Dar es Salaam — Property tax can be a major revenue earner for local government in developing countries like Tanzania, but the main problem lies in its administration.

In many countries, only a fraction of what should be realised is actually collected because the tax base exempts many properties, notably government-owned and religious buildings.

This is compounded by low tax rates that are rarely updated to reflect inflation; a low ratio of coverage that leaves many new properties off the list of taxable properties; difficulty in determining the value of properties in the absence of a vibrant market and transparent transactions; and low collection rates due to weak enforcement of laws.

Many urban areas in Tanzania, especially Dar es Salaam, have been struggling to increase revenue from property tax. However, only a small fraction of the properties in the city are actually valued and, therefore, on the valuation roll. This is partly due to inadequate funds to finance regular valuation as well as lack of trained and motivated manpower.

Properties on the valuation roll are taxed as per their assessment while non-valued properties are taxed at a flat-rate. But even here, many properties are exempted.

To help Tanzania deal with these problems, development partners, especially the World Bank, have occasionally intervened. Under the Urban Sector Rehabilitation Project, for example, the World Bank financed the valuation of key properties in Dar es Salaam and nine other municipalities in the early 1990s.

And recently, Dar es Salaam's three municipalities invited companies interested in valuing all properties in the city to put in their bids.

The city has been divided into five zones, with the whole of Illala municipality (which includes the city centre) comprising one zone, and two zones each in the municipalities of Kinondoni and Temeke.

This was possible thanks to credit extended to the government from the World Bank's International Development Association (IDA) under the Local Government Support Project (LGSP)

Among the project's components is a revenue enhancement programme, whose aim is to broaden the local tax base by valuing all properties under Dar es Salaam's local authority to obtain new rates. The valuation will be carried out in line with the Urban Authorities (Rating) Act of 1983 and the Local Government Finances Act of 1982.

Besides helping establish new rates, the exercise will update the database of the property owners and, thereby, help the local authority to function more effectively.

In areas where properties are registered and their owners can be officially identified, the database may be fairly comprehensive. However, in cities such as Dar es Salaam, many properties are not even on the official register. This is because a lot of construction is carried out without a registered building permit, transfers and acquisitions are done informally, many people do not have IDs or postal addresses and many streets are not named or houses numbered. Thus a meticulous valuation of properties in the city will provide the latest information on ownership.

The envisaged undertaking is a challenge. The Ministry of Lands, Housing and Human Settlements Development estimates that there are some 500,000 properties in the city, 400,000 of which are in unplanned areas. Thus less than 20 per cent of the properties in the city may be on the official register.

A comprehensive valuation of all these properties would, therefore, produce discrete values.

Dar es Salaam has seen its revenue from property tax rise in recent years. While the city collected Tsh1.253 million ($1,193) in 2000, this figure had nearly doubled to Tsh2.027 ($1,930 million in 2005. But some estimates put the property tax potential for that year at Tsh4,776 million($4,548 million), which means only 42 per cent of the total amount possible was collected. This is because many properties are neither on the valuation nor the flat rate roll, not to mention the other problems related to the administration of property tax.

Among the problems that will, hopefully, be addressed by the revenue enhancement programme, is information on the tax roll - which is usually incomplete and outdated - and the limited use of computers, which makes managing the roll difficult. Once the new rolls are in place, it will be important to address the low collection rates. A comprehensive collection and enforcement system should rely on three mechanisms, namely incentives, sanctions and penalties, which should be rigorously enforced.

Incentives range from discounts for prompt and early payment to tangible evidence of expenditure of the property tax collected on local/neighbourhood projects.

Sanctions should be imposed on those who do not pay on time and where these fail, a series of fines and interest penalties. As a last resort, property should be seized.

The collection system also requires an effective information management system that can handle the taxpayers' base.

Despite everything, however, property tax remains one of the main sources of revenue that can contribute significantly toward local projects, particularly in the light of the 2003 rationalisation of local revenue sources in Tanzania, which saw the elimination of such potentially buoyant sources as the development levy (poll tax) and business licences fees. The revenue enhancement programme is, therefore, very timely.

Lusugga Kironde is Consultant in land, property and urban development matters at TKA Company Ltd, Dar es Salaam.