch (South Africa) and a master’s degree in creative writing from the University of Pretoria. He specializes in land and property taxation and regularly acts as a policy advisor for the International Monetary Fund, United Nations Food and Agriculture Organization and World Bank.
He has worked in this capacity in Africa (Egypt, Kenya, Liberia, Namibia, Rwanda, South Africa, Tanzania and Uganda), Asia (Thailand), the Caribbean (Antigua, Dominica, Grenada, Saint Kitts & Nevis, Saint Lucia and Saint Vincent & the Grenadines) and Europe (Croatia, Georgia, Romania and Serbia). He has acted as an instructor for the IMF (Austria, Singapore and Saint Lucia), Lincoln Institute of Land Policy (China and Slovenia), Network of Associations of Local Authorities of South-East Europe (Macedonia) and The Hague Academy for Local Governance (Lesotho). He is on the Board of Advisors of the International Property Tax Institute, regularly participates in local and international conferences and has authored many journal papers and book chapters on land and property taxation.
Dr. William McCluskey joined the University of Ulster in 1986. He was appointed as Professor of Property Studies at Lincoln University, Christchurch, New Zealand from 2001-2002. He is currently Extraordinary Professor at the African Tax Institute, University of Pretoria, South Africa. His main professional and academic interests are in the fields of real estate valuation, property tax systems, computer assisted mass appraisal modelling and geographic information systems.
He is a technical adviser on property tax issues with the International Monetary Fund, World Bank and United Nations Food and Agriculture Organization and has been involved in a number of missions advising on ad valorem tax issues in countries including Albania, Bermuda, Botswana, China, The Gambia, Georgia, Jamaica, Kazakhstan, Kenya, Kosovo, Lesotho, Northern Ireland, Philippines, Poland, Mauritius, Republic of Ireland, Slovenia, South Africa, Tanzania and Uganda. He is a Fellow of the Royal Institution of Chartered Surveyors. About the Lincoln Institute
The Lincoln Institute of Land Policy seeks to improve quality of life through the effective use, taxation, and stewardship of land. A nonprofit private operating foundation whose origins date to 1946, the Lincoln Institute researches and recommends creative approaches to land as a solution to economic, social, and environmental challenges. Through education, training, publications, and events, we integrate theory and practice to inform public policy decisions worldwide.
This century is always looking at improving new super high speed technology to make life easier. On the other hand, beckoning as an emerging fierce reversal force to equally match or dominate this life enhancing super new tech, comes swift human adversaries which seem to have come to make living on earth even more difficult.
The recent discovery of a pandemic, Covid-19, which moves at a pace of unimaginable and unpredictable proportions; locking people inside homes and barring human interactions with its dreaded death threat, is currently being felt.
Member of Parliament for Kanye North, Thapelo Letsholo has cautioned Government against excessive borrowing and poorly managed debt levels.
He was speaking in Parliament on Tuesday delivering Parliament’s Finance Committee report after assessing a motion that sought to raise Government Bond program ceiling to P30 billion, a big jump from the initial P15 Billion.
Government Investment Account (GIA) which forms part of the Pula fund has been significantly drawn down to finance Botswana’s budget deficits since 2008/09 Global financial crises.
The 2009 global economic recession triggered the collapse of financial markets in the United States, sending waves of shock across world economies, eroding business sentiment, and causing financiers of trade to excise heightened caution and hold onto their cash.
The ripple effects of this economic catastrophe were mostly felt by low to middle income resource based economies, amplifying their vulnerability to external shocks. The diamond industry which forms the gist of Botswana’s economic make up collapsed to zero trade levels across the entire value chain.
The Upstream, where Botswana gathers much of its diamond revenue was adversely impacted by muted demand in the Midstream. The situation was exacerbated by zero appetite of polished goods by jewelry manufacturers and retail outlets due to lowered tail end consumer demand.
This resulted in sharp decline of Government revenue, ballooned budget deficits and suspension of some developmental projects. To finance the deficit and some prioritized national development projects, government had to dip into cash balances, foreign reserves and borrow both externally and locally.
Much of drawing was from Government Investment Account as opposed to drawing from foreign reserve component of the Pula Fund; the latter was spared as a fiscal buffer for the worst rainy days.
Consequently this resulted in significant decline in funds held in the Government Investment Account (GIA). The account serves as Government’s main savings depository and fund for national policy objectives.
However as the world emerged from the 2009 recession government revenue graph picked up to pre recession levels before going down again around 2016/17 owing to challenges in the diamond industry.
Due to a number of budget surpluses from 2012/13 financial year the Government Investment Account started expanding back to P30 billion levels before a series of budget deficits in the National Development Plan 11 pushed it back to decline a decline wave.
When the National Development Plan 11 commenced three (3) financial years ago, government announced that the first half of the NDP would run at budget deficits.
This as explained by Minister of Finance in 2017 would be occasioned by decline in diamond revenue mainly due to government forfeiting some of its dividend from Debswana to fund mine expansion projects.
Cumulatively since 2017/18 to 2019/20 financial year the budget deficit totaled to over P16 billion, of which was financed by both external and domestic borrowing and drawing down from government cash balances. Drawing down from government cash balances meant significant withdrawals from the Government Investment Account.
The Government Investment Account (GIA) was established in accordance with Section 35 of the Bank of Botswana Act Cap. 55:01. The Account represents Government’s share of the Botswana‘s foreign exchange reserves, its investment and management strategies are aligned to the Bank of Botswana’s foreign exchange reserves management and investment guidelines.
Government Investment Account, comprises of Pula denominated deposits at the Bank of Botswana and held in the Pula Fund, which is the long-term investment tranche of the foreign exchange reserves.
In June 2017 while answering a question from Bogolo Kenewendo, the then Minister of Finance & Economic Development Kenneth Mathambo told parliament that as of June 30, 2017, the total assets in the Pula Fund was P56.818 billion, of which the balance in the GIA was P30.832 billion.
Kenewendo was still a back bench specially elected Member of Parliament before ascending to cabinet post in 2018. Last week Minister of Finance & Economic Development, Dr Thapelo Matsheka, when presenting a motion to raise government local borrowing ceiling from P15 billion to P30 Billion told parliament that as of December 2019 Government Investment Account amounted to P18.3 billion.
Dr Matsheka further told parliament that prior to financial crisis of 2008/9 the account amounted to P30.5 billion (41 % of GDP) in December of 2008 while as at December 2019 it stood at P18.3 billion (only 9 % of GDP) mirroring a total decline by P11 billion in the entire 11 years.
Back in 2017 Parliament was also told that the Government Investment Account may be drawn-down or added to, in line with actuations in the Government’s expenditure and revenue outturns. “This is intended to provide the Government with appropriate funds to execute its functions and responsibilities effectively and efficiently” said Mathambo, then Minister of Finance.
Acknowledging the need to draw down from GIA no more, current Minister of Finance Dr Matsheka said “It is under this background that it would be advisable to avoid excessive draw down from this account to preserve it as a financial buffer”
He further cautioned “The danger with substantially reduced financial buffers is that when an economic shock occurs or a disaster descends upon us and adversely affects our economy it becomes very difficult for the country to manage such a shock”