Property tax administration in francophone Africa: structures, challenges, and progress.

Author:Monkam, Nara F.
Position:Report
 
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  1. INTRODUCTION

    In the context of a widespread focus on decentralization in Africa, there exists an imperative to find suitable ways to maximize potential own revenue sources at all sub-national government levels. This need in particular and the need for greater domestic resource mobilization by African states in general, has been exacerbated by the current global financial crisis that has led many countries into recession and left developed and developing countries alike scrambling to find solutions at home. Indeed, greater domestic resource mobilization will go a long way toward providing African countries with the means to finance their development agenda without relying excessively on external assistance. At the sub-national government level in particular, it is generally acknowledged that greater revenue autonomy and a broad range of good and adequate revenue sources would allow sub-national governments in Africa to become more accountable to their taxpayers and to provide, more readily and efficiently, improved levels of public services and appropriate infrastructure tailored to taxpayers' preferences. By the same token, this would promote local democracy as well as improve the standard of living in local communities in Africa.

    In that regard, it has been widely suggested that property taxation (hereafter referring to real property taxation) would represent an important, if not the best, source of stable revenue at the sub-national level in both developed and developing countries. Property tax is considered a good local tax in the sense that property, particularly land, cannot easily be moved out of the taxing jurisdiction; it is considered fair as long as it is used to finance public services and infrastructure reflecting the needs of local communities; moreover it is highly visible, thereby ensuring accountability and transparency. (2) However, if property taxes are an important potential source of revenue, especially at the local government level in many developed and developing countries across the world, it remains true that property taxes accounts for a small proportion of tax revenue in many African countries. To that effect, one author observed that property taxation is "one of the most lucrative ... yet least-tapped sources of tax revenue to support urban government in Africa" (Mou, 1996 p.6). This is especially true in many francophone countries in Central and West Africa. At this stage, it is important to foreshadow that the reasons that property taxation has not been widely adopted in these countries are the institutional and political concerns that will be discussed in this paper. The desire of the paper is to explore whether these concerns can be overcome.

    Specifically, this paper briefly analyses property tax systems as practiced in some francophone African countries by identifying major issues and constraints they face. The paper also explores avenues to design and implement more effective property tax reforms, and specifically, the role of aid in strengthening property tax as a source of national and/or municipal revenue. A fundamental reason to limit the scope of this paper to francophone sub-Saharan Africa is that, compared to Anglophone Africa, property tax systems in francophone sub-Saharan Africa are still in embryonic stages of development. Additionally, fiscal decentralization has recently regained impetus in these countries and has become an important political and economic initiative.

    The remainder of this study is organized as follows: section two defines the traditional property tax and explores land issues and the state of the property market in francophone Africa. Section three reviews the general conceptual model of property tax revenue and the five policy and administrative variables which determine the effectiveness of any property tax system around the world. Section four examines the property tax system of thirteen francophone countries by focusing on the main variables of the revenue mobilization model with the aim to identify major issues and challenges facing these tax systems and recommend opportunities for improvements. Section five explores some avenues to change; specifically it proposes some solutions to enhance property tax revenue mobilization. Finally, section six concludes.

  2. PROPERTY TAX--BACKGROUND

    2.1 DEFINITION

    A property tax is a recurrent tax imposed by a government on the ownership and/or occupation of property. Property consists of immovable (real) property (e.g. land and buildings) or movable (personal) property (e.g. vehicles, books and jewelry), tangible property (e.g. vehicles and land) or intangible property (e.g. shares and rights). The traditional (i.e. real) property tax, which is the focus of this paper, may be assessed under the assessment systems described subsequently (Franzsen 2008a). It is important to note that the best and effective assessment system should be determined according to the circumstances and specificities of each country.

    * Value-based system where assessment is done on the basis of the value of the property. Ideally, in a modern property tax system, the market value standard appears to be the preferred method of valuation; however given that this valuation standard requires substantial and comprehensive data, the acquisition value-based assessment standard is often used as an alternative (Bahl et al. 2008). (3)

    The value-based system includes:

    ** Capital value system. In this system, land, buildings or other improvements on the land are assessed in various ways:

    *** Land only: this is called land value taxation (or site value rating). It is also referred to as a tax on unimproved land value. (4)

    *** Land and buildings collectively.

    *** Land and buildings separately (i.e. as separate objects): it is often called composite or differential rating

    *** Buildings (i.e. improvements) only: this form of taxation is often called flat rating.

    ** Rental or annual value system.

    * Area-based system where assessment is done on the basis of the size of the property.

    * Other systems include the flat tax system where a fixed amount is levied per property irrespective of size or value and the "calibrated" area system where tax rates are based on adjustment factors such as: location, use (whether commercial or industrial, residential, non-residential, and rural) and age of the property (Franzsen and Monkam 2010).

    Many countries around the world also take account of machinery and equipments in the determination of the traditional property tax base (Kelly 2000; Bird and Slack 2004). Additionally, it is important to note that the traditional property tax has different appellations in various countries around the world: Building tax (Grenada), Council tax (United Kingdom), Holdings tax (Bangladesh), House tax (Dominica, Trinidad), Land tax (Australia, Jamaica, New Zealand, Papua New Guinea, Vanuatu), Land and house tax (St Lucia, St Kitts and Nevis), Landownership tax (Cameroon), Land use charge (Lagos State, Nigeria), Property rates (Sierra Leone, South Africa), Rates (Botswana, Fiji, Kenya, Malaysia, Sri Lanka), Towns property tax (Belize), and Uniform business rate (United Kingdom) (Franzsen 2008b).

    2.2 LAND ISSUES AND PROPERTY MARKET IN FRANCOPHONE AFRICA

    2.2.1 LAND ISSUES

    In some francophone African countries (e.g. Gabon), land tenure laws are such that all land without a title that has not been registered as an individual private property belongs to the state. Thus, it follows that all land held under customary (also called traditional or community-based) systems are legally state owned or part of the state private domain. In these countries, the land legislation in general encourages individual private tenure through a formal land registration procedure and does not recognize communally based land tenure. De facto, however, the majority of land in these countries remains in the hand of the indigenous community in rural areas (local land chiefs, family heads, and village notables) and is managed through customary land tenure systems. Despite that fact, land legislation in these countries has not always been in the priority agenda of the central government and often disregards the overall issue of community-based land tenure (Bruce 1998; Monkam 2009a; 2009b).

    However, in other countries in francophone Africa (e.g. Senegal), all lands in rural areas held under customary rights are often incorporated in the national domain and may not be sold; however, rural councils in these countries are often given by law the right to allocate land according to customary practice provided the land is "exploited in the most productive manner" (Bruce 1998; Monkam 2009a; 2009b). This is related to the principle of "mise en valeur", which means that the beneficiaries are required to assure "the development of their lands according to a program established by the council." Should the rural council ascertain that the land is used in an unproductive manner, the land would be returned to the council and reallocated to other beneficiaries (Bruce et al. 1998). As a practical example, Senegal was one of the first countries in Africa to similarly decentralize the administration of national tenure legislation to rural council (Rural Council Law of 1972). In order to mitigate the ambiguity associated with the concept of "mise en valeur", a 1980 decree in Senegal, gave the prefect (who manages a department in Senegal) the authority to establish the minimum conditions of "mise en valeur" given the local economic development and ecological strategies of the jurisdiction (Bruce et al. 1998).

    Overall, in most countries in francophone Africa, current land legislation tends to encourage individual private tenure through a formal land regularization procedure in urban areas (statutory land tenure) but would often not legally recognize communally based management and exploitation of the land in rural areas even though customary ownership of land is still...

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