1. Land taxes: an opportunity to make urbanisation self-financing
Michael Blake
International Growth Centre (IGC)
Cities that Work
March 2018

2. Outline How land taxes can enable self-financing urbanisation
Land taxes are underutilised in African cities
Overcoming challenges:
Policy design
Political opposition
Administrative difficulties

3. Urbanisation and land values
Urbanisation creates massive land value appreciation
Seoul land values rose 33-fold from (Rii and Ahn, 2002)
Parts of peri-urban Kigali have appreciated 1000-fold in the last 10 years (Kopanyi and Murray, 2016)
Rising land values are created by:
Rising overall demand for urban land
Public infrastructure
According to the Local Government Act of 1982, local governments in Tanzania are responsible for delivering basic education, health care, roads, water, agricultural services, local administration and other local government services such as the establishment and maintenance of community centres and public parks - Boex, “Final Report: Development of a Strategic Framework for the Financing of Local Governments in Tanzania.”

4. Who captures rising urban land values?
Lucky landowners
Duke of Westminster in London
John Jacob Astor in New York
“Could I begin life again…I would buy every foot of land on the island of Manhattan”
The government
East Asia: land values finance urban infrastructure
Significant government land ownership and high land taxes
Hong Kong: 80% of infrastructure spending from recouped through land-related revenues (Hong, 1996)
According to the Local Government Act of 1982, local governments in Tanzania are responsible for delivering basic education, health care, roads, water, agricultural services, local administration and other local government services such as the establishment and maintenance of community centres and public parks - Boex, “Final Report: Development of a Strategic Framework for the Financing of Local Governments in Tanzania.”

5. Self-financing urbanisation through land
Land value appreciation
…funds the public investments
…that make the city more productive

6. Land and property taxes
Can capture land value through ownership or taxation
Taxation can achieve similar results but politically easier
For lumpy expenditures - annual tax flows as collateral; or betterment fees
Taxing land is more efficient, taxing property is more progressive
Land and property taxes underutilised across Africa
0.4% of GDP in Africa, 2% in OECD (Franzsen and McClusky, 2017)
Under 1% of total tax revenues in most African countries, 6% in OECD
Challenges:
Policy design
Political
Administrative
According to a report by PMORALG in 2013, weaknesses in internal control and monitoring of revenues of LGAs resulted in the failure to collect own source revenues amounting to Shs 8,008,669,844 in 2011/2012.
Sample evidence suggests that between 40 – 60% of local revenue collections in 2005 were spent on local administration costs - Boex, “Final Report: Development of a Strategic Framework for the Financing of Local Governments in Tanzania.”
Reforms to tax administration involve:
- Better identification of taxpayers;
- Transparent process in assessing their liabilities;
- Effective billing and collection;
- Facilitating and monitoring compliance as well as dealing with non-compliance.

7. 1) Gentrification and revaluation
Exemptions (poor communities, the elderly) to prevent gentrification?
Poorly targeted exemptions risk undermining the tax base (e.g. Kampala)
Revaluation
Land values rise faster than incomes
Option 1: fix land values and change rates
Nairobi valuation rolls based on 1980 values
Unfair and results in a massive revenue loss (Kampala revaluation predicted to double revenues; Kopanyi, 2015)
Option 2: update land values but reduce rates
According to a report by PMORALG in 2013, weaknesses in internal control and monitoring of revenues of LGAs resulted in the failure to collect own source revenues amounting to Shs 8,008,669,844 in 2011/2012.
Sample evidence suggests that between 40 – 60% of local revenue collections in 2005 were spent on local administration costs - Boex, “Final Report: Development of a Strategic Framework for the Financing of Local Governments in Tanzania.”
Reforms to tax administration involve:
- Better identification of taxpayers;
- Transparent process in assessing their liabilities;
- Effective billing and collection;
- Facilitating and monitoring compliance as well as dealing with non-compliance.

8. 2) Link taxation to public investment
Property tax reform in Lagos
Equilibrium of non-compliance and poor service delivery
Communicating the virtuous cycle of tax and investment
5-fold increase in state public revenues from
Re-election of Governors Tinubu and Fashola
Own source revenues have continued to grow steadily, resulting in a fairer and sustainable improvement in municipal revenue .  

9. 3) Complexity comes at a cost
Land registration
Cadastral surveys vs participatory satellite/photo mapping
Survey cost per parcel: $160 in Tanzania vs <$10 in Rwanda (Ali. et al, 2014)
Valuation systems
CAMA vs area-based
Move to area-based in Sierra Leone led to % revenue rise (Monkam and Moore, 2015)
Own source revenues have continued to grow steadily, resulting in a fairer and sustainable improvement in municipal revenue .  

10. Summary
The city authority has a clear ethical right to rising urban land values
Land and property taxes can unlock a virtuous cycle where infrastructure investments finance themselves
Learning from experiences to overcome challenges
Own source revenues have continued to grow steadily, resulting in a fairer and sustainable improvement in municipal revenue .