Property Tax Regimes in East Africa

Property Tax Regimes
in East africa
in East Africa
United Nations Human Settlements Programme

Nairobi 2013
i
The Global Urban Economic Dialogue Series
Property Tax Regimes in East Africa
First published in Nairobi in 2013 by UN-HABITAT.

Copyright © United Nations Human Settlements Programme 2013
HS Number: HS/029/13E
ISBN Number (Series): 978-92-1-132027-5
ISBN Number (Volume): 978-92-1-132566-9
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Excerpts may be reproduced without authorization, on condition that the source is indicated.
Acknowledgements:
Director: Naison Mutizwa-Mangiza
Chief Editor and Manager: Xing Quan Zhang
Principal Author: Washington H A Olima
Contributors: Minwei Chu, Senru Li, Bo Xue
English Editor: Roman Rollnick
Assistants: Joy Munene, Agnes Ogana
Design and Layout: Peter Cheseret
ii
FOREWORD
Ur b a n i z a t i o n provision of adequate housing, infrastructure,

is one of the education, health, safety, and basic services.
most powerful,
irreversible forces The Global Urban Economic Dialogue series
in the world. It presented here is a platform for all sectors
is estimated that of the society to address urban economic
93 percent of development and particularly its contribution
the future urban to addressing housing issues. This work carries
population growth many new ideas, solutions and innovative
will occur in the best practices from some of the world’s
cities of Asia and leading urban thinkers and practitioners
Africa, and to a lesser extent, Latin America from international organisations, national
and the Caribbean. governments, local authorities, the private
sector, and civil society.
We live in a new urban era with most of
humanity now living in towns and cities. This series also gives us an interesting
insight and deeper understanding of the wide
Global poverty is moving into cities, mostly range of urban economic development and
in developing countries, in a process we call human settlements development issues. It will
the urbanisation of poverty. serve UN member States well in their quest
for better policies and strategies to address
The world’s slums are growing and growing increasing global challenges in these areas.
as are the global urban populations. Indeed,
this is one of the greatest challenges we face in
the new millennium.
The persistent problems of poverty and

slums are in large part due to weak urban
economies. Urban economic development is
fundamental to UN-HABITAT’s mandate. Joan Clos
Cities act as engines of national economic Under-Secretary-General
development. Strong urban economies of the United Nations,
are essential for poverty reduction and the Executive Director, UN-HABITAT
iii
in East Africa
iv
Contents
List of Tables, figures, acronyms and abbreviations viii
PREAMBLE x
CHAPTER 1 INTRODUCTION 1
1.1 Property Tax in the Context of Fiscal Decentralization and Municipal Finance
1
1.2 Objectives of the Study 2
CHAPTER 2 BASIC COUNTRY INFORMATION 3

2.1 Kenya 3
2.1.1 Geographical Context 3
2.1.2 The Government Structure in Kenya 3
2.1.3 Land Use and Land Tenure System 4
2.1.4 Overview of the Property Market in Kenya 5
2.2 Tanzania 5
2.2.2 The Government Structure in Tanzania 6
2.2.3 Land Use in Tanzania 6
2.2.4 Land Tenure system 6
2.2.5 Overview of the Property Market in Tanzania 8
2.3 Uganda 8
2.3.2 The Government Structure in Uganda 9
2.3.3 Land Use and Land Tenure System 9
2.3.4 Overview of the Property Market in Uganda 10
CHAPTER 3 OVERVIEW OF THE TAX SYSTEM 11

3.1 Kenya 11
3.1.1 National Tax Structure 11
3.1.2 Property – Based Taxes in Kenya 11
3.2 Tanzania 12
3.2.2 Property – Based Taxes in Tanzania 12
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in East Africa
3.3 Uganda 15
3.3.2 Property-Based Taxes in Uganda 15
CHAPTER 4 PROPERTY TAX REGIMES IN EAST AFRICA 17

4.1 Kenya 17
4.1.1 Tax Base 17
4.1.2 Basis of Assessment 18
4.1.3 Exemptions 18
4.1.4 Valuation 18
4.1.5 Property Tax Rates 19
4.2 Tanzania 20
4.2.1 Property Tax Coverage 20
4.2.2 Assessment Basis 20
4.2.3 Exemptions 20
4.2.4 Tax Rates 22
4.2.5 Tax Assessment Basis 22
4.3 Uganda 22
4.3.1 Tax Base 22
4.3.2 Exemptions 22
4.3.3 Tax Rates 23
4.3.4 Tax Assessment Basis 24
CHAPTER 5 PROPERTY TAX COLLECTION AND ADMINISTRATION 25

5.1 Kenya 25
5.1.1 Billing and Collection of Tax 25
5.1.2 Enforcement procedure and practices 26
5.1.3 Capacity to Administer property Tax in Kenya 26
5.1.4 An Overview of Local Authorities Revenue Sources 26
5.1.5 Analysis of property Tax Revenue in Kenya 27
5.2 Tanzania 29
5.2.1 Tax Collection and Enforcement 29
5.2.2 Objection and Appeals Procedures 29
5.2.3 Determining Objections 30
5.2.4 Enforcement mechanisms 30
5.2.5 Handling objections – practical examples 31
5.2.6 Capacity to Administrator Property Tax in Tanzania 32
5.2.7 An Overview of Local Government Authorities Revenue Sources 32
5.2.8 Major impediments to raising property tax revenue 34
vi
5.3 Uganda 34
5.3.1 Tax Billing and Collection 34
5.3.2 Enforcement Mechanisms 34
5.3.3 Capacity to Administer Property Tax in Uganda. 35
5.3.4 Overview and Analysis of Local Authorities Revenue Sources 35
CHAPTER 6 CONCLUSION AND RECOMMENDATION 39

6.1 Kenya 39
6.1.1 Challenges to Property Tax Implementation 39
6.1.2 The context and Rationale for Property Tax Reform 39
6.1.3 Recommendations 40
6.2 Tanzania 41
6.3 Uganda 41
REFERENCES 45
vii
in East Africa
List of Tables, figures,

acronyms and abbreviations
List of Tables
Table 3.1: Land Rent Schedule for Kinondoni Municipality 13
Table 4.1: Breakdown of Property Rating in Kenya (2001) 17
Table 4.2: Range of Tax Rates by Type of Local Authority, 2000 19
Table 5.1: Municipal Councils:- Economic Analysis of Current Revenue
(in million units of Kenya currency, 2004/05 – 2008/09) 27
Table 5.2: Town, Urban and County Councils; Economic Analysis of Recurrent
Revenue in (million units of Kenya currency, 2004/05- 2008/09) 27
Table 5.3: Tax Collection by Tax Regime in Kenya (In Kshs Billions) 28
Table 5.4: Property Tax as a % of Total Tax Collection 28
Table 5.5: Own Sources of Urban Local Government Revenue in Tanzania 33
Table 5.6: Aggregated revenues from main sources of own revenue for Dar es
Salaam Councils 1998 - 2002 Amount collected in TShs Millions 33
Table 5.7: Revenue Sources for Kampala City Council 36
Table 5.8: Collection July to June 2005-2006 36
List of Figures
Figure 1.1: Map of East Africa 2
Abbreviations/acronyms
CBD Central Business District
CILOR Contribution in Lieu of Rates
DSM Dar es Salaam
EES Exclusive Economic Zone
EPZs Export Processing Zones
GDP Gross Domestic Product
GOK Government of Kenya
IFMS Integrated Financial Management System
KCC Kampala City Council
KLGRP Kenya Local Government Reform Programme
KRA Kenya Revenue Authority
KSh Kenya Shilling
KTH Royal Institute of Technology
LATF Local Authority Transfer Fund
LGA Local Government Act
viii
LGRA Local Government Rating Act
LGRP Local Government Reform Program
LGRRs Local Government Rating Regulations
LGs Local Governments
LST Local Services Tax
MLHHSD Ministry of Housing and Human Settlement Development
MSc Master of Science
ODM Orange Democratic Movement
PNU Party of National Unity
RICS Royal Institute of Chartered Surveyors
SBP Single Business Permit
TRA Tanzania Revenue Authority
TSh Tanzania Shilling
UARA Urban Authorities Transfer Fund
UGX Uganda Shilling
UK United Kingdom
ULC Uganda Land Commission
UN-HABITAT United Nations Habitat Programme
URT United Republic of Tanzania
USD United States Dollar
USV Unimproved Site Value
VAT Value Added Tax
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in East Africa
PREAMBLE
The history of property tax system in most Property taxes are usually compulsory
commonwealth countries can be traced back charges /levies that relate specifically to the
to feudal England at the time of the Poor ownership, occupation, or improvement of
Relief Act of 1601 during the reign of Queen land or of land and buildings, (Mc Cluskey,
Elizabeth I. Currently, some one hundred 1993). The tax may be based on landsite
and thirty (130) countries worldwide have in value, capital value or annual rental value (real
place some form of property based taxation or imputed) and are collected for use by local
(McCluskey, 1993). Nearly all independent authorities. Despite the great potential for
tropical African countries use some form of increasing revenue through property taxation,
property based taxes to generate revenue for its successful implementation in most
their local authorities (Konyimbih, 2002). countries have been hampered by a number of
procedural, institutional and administrative
The main aim of any property tax system reasons.
is to raise revenue for provision of services
by the local authority. The services differ This report reviews the Property Tax Regimes
from country to country and from one local in East African Countries namely Kenya,
authority to the other but they can be broadly Uganda and Tanzania. The three countries are
categorized into water provision, garbage all former colonies of Britain and have had
collection, street cleaning and sewerage different development experiences since their
and the provision of physical infrastructure independence and still have different bases of
and its maintenance among others. The property taxation. The land tenure systems
other objectives are regulatory and social in and land use practices in the three countries
nature. These necessitate land to be taxed as are also varied, and possibly have got different
a base resource to encourage a more effective influence on the property taxation system.
management and use of the scarce resources
to generate maximum revenues within the
limits of environmental conservation and local
planning (Konyimbih, 2002).
x
chapter 1
Introduction
CHAPTER 1 INTRODUCTION
1.1 Property Tax in the Context to maximize potential own revenue sources at
of Fiscal Decentralization all sub-national government levels. Revenue
autonomy and adequate revenue sources
and Municipal Finance would allow sub-national governments around
Local governments, the world over are the world to become more accountable to their
the primary providers of basic infrastructure taxpayers and to provide, more readily and
including water, local public schools, waste efficiently, improved levels of public services
management, and local roads among others. and appropriate infrastructure tailored to their
To perform their role, the authorities must preferences.
generate revenue. Rates are one such avenue
It has been widely suggested that property tax
through which local authorities mobilize
would represent an important, if not the best,
local financial resources for service provision.
source of stable revenue at the sub-national level
However, the growth in expenditure has
in both developed and developing countries.
always surpassed that of revenue resulting in
Property taxation is known around the world
budget deficits over the years.
to be the most reliable and physically available
Local governments all over the world are source of revenue to both national and local
therefore struggling to raise local revenues governments. It provides for funding public
to enable service delivery in urban areas service, social development, value capture
but their efforts continue to face enormous while facilitating quick and easy monitoring of
challenges. The global urbanization trend land markets. In addition, property taxation is
indicates that a large number of the world’s believed to provide an element of autonomy
population are moving towards the urban and to some extent financial independence
areas, calling for increased provision of from central government.
adequate urban infrastructure and social
Basically, property tax is considered a good
services notwithstanding the limited sources
local tax in the sense that property, particularly
of revenue available. The result is that urban
land, cannot easily be moved out of the taxing
service delivery is in many instances in a state
jurisdiction. It is highly visible enough to ensure
of disarray as the ability of local authorities in
accountability and transparency. However, it
many Anglophone East Africa to direct and
has been observed that property taxation is
sustain urban development in their respective
“one of the most lucrative yet still the least
areas of jurisdiction has declined. Countering
tapped sources of tax revenue to support urban
this downward spiral requires financial stability,
government in Africa” (Mou, 1996:6). This is
which, in turn, implies good governance and
especially true in many Anglophone countries
an improved and sustainable flow of revenue
in East Africa where both lack of political will
(Franzsen and Olima, 2003).
and bureaucratic support have resulted in a
In the context of a widespread focus on delay of a comprehensive implementation of
decentralization and devolution, there has the fiscal decentralization laws and thus the
been an imperative need to find suitable ways property tax legislation. Central governments
1
in East Africa
are often reluctant to devolve tax authority studied. Specifically the research sought to
to local governments to accompany their establish and/or examine:
expenditure responsibilities. The potential of
property taxation is enormous and can only • A comprehensive template to collect data
be tapped into if policymakers and donor regarding all forms of property taxation in
agencies implement more effective property the East African countries
tax reforms preferably synchronized with • The property tax systems as legislated and
broader fiscal decentralization efforts. practiced in East African countries.
• The significance and extent of property taxes

1.2 Objectives of the Study as sources of national and / or municipal
revenues.
The prime objective of the research is to
present a comprehensive review of the property • The future role of property taxation in each
– related taxes in East African countries of country; and
Kenya, Tanzania and Uganda. Figure 1 shows
the map of the three East African countries • General trends in the application of property
taxation in the East African region.
Figure 1.1: Map of East Africa
Source: www.un.org/depts/Cartographic/map/profile/eastafr.pdf
2
Chapter 2
BASIC COUNTRY INFORMATION
CHAPTER 2 BASIC COUNTRY INFORMATION
This chapter gives the background surface. About 80 percent of the land surface
information for the study countries of Kenya, is arid and semi-arid. Thus only about 20
Tanzania and Uganda. The main types of percent of Kenya’s land area can be classified
information provided include: the geographical as medium to high potential agricultural land.
context, the government structure, land use In addition, there are Indian Ocean Territorial
and land tenure system, and an overview of Waters covering about 14,300sq.km and an
the property market of each country. Exclusive Economic Zone (EES) covering an
area of 143,100 sq.km as stipulated in the
Maritime Zone Act of 1989.
2.1 Kenya
As at the Population and Housing Census
of 2009, Kenya’s population was counted
2.1.1 Geographical Context
at 39.423 million (Republic of Kenya), an
The Republic of Kenya is a country in East increase of 37.43 percent in 10 years at the
Africa. It is bordered by Tanzania, Uganda, 1999 census. An estimated 34.8 percent of the
Sudan, Ethiopia and Somali. Kenya gained its total population lives in urban areas.
independence from United Kingdom on 12th
December, 1963. The capital city of Nairobi has an estimated
population of 3,260,124. Other major or
Topographically, Kenya may be divided secondary towns include Mombasa, Kisumu,
into four distinct geographical and ecological Eldoret, Nakuru, Nyeri, Embu and Kakamega.
regions or zones with different patterns of
land use, namely; the coastal plain, the arid The GDP at current price in 2009 was
low plateau, the highlands and the Lake estimated at USD 29.3 billion, giving per
Victoria basin. The rainfall patterns are capita GDP of USD 743 while the 2009/10
extremely varied but generally follow these total revenue collection was USD 6 billion.
regions. The country is divided into eight
administrative units known as provinces – 2.1.2 The Government Structure in Kenya
Nairobi, Central, Nyanza, Western, Eastern,
There are two levels / tiers of government
Rift Valley, Coast and North Eastern. In the
in Kenya namely, Central Government and
new Constitutional dispensation, the country
Local Authorities.
will be administratively and politically divided
into 47 counties with each county forming Kenya is a unitary sovereign state divided
a semi-autonomous government that will into provinces and districts for administrative
be partly responsible for local taxes such as purposes. The form of government is a
property tax. constitutional republic with three (3) arms
of government namely; legislature, executive
Kenya covers an area of approximately
and judiciary. Kenya has been a multi- party
582,646 sq. km of which 97.8 percent is land
democracy since 1992.
surface while the rest (2.2 percent) is water
3
in East Africa
The legislative power of the Republic is vested establishment of a settler colonial economy
in the parliament of Kenya which consists in Kenya led to demands of ideas of land
of 210 elected members and 12 nominated ownership that were to dominate the entire
members. Currently, the dominant political span of both the colonial and post – colonial
parties are Orange Democratic Movement land policy in Kenya (Kiamba, 1989: 124).
(ODM) and Party of National Unity (PNU).
In Kenya, there are various land tenure
The executive power of the Republic is systems existing. At independence in 1963
vested in the President who is the Head of the newly established government in Kenya
State, Head of Government and Commander inherited three types of land holding namely;
– in – Chief of the Armed Forces of Kenya. As
per the constitution, President shall be elected i. Urban land which is government owned
by universal adult suffrage of registered voters and acquisition by individuals is on
in the Republic and shall hold office for a term leasehold of upto 99 years;
of 5 years. No person shall serve as president ii. Farm land held on freehold tenure by
for more than two terms. individuals and / or companies; and
Kenya has currently a total of 175 local iii. Trust land not registered in individual
authorities comprising of 1 city council, 45 or group titles but occupied by a given
municipal councils, 62 town councils, and 67 community and governed by customary
county councils. Under the Local Government land law. Trust land formed a greater part
Act of 1963 (Chapter 265 of the Laws of of the land in Kenya, particularly in the
Kenya), local authorities were created and rural areas.
charged with the responsibility of providing
and maintaining a wide range of public services A particular piece of land in Kenya would
such as primary education, public health, ordinarily belong to one of the following
cultural and social facilities, public markets classes:-
and market buildings (Syagga, 1994).
• Government or State Land
Local authorities undertake the various
functions through committees, which are • Public freehold
usually constituted under part VI of the Local • Leasehold
Government Act, (Cap 265). Such committees
include among others; finance, health, town • Short – term leaseholds or temporary
planning and staff committees. The decisions occupation license
of these committees are, however, subject to
confirmation of the full council meetings of • Trust land
the respective authority. • Informal private sub divisions
The local authorities currently are under the • Share certificates.
supervision of the Office of the Deputy Prime
Minister and Ministry of Local Government. Most urban land in Kenya used to be
either Government freehold under the direct
2.1.3 Land Use and Land Tenure System administration of the Commissioner of
Lands; or local authority land which is also
When Kenya was founded as a settler colony, administered by the Commissioner of Lands.
large tracts of the most fertile agricultural land However, the very rapid growth of urban
were set aside for exclusive occupation of white centres exhausted such pockets of government
settlers under freehold tenure or leasehold. The
4
Chapter 2
land. Currently, in most local authorities in on the South by Mozambique and Malawi,
Kenya, land is privately owned by individuals on the Southwest by Zambia, and on the
and companies under leasehold arrangements. West by Zaire with a total boundary length of
4,826 km (2,999 miles), of which 1,424 km
2.1.4 Overview of the Property Market in (885 miles) is coastline. Tanzania claims part
Kenya of Lake Malawi, although its internationally
recognized boundary is the eastern shore.
The operations of the land and property
markets are largely formal as property The section of the United Republic of
transactions take place within a formal Tanzania known as Zanzibar comprises the
registration process. The property market islands of Zanzibar and Pemba and all islets
is fairly developed in urban areas with within 19 km (12 miles) of their coasts, as
considerable regulation for purposes of well as uninhabited Latham Island, 58 km
legalizing the transactions. (36 miles) south of Zanzibar Island. Zanzibar
Island lies 35 km (22 miles) off the coast, and
With the desire of most Kenyans to Pemba Island is about 40 km (25 miles) to the
own property, particularly housing there is North East. The former has an area of 1,657
increasing demand for land acquisition for sq km (640 sq miles), and the latter 984 sq km
residential development. This has resulted into (380 sq miles).
high land prices in the urban areas depending
on the land size and location. The land in It covers a total area of 945,087 sq km
Nairobi and its suburbs is still more expensive (364,900 sq miles), including 59,050 sq
as influenced by both the specific land user and km (22,799 sq miles) of inland water.
income levels of particular neighbourhoods. Comparatively, the area occupied by Tanzania
is slightly larger than twice the size of the state
of California.
2.2 Tanzania
Tanzania has two capital cities, Dodoma
(administrative) and Dar es Salaam
(commercial), which is located on the Indian
The United Republic of Tanzania is a Ocean coast. The secondary towns are Arusha,
country located in East Africa, just south Iringa, Mbeya, Moshi, Morogoro, Mwanza,
of the equator. It consists of two formerly Tabora and Tanga.
independent states, that is, Tanganyika (now
known as Tanzania mainland) and Zanzibar. According to 2002 population census,
These two states united in 1964. Tanzania Tanazania’s population is 35 million as is
mainland is divided into 21 regions, and 106 projected to be 45 million in 2009 comprising
administrative districts. of over 130 ethnic groups. The official
languages are Swahili and English.
Date of Independence is December 9,
1961 for Tanganyika; December 10, 1963 Tanzania has been experiencing a rapid rate
for Zanzibar. The United Republic of of urbanization up to 8 percent per annum.
Tanzania was formed on April 27, 1964. The urban population has increased from 5
Mainland Tanzania lies between the area of percent in 1967 to 23 percent in year 2002
the great lakes—Victoria, Tanganyika, and (GOT 2002), and currently estimated to be 36
Malawi (Niassa)—and the Indian Ocean. percent. The GDP per capita at current price is
It is bounded on the North by Kenya, on estimated at USD 1,300 (2007 est.) while the
the North West by Uganda, Rwanda and total tax revenue for the 2010/2011 Financial
Burundi, on the East by the Indian Ocean, Year is estimated at USD 900 million.
5
in East Africa
2.2.2 The Government Structure in Land use (Million ha)

Tanzania Forest Reserves 10.1
Tanzania is a country with two-tier system Arable land, not cultivated 10.0
of government administration consisting of Game Reserves 7.7
the central government on the one hand, and Cultivated land 5.1
local government on the other. National Parks 4.2
The form of government is a constitutional

republic, based on multi party democracy. Reserved land: All land set aside for special
The legislative power of the republic is vested purposes (forest reserves, game parks and
in the parliament. The executive power of reserves), land reserved for highways and
the republic is vested in the president who is public utilities, land designated under the
elected by universal adult suffrage of registered Town and Country Planning Ordinance, and
voters in the Republic. hazardous land.
Local government authorities are composed General land: General land is all land
of urban authorities and rural authorities as that is not Reserved Land or Village Land.
established under the Local Government However, the Act opens up for ambiguity:
(Urban Authorities) Act, 1982 and the Local “‘general land’ means all public land which is
Government (District Authorities) Act, 1982 not reserved land or village land and includes
respectively. Local government system has unoccupied or unused village land” (quoted in
existed in Tanzania since the colonial period Sundet, 2005:3). The definition of General
and continued after independence to 1972 Land in the Village Land Act does not include
when local government authorities were the last part of the sentence.
abolished and reinstated in1978 (Kayuza,
Village Land: Village land is land that
2006).
belongs to registered villages. Importantly,
the village councils do not own the land, they
2.2.3 Land Use in Tanzania only manage it (Wily, 2003:19). A village is
Tanzania uses the land title registration an administrative unit in the local government
system based on Torrens as well as Deeds system and usually has a population of
System for both urban and rural lands between two and four thousand persons. Each
(Mukandala, 2009). This is the authentification village has a village government. Members of
of ownership of or a legal interest in a parcel the village government are hamlet/sub-village
of land – confirming all the transactions that chairpersons, a Village Chairperson, and a
confer, affect or terminate that ownership or hired Village Executive Officer. Three to four
interest of a person over a particular parcel of villages make up a ward. At the ward level,
land. there is a Ward Development Committee, and
a hired Ward.
The surface area of Tanzania is 94.3 million
ha. Only 5 percent (5.1 million ha) of it is 2.2.4 Land Tenure system
cultivated. An area twice this size, (10 million
ha.), is arable land that is not cultivated, but to At present, there exists a dual land tenure
a large degree used as pasture by pastoralists. systems, that is, statutory and customary
Almost a quarter of the surface area, 23%, is rights of occupancy with public land vested
reserves, a larger share than any other country in the president as trustee. Customary tenure
in Sub-Saharan Africa (URT, 2007). system only applies in rural areas or registered
6
Chapter 2
villages within the urban areas. Certificate Titles (Conversion) and Government Lease
of occupancy provides explicit security of Act (Cap.523) of 1963. The Government
tenure. The present land tenure system in Leases were later on converted into rights of
Tanzania is rooted in the colonial past. Prior occupancy under the Government Leaseholds
to the coming of the colonial administration (Conversion to Rights of Occupancy) Act No.
land in Tanzania (then Tanganyika) like in 44 of 1969. The independent government
many other African countries was held under retained the right of occupancy land tenure
customary tenure whereby powers to control with a maximum of 99 years term, as governed
and allocate land were vested in a tribe, clan, by the Land Ordinance 1923.
family or chiefs. Chiefs, headmen, clan or tribe
elders were entrusted with the administration The Land stOrdinance remained operational
of land of a particular community. The until May 1 2001 when the Land Act N. 4
coming of Germans as the first colonial and the Village Land Act No.5 were passed to
administrators brought remarkable changes to govern land holdings under right of occupancy
the land tenure system. In 1885 the German in urban areas and rural areas respectively. Like
administration declared all land in the territory the Land Ordinance 1923, the Land Act 1999
to be Crown land vested in the German treats land as ‘public’ property. According to
Empire. But lands held by private persons, Section 4 (1) of the act, all land in Tanzania
chiefs or native communities for whom shall continue to be public land and remain
there was proof of ownership were exempted vested in the President as trustee for and on
from the application of the declaration. behalf of all the citizens of Tanzania. With
Subsequently, leases of definite and indefinite the new Land Act dual land tenure system
period (implicitly freehold) were introduced. has been put in place, recognising both
Succeeding the Germans after the First World statutory and customary rights of occupancy.
War, the British passed the Land Ordinance Land holding under Rights of occupancy is
Cap 113 in 1923. Similarly under the Land to be confirmed by a certificate of occupancy
Ordinance, all lands whether occupied or issued with respect to land allocated by public
unoccupied were declared public lands with authority or land that is acquired through
all the interests over the lands placed under pertinent customary procedures. According to
the control of the governor. The interests over the Land Act:
the lands were held, used or disposed of, for “right of occupancy” means title to the use
the common benefit of the natives. Under the and occupation of land and includes the title
ordinance land was to be held as a Right of of a Tanzania citizen of African descent or a
Occupancy. community of Tanzanian citizens of African
After independence in 1961 the independent descent using or occupying land in accordance
government inherited the conceptual and with customary law.“customary right of
major part of the legal framework and land occupancy” includes deemed right of occupancy.
tenure from the Colonial period (URT, 1994). “deemed right of occupancy” means the title
Thus, even after independence land remained of a Tanzanian citizen of African descent or a
‘public land’ and vested in the state as declared community of Tanzanian citizens of African
by the colonial Land Ordinance. Significant descent using or occupying land under and in
changes brought by the independent accordance with customary law.”
(Tanganyika) government were the conversion Under the dual land tenure system
of the colonial (largely German) freeholds into landholders with certificate of occupancy have
government leaseholds under the Freehold explicit security of tenure. But security of
7
in East Africa
tenure for landholders in informal settlements 2.2.5 Overview of the Property Market in
without formal certificates of occupancy Tanzania
remains ambiguous. There is no clear provision The operations of the land and property
in the legislation that confers security of tenure markets are largely formal, particularly in
to land holdings in unplanned areas except for the urban areas as property transactions take
a certificate of validation that can be issued place within a formal registration process.
upon application by the occupier. Moreover, The property market is fairly active as the
land occupiers in unplanned (urban) areas number of properties changing hands has
do not qualify for security of tenure under been increasing after Land (Amendment) Act
customary tenure system as this applies only No. 2 of 2004.
in rural areas or to registered villages within
the urban areas. Despite the fact that property market is both
formal and active in the urban areas, there is
In practice the land tenure system has had however, the problem of scarcity of market data.
considerable influence on the operation of the In the rural areas, most parts of the country are
property market. According to the Land Act still having tracts of unregistered lands.
No. 4 of 1999, the interests in or rights over
land of the occupier with a right of occupancy
are limited to unexhausted improvements on
2.3 Uganda
the occupied land since land is the property
of the state. As such transactions of vacant
land are restricted under the law. However
recent amendments in the law, under Land The Republic of Uganda is a landlocked
(Amendment) Act No.2 of 2004 allow sale country in East Africa. It is bordered on the
of vacant land but subject to approval by the east by Kenya, on the north by Sudan, on the
Commissioner for Lands. The approval is west by the Democratic Republic of Congo,
guided by provisions of Section 37 of the Land on the southwest by Rwanda, and on the
Act, which sets the conditions for disposition south by Tanzania. The southern part of the
of vacant land (Kayuza, 2006). country includes a substantial portion of Lake
Victoria, which is also bordered by Kenya and
For a long time in history property Tanzania. Uganda gained its independence
transactions were restricted. It is only in recent from United Kingdom on 9th October 1962.
years that the number of properties changing
hands has been increasing. Nonetheless The country has been divided into 80
people transacting in real property are seldom districts, until recently when 13 new districts
willing to disclose the true prices for which were gazetted making a total of 93 districts, all
real property change hands. Even though spread across the four administrative regions
there have been restrictions in transacting namely; Northern, Eastern, Central and
land holdings under formal ownership, it has Western. The districts are further subdivided
been easy to sell land in informal settlements into sub-districts, counties, and sub-counties,
where conditions attached to granted right parishes and villages. Most districts are
of occupancy do not apply. As a result of named after their main commercial and
restrictive land laws the property market has administrative towns, making all district
not been active enough to generate market centres urban councils.
sales data for use in valuation. Thus scarcity of
market data has negatively impacted upon the Uganda covers an area of approximately
real property valuation practice. 241,010 square kilometers of which about
15.39 percent is water surface. According to
8
Chapter 2
Uganda 2002 census, the total population exists traditional authorities of Buganda, Toro,
was 24,227 million. As at 2009, Uganda’s Bonyoro, Busoga, Acholi, and Alur.
population is estimated as 32,370 million.
The population growth rate is about 4 percent 2.3.3 Land Use and Land Tenure System
per annum. The urbanization level is about 18
percent. However, it is now estimated that Land use in Uganda is greatly influenced
34 percent of the total population lives in by the existing land tenure system. Four
urban areas as small trading centres are being systems of land holding namely leasehold,
gazetted as Town Boards. freehold, private mailo and customary exist
in Uganda. Currently, there is also the issue
The capital city of Uganda is Kampala of tenant by occupancy as at 1995 through
with an estimated population of 1.2 million payment of nominal rent. The Deeds System
people according to 2002 census. Other major of land registration is in use with the Office
or secondary towns include Mbarara, Gulu, of the Commissioner, Ministry of Land, and
Arua, Entebbe, Moroto, Soroti, Mbale, Jinja Housing and Urban Development being
and Fort Porto. responsible.
The GDP at current price is estimated In regard to land tenure system in Kampala,
at USD 14.565 billion, giving per capita out of the total of 201sq.kms of land area, 20%
GDP of U$D 454. The total tax revenue for is categorized as planned land with leasehold
2010/2011 Financial Year is estimated at USD land titles while 80% is unplanned land, 75%
2 billion. of the area of both categories considered is
under mailo land tenure system while 3% of
2.3.2 The Government Structure in the land is under freehold land titles. The slum
Uganda area occupies a balance of 21%, the biggest
portion of which evidently lies on mailo land.
There are two levels of government in A total of 46.1% of the city land coverage is
Uganda namely, Central Government and 5 indicated as being under agriculture or simply
levels of local councils. undeveloped.
Uganda is a constitutional republic divided Of the four legally accepted land tenure
into administrative regions, districts and systems in Uganda, three exist in the city,
counties with three (3) arms of government namely public land that falls under the
namely; legislative, executive and judiciary. jurisdiction of ULC, mailo (private) land
The legislative power of the republic is vested where KCC has no powers to grant leases and
in the parliament, formed by the National freehold held by institutions (such as schools,
Assembly which has 332 members. Out of hospitals). Within the above categories, there
the total members of National Assembly, 228 are other sub-systems of land tenure such as
are elected with the remaining 104 nominated customary tenure on both mailo and public
by interest groups, including women and the land where tenants or squatters enjoy some
army. rights according to the Land Act 1997. 75%
The executive power of the Republic is of the city land under mailo is characterized
vested in the President who is both the Head by the existence of informal settlements and
of State and Head of Government. occupancies on land with prime values in
economically strategic areas some of which
There are five (5) levels of local councils are in the CBD. The study observes that these
namely city, municipality, town, district, and pieces of land are unattractive to investors;
division or sub-county. In addition, there depress land values/prices that neither benefits
9
in East Africa
the landowners nor the occupants. Secondly, The land act allows for the conversion of
absentee landlords (under mailo system) have leaseholds to freeholds so long as the affected
created a state of total neglect, abandonment acreage is less than 100 acres. This is done
and wastage leading to fraud, forgeries of subject to the payment of a handling fee of
ownership and conflicts. This land is estimated UGS 100,000. Specifically, land in Uganda
to be at 46.1% of the city land coverage. belongs to the citizens.
This has consequently resulted in haphazard
development of plots that are congested with 2.3.4 Overview of the Property Market in
poor sanitary conditions with properties of Uganda
far less values in the city. This undermines
property tax potentials. The study observes The operations of the land property markets
that following the scrapping of former public are relatively well organized in Kampala and
land and statutory leases and the vesting of other big municipalities and urban councils.
land in the people as private land (Land Act, There is considerable amount of regulation for
1997), KCC as an urban authority can no purposes of legalizing the transactions.
longer effectively manage and control land, There is however, increasing demand for
which it does not own. This has consequently land acquisition for urban development,
affected infrastructure development because resulting into high land prices particularly in
of the requirement for compensation thus Kampala City Council.
worsening city development plans.
There are 6 landlords in Kampala City

Council namely;
• Kampala City Council – This covers public

land with Deed Document/Title of 49 years
lease for residential properties and 99 years
lease granted for industrial purposes.
• Uganda Land Commission
• Buganda Land Board
• Catholic Church
• Muslim Body
• Church of Uganda
10
Chapter 3
OVERVIEW OF THE TAX SYSTEM
CHAPTER 3 OVERVIEW OF THE TAX SYSTEM
This chapter gives an overview of the tax and property rates. In Kenya, property taxes
systems of the study countries of Kenya, collected by Kenya Revenue Authority (KRA)
Tanzania and Uganda. The overview includes comprise land rent on leasehold properties
information on: the national tax structure, payable annually, and stamp duty payable
property – based taxes, and the evolution/ on transfer of real estate. Though the KRA is
history of property tax of each country. charged with the collection of these property
taxes, the assessment of the tax payable is
performed by the Valuation Division within
3.1 Kenya the Ministry of Lands.
(a) Land rent: In Kenya, administration

3.1.1 National Tax Structure
of land rent falls within the domains of
Tax administration in Kenya is highly the central government. The Ministry of
centralized. The collection of revenue from tax Lands is charged with the responsibility
is done by Kenya Revenue Authority (KRA) in of administering land rent. Land rent or
the Ministry of Finance. The tax year starts from ground rent is chargeable on all holders
July and ends in June of the following year. of government or local authorities
owned leasehold properties. The person
There are a variety of taxes in Kenya.
who acquires the property, that is, the
Tax revenue is mainly from direct taxes on
leaseholder pays the tax. Billing is done
individuals and firms, and indirect taxes
annually and collection is currently
on transactions of goods and services. The
undertaken by Kenya Revenue Authority.
national taxes include tax on income and profit
In terms of enforcement, no transfer of
which include individual tax on income and
rights is permitted before payment of the
profits and corporation tax; Value Added Tax
tax and issuance of a land rent clearance
(VAT), Domestic taxes on goods and services
certificate. As a national revenue fund,
which comprises of excise and customs duties,
annual land rent collection is about Kshs
and Fuel Levy among others. Property taxes
1 billion (USD 13.3 million).
collected by the KRA comprise land rent on
leasehold properties payable annually, and (b) Stamp Duty: Stamp Duty or Property
stamp duty payable on transfer of real estate. Transfer Tax is governed by the Stamp
Duty Act, Cap 480 of the Laws of Kenya. It
Local authority taxes in Kenya include rates,
is payable upon transfers, leases, partitions,
development approval charges, business fees
exchanges and acquisition of immovable
and user charges among others.
property. The person who acquires the
property is the tax payer. The tax is based
3.1.2 Property – Based Taxes in Kenya on the purchase price, self declaration or
The property – related taxes administered market value of the property as determined
in Kenya include land rent, stamp duty, by the Government Valuer.
11
in East Africa
Currently, the tax rates are 4 percent for Land tax commonly called rates in Kenya
urban properties and 2 percent for rural are levied by local government councils
properties, based on market value. There (also called local authorities). Land
are various exemptions based on who taxation was introduced in Kenya in
acquires the property, for example, state 1900, when the first system was applied
and municipalities, some public benefit in Mombasa on an annual rental value
organizations, land reform beneficiaries, basis under street cleaning and regulations.
and parastatals. The following year, the same was applied
in Nairobi. In 1923, annual value rating
The administrator of the Stamp Duty was, however, found wanting as only few
Act is the Senior Collector of Stamp properties had been developed. In order
Duties. However, every Land Registrar to widen the base of the tax, unimproved
and Registrar of Titles are collectors of site value rating was introduced in 1928
Stamp Duties. There will be no transfer to be in conformity with the systems then
of ownership in the Deeds office unless existing in Australia, New Zealand and
a receipt (for transfer duty or VAT) or West Canada.
entitlement to an exemption is proven. The
contribution of Stamp Duty is less than 1
percent of the national total tax revenue. 3.2 Tanzania
There are exemptions from payment of
stamp duty namely; 3.2.1 National Tax Structure
Tax administration in Tanzania is highly
• Statutory exemptions covering the
centralized and is undertaken by Tanzania
Central Bank, Charitable organizations,
Revenue Authority (TRA) within the
Kenya National Museums, The Teacher’s
Ministry of Finance. There are a variety of
Service Commission, EPZs, Foreign
taxes in Tanzania, both national and local.
Embassies and High Commissions, and
The national taxes include income tax, Value
the National Social Security Fund.
Added Tax (VAT), Excise and Customs
• Ministerial exemptions through a gazette Duties, Stamp Duty, Capital Gains Tax and
notice. Corporation Tax.
c. Land Value Tax: Land value taxation as Local authority taxes in Tanzania include
presently practiced in Kenya is a result of property tax, Business Licenses, Building
British Colonial Administration in East permit fee, Development levy, Hotel levy and
Africa dating back to the beginning of 20th Bus terminal fee among others.
century. It traces its origin to the feudal
era in England when the Anglo – Saxon 3.2.2 Property – Based Taxes in Tanzania
Kings delegated to the villages and towns
the duties of watching over their local The property-related taxes administered
affairs instead of the State. Thus a number in Tanzania include Land (Ground) rent,
of institutions developed including one Stamp duty, Capital gains, and property tax
that grew amid church vesting where (rates). Apart from the rates, the other taxes
citizens, chaired by a priest, organized the are collected by Tanzania Revenue Authority
execution of works such as road and bridge (TRA). The assessment of the tax payable is
construction and church repairs. In order performed by the Valuation Division within
to meet the costs of these activities a levy the Ministry of Lands.
was put on the occupiers of land.
12
Chapter 3
(a) Land Rent: Land rent is paid for the rent is payable for use and occupation of
right to use and occupation of any parcel any parcel of land granted under the Act.
of land. It is charged to the holder of Section 33 (1) of the Land Act prescribes
granted Rights of Occupancy throughout that:
Tanzania. District Councils are responsible
for enforcing and collection of land rent on “The holder of a right of occupancy shall,
behalf of the Ministry of Lands, Housing subject to provisions of this section pay an
and Human Settlement Development annual rent for that right of occupancy in the
(MLHHSD). Land rent is payable manner provided for under the provisions of
annually. Unpaid land rent for a period of the Exchequer and Auditors Ordinance”
six (6) months after the due date attracts Land rent payable is determined by the
interest at the rate of 1 percent per month. Commissioner at the MLHHSD with
Land Rent in Tanzania can be traced back regards to: (a) the area of the land which
to the colonial period under the Land is the subject of the right of occupancy;
Ordinance Cap. 113 of 1923 (repealed), (b) the use of land permitted by the right
under which persons holding a right of of occupancy which has been granted; (c)
occupancy were obliged to pay land rent. the value of land as evidenced by sales,
The same legislation empowered the leases and other dispositions of land in
President to grant a Right of Occupancy the market in the area where the right of
free of rent to a non-native if the land was occupancy has been granted, and (d) the
to be used for the purposes of religion, amount of any premium required to be
cemetery, crematorium, and non-profitable paid on the grant of a right of occupancy.
educational and health services only. Since Land rent varies from one authority to
the colonial era to the present day, land another and thus each local authority is
rent has continued to be levied on parcels provided with the Handbook on Land
of land held under right of occupancy, and Rent Rates for Tanzania mainland. Table
is currently levied under Section 33 of the 1.0 shows the land rent schedule for
Land Act No. 4 of 1999. Essentially the Kinondoni Municipality.
Table 3.1: Land Rent Schedule for Kinondoni Municipality
Zone Subject Area Uses Rates in Tshs per M2

Outside CBD Usino Estate Residential 40/=
Commercial/Residential 60/=
Commercial/Service Trades 120/=
Oysterbay Residential 50/=
Commercial/Residential 75/=
Commercial/Service Trades 150/=
Source: Handbook on Land Rent Rates for Tanzania Mainland.
13
in East Africa
Section 33(7) of the Act empowers the property, or rights in or to such property,
Commissioner for Lands to exempt from located within Tanzania. It is based on the
paying rent any person or organization fair market value of the property. The tax
holding land exclusively used for religious is computed at the rate of 1 percent on the
worship or for burial or for both religious fair market value of the property, but never
worship and for burial. Likewise subsection on a value lower than the sales price.
8 empowers the Commissioner to grant a
right of occupancy at a nominal rate if the The taxpayer can either be the buyer
land is to be used exclusively for charitable or seller depending on the conditions
purposes. Exemptions are also granted on specified in the sale agreement between
land holdings under informal arrangements. the two parties. Billing is done by central
government and collection undertaken by
Land rent in Tanzania is shared revenue, Tanzania Revenue Authority.
levied by the central government. Local
government authorities are allocated 20 (c) Capital Gains Tax: This is tax paid on a
percent of the annual collections. Even gain derived in conducting an investment
though every landholder is required to pay from realization of an interest in land or
land rent, the use of the resultant revenue building. It is governed by Income Tax
is not clear. Likewise the reason for the Act, Chapter 332 Revised Edition of 2006.
allocation of 20 percent of the revenue to Section 90 of Income Tax Act provides for
local government authorities is unclear. tax on profits realized from transactions
This is an issue that needs research in on land and buildings. Tanzania Revenue
order to understand the use of the land Authority (TRA) is responsible for the
rent revenue because property taxpayers assessment. Tax rates on disposal of
have shown concern on land rent as they property are (a) 10 percent of the gain for
consider being double taxed on the same a resident person, and (b) 20 percent of the
tax base. For example, property owners gain upfront payment for a non-resident
in Morogoro Municipality complained to person. Capital gains tax is not a final tax
the government on paying both property as it falls under the Investment Income
tax and land rent for the same propertyth as opposed to Business or Employment
(reported in Majira Newspaper, 16 Income as provided for under tax systems.
January 2003). While land parcels with The tax is collected and used by the central
certificates of title or letters of offer are government.
subjected to paying both land rent and (d) Rates: Property rates in Tanzania are
property tax, land holdings under informal levied by local government councils.
arrangements are excluded from paying The imposition of rates is governed by
land rent (Kayuza, 2006). Authorities (Rating) Act of 1983 and Local
The contribution of annual land rent is Government Finance Act of 1982. The tax
substantial. In the year 2008, the target is based on the value of improvements,
collection was Tshs. 18 Billion and the that is, buildings only. It is applied on all
actual collection was Tshs. 13 Billion. The properties in both urban and rural areas.
target for the year 2009 was Tshs. 14 Billion. The tax payer is the rateable property
owner or a tenant or occupier.
(b) Stamp Duty: Stamp Duty or Property
Transfer Tax is governed by the Stamp According to the rating law, building or
Duty Act of 1972. It is levied and payable improvements on the land constitute a
upon the acquisition and transfer of real taxable object in Tanzania, while land is
excluded from property taxation. Property
14
Chapter 3
tax is therefore levied on the market value tax (Stamp duty), rental income tax on
of only buildings or improvements. In immovable property, VAT at 18 percent on
order to ascertain the market value for rental income from commercial building, and
taxation purposes the building value is capital gains tax.
assessed so as to establish the rateable value
of the property, which excludes the value (a) Rental Income Tax: The operation of rental
of land. Land value is excluded from the income tax in Uganda is governed by the
rateable value because according to the land Income Tax Act. The tax base is generally
Act No. 4, of 1999 land in Tanzania is the on immovable properties, specifically on
property of the state and the rights of an the commercial and residential properties
individual are limited to the un-exhausted that are rented out by the property owners.
improvements put on land. Likewise the The Office of the Chief Government
individual’s tax liability should be based on Valuer in the Ministry of Lands, Housing
the value of investment put on the parcel and Urban Development is responsible for
of land held. Thus the valuation of rateable the valuations which are based on market
property takes into account the value of rental value of the subject property.
buildings or improvements only. However, The tax rates vary depending on the
a property owner pays land rent for use category of the income earner. In the case
and occupation of the held land parcel to of renting by individual, the chargeable
the landlord (the government) threshold income is taxed at 20 percent
whereas renting by corporate bodies/
organizations are taxed at 30 percent of the
3.3 Uganda chargeable income. From the gross rental
income, 20 percent in lieu of expenses
3.3.1 National Tax Structure and UGS 1,560,000 are deducted as tax
Tax administration in Uganda is highly relief measures then tax is levied on the
centralized. The collection of the revenue into threshold balance. Power generating units
the Consolidated Account is done by Uganda are, however, exempted from rental income
Revenue Authority in the Ministry of Finance. tax.
There are a variety of taxes in Uganda. The
Billing is done by the Ministry of Finance.
national taxes include income tax, licenses and
Collection is annually and undertaken
fees, customs duty, excise duty, VAT, rental
by Uganda Revenue Authority. The
income tax, stamp duty, capital gains tax, and
contribution of rental income tax to
VAT on renting of buildings for commercial
the consolidated account is relatively
purposes amongst others.
insignificant.
Local authority taxes in Uganda include
The challenges facing rental income tax
graduated tax, taxi-park charges, market fees
are varied and include false declarations
and trading license charges, local services tax
by the tax payers, difficulty in voluntary
(LST), and property rates.
declarations, poor records, and improperly
marked plots and roads.
3.3.2 Property-Based Taxes in Uganda
(b) Stamp Duty: Stamp Duty or Property
Besides the property rate, owners of Transfer Tax in Uganda is governed by
property in Uganda may be subjected to the Income Tax Act. It is payable upon
other property-related taxes from the central transfers and acquisition of immovable
government. These include property transfer property. The person who acquires the
15
in East Africa
property is the tax payer. The tax is based The current rating is governed by the
on the purchase price as a reflection of the LGRA 2005, which came into effect on
market value, and determined by the Office 1st November 2005 replacing the Local
of the Chief Government Valuer, Ministry Governments Rates Decree 1979, which
of Lands which has the responsibility for was repealed. This Act provides the
valuations. mechanism for carrying out the valuation,
assessment, billing and collection of rates;
Currently, the tax rate is one (1) percent and applies to Kampala City Council,
of the market value of the property. The municipal councils, town councils and
responsibility for setting rates lies with the districts. This Act eliminates the monopoly
national government, Ministry of Finance. of the Chief Government Valuer and
Billing and collection are done by allows Local Governments to appoint their
Uganda Revenue Authority. In terms of own choice of qualified registered valuer.
enforcement, Income Tax Act provides the The Act is supplemented by the Local
procedures and practice. Thus has resulted Governments (Rating) Regulations, 2005.
into high compliance level. However, Uganda property rating dates back in 1948
the contribution of Stamp Duty to total when the first valuation list was prepared
national revenue is insignificant and for Kampala. The first property rating was
difficult to determine as all the payments conducted by KCC and later followed by
are lumped together in the consolidated a few other major towns such as Entebbe,
account. Jinja, Masaka and Mbale. The practice was
In comparison to other countries, the at varying degrees of success and progress
rate levied for Stamp Duty is very low in over the years. Prior to 1972 property
Uganda. rates were mainly paid by the Asian
Indian community who were the major
(c) Ground Rent: Uganda Land Commission owners of properties in Kampala and other
charges ground rent on all leaseholds and municipalities. In this regard, the city and
on all land being converted from customary municipalities raised property tax revenue
tenure to freehold tenure as well as on land and provided the services.
without titles that are directly transferred
into freehold. However, there are a few On the expulsions of Indians and the
cases of people applying for change or declaration of the Economic War in 1972,
conversion. many of the properties in the big urban
councils were allocated to indigenous
Ground rent on leaseholds is charged at Ugandans who did not observe payment
1 percent of the market value of land and of rates. However, with the demands for
based on USV. The nominal rent payable improved service delivery, the government
as determined by District Land Board has deemed it fit to introduce the property tax
to be approved by the Minister. in local governments.
(d) Rates: Property rates in Uganda are levied

by local government councils. Property
tax is an old tax but almost died a natural
death until the enactment of the law in
2005 when it was revived and became
active.
16
Chapter 4
PROPERTY TAX REGIMES IN EAST AFRICA
CHAPTER 4 PROPERTY TAX REGIMES

IN EAST AFRICA
This chapter explores the basic properties land (both central government and council
of the property tax systems for the study trust land) which is not yet ‘registered’ is also
countries of Kenya, Tanzania and Uganda. excluded from the private valuation roll –
The specific properties considered include: the although technically this land should be listed
tax base, basis of assessment, exemptions and on the public valuation roll and be liable for
property tax rates for each country. contributions in Lieu of Rates. Furthermore,
allocated council trust land not yet registered
is not liable for either rates or contributions in
4.1 Kenya Lieu of Rates.
Although variation in rating is allowed

4.1.1 Tax Base
under the law, in practice, all local authorities
In Kenya, the Rating Act allows local limit their assessment to area rating and
authorities to tax either land or land and valuation rating. Out of the 174 local
improvements (for example, buildings). authorities in Kenya, there are 102 that use
Although the first application of ‘Rating’ in some form of property taxation. Of these 102
Mombasa in 1921 was based on land and rating authorities, 75 use valuation rating, 55
improvements (i.e. the annual rental value use area rating, while 29 use a combination of
of occupied premises), all property Rates in both area and valuation rating. Municipalities
Kenya are currently levied only on land using and towns tend to rely on valuation rating
Unimproved Site Value (USV). while counties tend to use area rating or a
combination of area and valuation rating. Area
Improvements (e.g.; buildings and
rating tends to be used for rural or agricultural
structures) are not taxed. In addition, most
properties while valuation rating tends to be
local authorities exclude ‘freehold’ land,
used for more urbanized properties. Table 1
agricultural land less than 12 acres, and indeed
provides a breakdown of property rating in
most private land in the area rating rolls. Public
Kenya.
Table 4.1: Breakdown of Property Rating in Kenya (2001)
Type of local No. of Rating No. using Valuation No. Using Area No. Using both Area and
Authority Councils Authorities Rating Rating Valuation Rating
Municipalities 36 36 8 9
Towns 27 24 12 9
Counties 39 15 35 11
Total 102 75 55 29
Source: Ministry of Local Authorities, 2001
17
in East Africa
4.1.2 Basis of Assessment • Places for public religious worship;

The basis of assessment of land for purposes • Cemeteries, crematoria and burial or
of levying rates are provided in Section 8 of burning grounds;
the Valuation for Rating Act as the value of
land and the value of unimproved land. • Hospitals or other institutions for the
treatment of the sick.
Section 8(1) provides the definition of
the value of land as ‘…..the value of land • Educational institutions (including public
shall for the purposes of a valuation roll or schools within the meaning of the Education
supplementary roll, be the sum which the Act), and including the residence of students
freehold in possession free from encumbrances provided directly by educational institutions
therein might be expected to realize at the or forming part of, or being ancillary to,
time of valuation if offered for sale to a willing educational institutions;
buyer by a willing seller in an arms length kind
of transaction • Charitable institutions and libraries;
Section 8(2) provides the definition of • Outdoor sports; and

the value of unimproved land as “…… • National parks within the meaning of the
improvement in relation to land, means all National Park of Kenya Act.
work done or material used on, in or under
such land by the expenditure of money or However, the listed properties are exempted
labour in so far as the effect of such work done from rating in as much as they are not used for
or material used is to increase the value of the profit making or for residential purposes other
land, but does not include machinery, whether than for the residence of students.
fixed to the soil or not.
4.1.4 Valuation
In arriving at the value of land, the valuer
is empowered to use any suitable method In Kenya, land is valued using the
of valuation since the act does not specify market value. Property tax assessment is
methods of valuation to be used. This has, the responsibility of the local authority,
however, given rise to several conflicting which must identify a valuer to prepare
interpretations in valuation methods which in the valuation roll. The valuer can either be
turn introduces uncertainty and complexity a council employee, from the Ministry of
in valuations (Olima, 1999). The Kenyan Lands or from the private sector. The valuer,
experience is that these uncertainties in as an individual, is responsible for gathering
valuations introduce unnecessary disputes and the necessary land information, ascertaining
costly litigation between the rateable owners a value, and producing the valuation roll for
and rating authorities. the local council. The council then tables
valuation roll, informs the public, and handles
4.1.3 Exemptions the objections. The valuation is then certified
by the council and used for taxation purposes.
There are certain properties, which are
exempted from valuation for rating purposes. Valuation rolls were to be prepared every five
The nature of properties exempted are years but this was changed to every ten (10)
provided under section 27(1) of the valuation years in 1991. However, the law does provide
for Rating Act, and include; for the production of supplementary tax rolls
18
Chapter 4
on an annual basis as required. The various in the case of valuation rating. The unit area
valuation rolls are not kept up to date. Many or the value rate can be either uniform or
of the current valuation rolls date back to the differential. The differential rates can either be
early 1980s, with sporadic and ad hoc issuance proportional or graduated based on land use,
of incomplete supplementary valuation rolls. value, or size. Local authorities are allowed
to choose a valuation rate of up to four per
This cannot be attributed to the availability cent without central government approval.
of valuers. Kenya has a long tradition in the The Minister of Local Government must
training of valuers, dating back to late 1960s. approve all tax rates higher than 4 percent as a
As at the end of 2009, the total number of precautionary measure to protect the interests
those who have been registered as valuers stood of the taxpayers.
at 428. However, currently there are a total
of about 282 registered valuers, out of whom In general, local authorities in Kenya tend
about 130 are licensed and practicing valuers. to use a uniform area rate or a uniform tax
rate structure. Table 4.2 indicates that the tax
Local authorities do not have the capacity rates range from 2 to 22 percent applied to
to systematically maintain and coordinate the values contained on the valuation rolls.
their fiscal cadastre information. With the The median tax rates are 6 percent for both
exception of Nairobi, Mombasa, Nakuru and municipalities and towns and 5 percent for
Kisumu, local authorities depend on the Rating counties. Those jurisdictions with the higher
Department under the Ministry of Lands to tax rates tend to be those with the oldest
create and update their valuation rolls. valuation rolls. Tax rate is charged annually.
Therefore the tax rate of 14% for Nairobi
4.1.5 Property Tax Rates may look high but the site values are far much
lower than their corresponding current market
In Kenya, the Rating Act gives the local
values. The land values are the assessed market
authority the power to set the tax rate. The
values that the property could be sold at if
tax rate can be set either as a per unit rate in
offered for sale in the open market.
the case of area rating or as a per value rate
Table 4.2: Range of Tax Rates by Type of Local Authority, 2000
Type of Local Authority Range Tax Rates (% of USV) Median Tax Rates (% of USV)
Nairobi City Council 14% 14%
Municipality 2% to 10% 6%
Towns 2% to 8% 6%
Counties 2% to 22% 5%
Source: Ministry of Local Government, 2001
19
in East Africa
Only a few local governments apply a under the ad valorem system should be based
classified tax rate structure. The most notable on market values, all valuations are now based
is Mombasa, which differentiates tax rates on the cost replacement approach due to the
by location; properties located on Mombasa perceived lack of market value information.
Island are taxed at a higher rate than properties All properties not contained on the valuation
located on the mainland. Nairobi City Council rolls are taxed under the flat rating system. For
also uses differential rates based on land use instance, currently Dar es Salaam taxes about a
(e.g., residential, commercial and industrial). third of their properties under the ad valorem
system and two thirds of their properties under
the simple flat rating system (Kelly, 2000).
4.2 Tanzania
4.2.3 Exemptions
4.2.1 Property Tax Coverage
Taxable property is exempted from property
The objective of any property tax system tax liability in accordance with the provisions
should be the identification and assessment of of both the Local Government Finance Act,
all rateable properties within the geographic 1982 and the Urban Authorities (Rating)
area of a council. However, this particular Act, 1983. The law excludes the following
objective was not considered in relation to any buildings from property taxation:
of the 11 urban local authorities in Tanzania.
The methodology adopted by each council • Property in the personal occupation of the
was to identify only substantial, high-value President;
properties up to a maximum number that
• Property used for public utility undertakings;
would then be valued.
• Premises used primarily for public worship
This selection process by its very nature
but excluding property used for residential
meant that only a small percentage of the
or social purposes in connection with places
overall potential tax base was to be valued –
of public worship;
with the remainder of the properties to be
valued at some later date (McCluskey and • Public libraries and public museums;
Franzsen, 2000).
• Cemeteries and crematoria;
4.2.2 Assessment Basis • Civil and military aerodromes;
Tanzania allows for either a simple flat
• Property appropriated for sporting purposes
rating system or ad valorem taxation. All local
and that used solely for educational
authorities in Tanzania may impose the flat
purposes;
rating system through the enactment of local
by-laws under the Local Government Act of • Railway infrastructure;
1982. This system was originally applied as a
flat per unit amount per building but was later • Other property as may be prescribed by the
refined to include adjustments for location, concerned urban local authority.
size and building use.
Furthermore, in accordance with Section 19
Under the Urban Authorities (Rating) a council is authorized to exempt any tenement
Act of 1983, Tanzanian urban and township from paying rates subject to ensuring that there
authorities are also authorized to levy an ad are other sources of revenue to compensate for
valorem property tax. Although properties the revenue of exempted property. Besides a
local government may reduce payment of a
20
Chapter 4
rate on account of the inability to pay it; or not used in any way for commercial
exempt, any person or category of persons purposes.
from liability to pay the rate. Additionally,
the Minister is authorized under S. 13(5) of A notable practice with the property
the LGFA, 1982 to exempt any category of tax system in Tanzania is the exclusion of
persons from payment of any rate levied as per government buildings from the property tax
the provisions of the Act. base although it is nowhere stated in the law
that such properties should be exempt from
Apart from the exemptions stipulated in the property taxation. However, the responsible
Urban Authorities (Rating) Act, 1983 another Minister is required to pay service charge
exemption order was given in accordance in lieu of property rates but the central
with the Local Government Finances Act, government has not been remitting finances
1982 by the Prime Minister in 1997 and to the local authorities in this respect. This has
became effective from January 1998. The a significant impact on the size of the property
order extended powers to exempt property tax base as government buildings are many
and increased the type of properties to be and occupy prime locations of urban areas. In
exempted from liability of rates. Thus under addition exemptions granted by the discretion
the exemption order the Minister (responsible of empowered government officials do not
for local government administration) is take into account the provision of Section 9 of
authorised to exempt property from property the Rating Act. For example no consultations
tax. Provision No.4 of the exemption order are made with the responsible council when
states that: the Minister exempts a property from tax
liability in order to establish the alternative
“The property and improvements within source for compensating the revenue from the
the area of jurisdiction of a Local authority exempted property.
specified in the schedule hereto and which
in the opinion of the Minister are being used Land for public utilities, public worship,
for public purpose are hereby exempted from crematorium and burial grounds, public
liability of rates payable under the provisions libraries and museums, civil and military
of The Urban Authorities (Finance) Act.” aerodromes, property occupied by diplomatic
mission, properties in personal occupation of
Property and improvements specified in the the president are exempted from tax. There are
Schedule: also ad hoc exemptions that may be granted
i. Property owned and used exclusively by the responsible minister.
as office accommodation, laboratories The position in Tanzania is rather unique
and godowns by the government and its in that the present legislation provides for an
departments extremely liberal approach to the granting
ii. Government residential property used of exemptions. Widespread exemptions
exclusively by government officers and often create difficulties for municipalities,
employees particularly where there are significant
numbers of exempt properties within the
iii. Property used by or reserved for use by a municipal area.
Local Authority
The range of exemptions needs to be
iv. Property used exclusively for educational tightly controlled. At present the legislation
institution. confers extremely generous provisions
which are resulting in a significant loss of
v. Property owned by a religious institution
21
in East Africa
potential revenue to urban local authorities. approve.

For example, information supplied by
Iringa council indicates that there are 333
government and educational properties and 4.3 Uganda
49 buildings used for public religious worship.
This represents approximately 3.7 percent of 4.3.1 Tax Base
the total tax base (of 10,412 properties).
The rate is based on the annual rental value,
If one makes a broad assumption that with the owner of the property liable for
these exempt properties are generally quite payment. The rate is levied on properties in
substantial and an estimated average value urban areas and all commercial and industrial
of TSh120 million per property is used then buildings outside urban areas. According to
the total rateable value is TSh45.84 billion. the amended Act, the tax is also levied only
Applying the tax rate of 0.4 percent (for non- on rented residential premises. The LGC sets
residential properties), results in a potential the minimum amount of rate at 2,000/= per
revenue loss of TSh183 million (McCluskey annum and a maximum of twelve percent
and Franzsen, 2000). of the rateable value. In the case of void or
vacancy, the tax is based on rental market
4.2.4 Tax Rates
potential of the property.
There are no uniform tax rates for the whole All property within the jurisdiction of the
country. In Illala municipality, the rates are set local government is rateable except that which
out for the various categories of properties – is exempt by law. Rateable properties include:
residential, commercial and industrial with
• All properties in urban areas, unless exempt
the maximum and minimum rate per square
metre. • Commercial buildings outside urban areas.
The rates are 0.15% for all property use
categories, 0.2% on non residential in Illala 4.3.2 Exemptions
Municipality and Kinondoni Municipality Rural areas are exempted. Exemptions are
generally offered on the basis of ownership,
4.2.5 Tax Assessment Basis the use to which the property is put, the
incidence or tax burden on the taxpayer and
The Urban Authorities (Rating) Act of 1983
the necessity of the property. The general
stipulates that property should be valued
principle of exemption is that property should
based on the capital market value of the
be exclusively used for the purposes for which
premise or, where the market value cannot
the exemption is given.
be ascertained, the replacement cost of the
buildings, structures and other developments, A list of exempt buildings is given in the
adjusted for depreciation (UARA Section Second Schedule to the LGRA 2005. Other
22). To date, due to the perceived lack of exemptions are contained in Section 5 of the
market information, all valuation for rating is LGRA 2005 and include:
being done on a cost replacement approach.
The law provides for a maximum allowable • All residential houses in urban areas which
depreciation rate of 25 percent. And according are used by the owners as their family homes
to the UARA (Section 9), the property tax
• Cemeteries/burial grounds and
roll is to be valued every five years or for such
crematoriums
longer period as the responsible Minister may
22
Chapter 4
• Places of worship and residences of religious Apart from exemptions, there are other
leaders like churches relief measures. These include rebates for
expenditure on renovations and repairs on
• Any official residences of the president and property, relief on the basis of old age, sickness
traditional leaders or loss of employment on the part of the rate
• All public outdoor sports/recreation payer. These reliefs can be considered by the
facilities or properties designated as public executive of the local councils.
open schemes under the Town and County
Planning Act and controlled under the rules 4.3.3 Tax Rates
approved by the local government. The law gives discretion to the Local
• Charitable and educational institutions of Government to set a rate not exceeding 12%
a public nature supported by endowments of the reateable value and a minimum of
or voluntary contributions e.g. Kampala 2,000/= per rateable property. The regulations
School for the deaf are silent on how the rates are set. In practice,
currently the local governments do not have a
• Properties of institutions with which systematic way of setting the rate. Each local
government has contractual obligations not government sets its own rate after considering:
to levy taxes
i. Rating area
• Properties of organizations with which
Uganda is obliged to exempt taxes under ii.
Class of property (Residential or
international treaties Commercial)
• Properties owned by organizations entitled iii. Ability of ratepayers to pay

to diplomatic privileges iv. Political and social considerations
• Properties owned by local councils. The LGRA 2005 demands property rates to
Exemptions from rates should be applied be used to provide specific services such as road
on a properly-by-property basis and not to a construction and maintenance, street lighting,
broad spectrum of properties. For example not anti-malaria drains, garbage collection,
all property that is situated on the same plot of physical planning and such other services
land that has a church is exempted. required by the tax payers within their areas.
Secondly, the LGRA requires that a minimum
It should not be noted that a property may of 75% is used for the above services. Given
change from being an exempt property to a this requirement, a systematic way of setting
rateable one or vice versa any time depending rate would be as follows:
on the use that property is put. Therefore, local
government staff and the valuer should review • Project the total budget for the services and
all previous exemptions to determine whether administrative matters for the financial year
such properties still qualify for exemption. • Based on the required revenue for the
Every owner of an exempt rateable property purpose to be covered by rates, establish the
shall notify the local government concerned rateable properties and their rateable value
in writing the exempt status of the rateable
property every year (Regulations 5.1 LGRRs • The total rates to be collected should be
2005). equal to the expenditure plans of the year
i.e the budget
23
in East Africa
An example: properties in all divisions and on commercial

property in other divisions. Most tax policy
If the expenditure budget is 100 million analysts argue for a uniform rate across
If total rateable value is 1 billion different types of property and locations, and
those different property tax liabilities should
The rate would be 100m X 100 = 10% reflect only different property annual values.
1b
4.3.4 Tax Assessment Basis
It has to be noted, that the rate which is set All local authorities in Uganda follow the law
must not be more than 12% of the rateable governing valuation of property for purposes
value of the property and not less than one of levying rates. Before the amendment of
tenth of a currency point (S 3.2 LGRA 2005). Local Government (Rating) Act of 2005, all
A currency point is currently UGShs. 20,000. properties were covered for rating.
The local government may also take into The valuation and assessment is based
consideration other factors in setting the rate on annual rental income of the property as
such as: determined by registered valuers appointed
i. the desire to have a uniform rate for all by Local Government. The preparation of
sub counties or divisions in the local valuation rolls is done by both government
government and private valuers. Currently, there are a total
of only 32 registered valuation surveyors in the
ii. the ratepayer’s ability to pay whole country, making it extremely difficult
for local authorities to prepare valuation rolls,
iii. the likely reaction from the public to an leave alone updating them. The valuation
increase in rates cycle is 5 years.
iv. trends in the general economic performance Kampala City Council has 3 in house
within the area valuers, whereas the Ministry of Lands,
Some Local Governments have been setting Housing and Urban Development has 4
different rates for commercial and industrial valuers. The remaining 25 valuers are in private
properties as opposed to residential properties practice. Kampala City Council undertook
e.g Entebbe Municipal Council. The Kampala a revaluation of all their properties in all the
City Council was placing a 10% rate on 15 zones during the 2003/4/5 period. The
commercial and industrial properties in the total number of properties revalued stood at
central division and a 6 percent on residential 110,470 parcels.
24
Chapter 5
PROPERTY TAX COLLECTION AND ADMINISTRATION
CHAPTER 5 PROPERTY TAX COLLECTION

AND ADMINISTRATION
This chapter considers the tax collection and of endemic rates arrears is easily visible in the
administration systems of the study countries print media. A week hardly passes without a
of Kenya, Tanzania and Uganda. The main notice on the local dailies posted by a local
features of the systems considered include: the authority outlining rates arrears owed to the
billing and collection of tax, the enforcement local authority by various rateable owners. In
procedure and practices, capacity to administer August 2009, the city council of Nairobi posted
property tax, an overview of local authorities such a notice where only rateable owners with
revenue sources, and analysis of property tax arrears of more than Kshs 100,000 (USD
revenue of each country. 1335) had their names and amounts owed by
them included in the notice (Daily Nation,
August 31, 2009). Conspicuously missing on
5.1 Kenya this notice were the central government and
state corporations despite the former owing the
5.1.1 Billing and Collection of Tax council the bulk of the arrears in contribution
in Lieu of Rates (CILOR) and in spite of a
Billing and collection of tax are property tax
study commissioned by the Ministry of Local
administrative functions. The local authority
Government itself revealing that CILOR was
can use in – house staff, other government
the main non-performing revenue source
departments or the private sector to carry out
(Akello, 2008; GOK, 2007).
the functions. In some of the major municipal
councils, revenue collections have been Similarly, in September 2009 Mombasa
contracted to private sector lawyers – typically Municipal Council put a notice in a local
with disappointing results. daily where rateable owners with arrears of
more than Kshs 20,000 (USD 270) had their
Billing is done by local authorities annually.
names and amounts owed by them included
When the tax is due, demand notes stating the
in the notice.
assessed value and the tax due is sent to rate
payers for payment. In general, collections are The law is very explicit on the collection on
low with collection rates ranging from 5 – 60 the collection procedures. Section 15 (1) of the
percent of liabilities. This is attributable to Rating Act, Chapter 267 provides that every
such factors as (1) lack of taxpayer confidence rate levied by the rating authority shall become
or understanding in how the tax is levied, due on the first day of January in the financial
collected, and enforced, and used, (2) lack year for which it is levied and shall become
of legal and administrative collection and payable on such day in the same financial year
enforcement mechanisms, and perhaps most as shall be fixed by the rating authority. The
importantly (3) lack of political will. payment day and the amount of rate are to be
made public by the rating authority by giving
The reduction in rates revenue is closely
at least 30 days notice. Upon such notice, it
linked to non-payment by property owners
shall be the duty of every person liable for
leading to cumulative arrears. The problem
25
in East Africa
such rate to pay the amount of such rate at the 5.1.3 Capacity to Administer property Tax
offices of the rating authority or at any place. in Kenya
Local authorities do not have the capacity
5.1.2 Enforcement procedure and to systematically maintain and coordinate
practices their fiscal cadastre information. With the
Section 17 of the Rating Act, Chapter exception of Nairobi, Mombasa, Nakuru
267 deals with procedures for enforcing rate and Kisumu, local authorities depend on the
payment by defaulters. When a rateable owner Rating Department under the Ministry of
fails to pay rates due within the stipulated Lands to create and update their valuation
time period, plus any interest on any such rolls. This seriously inhibits the possibility of
unpaid rate, the rating authority may make a adhering to the valuation cycle and makes
written demand notice on the rateable owner it difficult to cover the entire country. In
requiring him or her to make rate payment addition, the use of market value in the
plus any interest that has accrued thereto assessment of individual property as well as
within 14 days after service of the written existence of informal property market makes
demand notice. the whole entire process ineffective.
The various instruments spelt out in law for Most local authorities do not have valuers
encouraging and ensuring compliance include due to lack of financial resources to recruit and
charging interest on arrears, giving discounts retain the valuers in employment.
for prompt payment of the rates, fines, tax Furthermore the local authorities do not
liens, foreclosures, and recovery from tenants. have the capacity to enforce payment, resulting
However, these mechanisms are either not into the accumulation of huge rate arrears.
employed or are not effective in achieving
compliance.
5.1.4 An Overview of Local Authorities
Despite having a variety of options under Revenue Sources
the Rating Act, the rating authorities have Local governments, the world over are
taken a largely passive role in enforcement, the primary providers of basic infrastructure
relying almost exclusively on rate clearance including water, local public schools, waste
certificates. This clearance certificate option management, and local roads among others.
relies on taxpayer initiative to clear outstanding To perform their role, the authorities must
debt and is thus only effective when the generate revenue. Rates are one such avenue
property is being transferred or when a local through which local authorities mobilize
business license or permit is being requested local financial resources for service provision.
from the local authority. However, the growth in expenditure has
Active enforcement (through fines, tax always surpassed that of revenue resulting in
liens and foreclosures) by the government budget deficits over the years.
is virtually non-existent. To date, no local Table 3 and 4 provide for the sources
authority has applied the legal option of tax of recurrent revenue for both Municipal
caveats to titles or used property foreclosures Councils and the County and Town Councils,
as a means to enforce tax payment. respectively.
26
Chapter 5
Table 5.1: Municipal Councils:- Economic Analysis of Current Revenue (in million units of
Kenya currency, 2004/05 – 2008/09)
Current Revenue 2004/05 2005/06 2006/07 2007/08* 2008/09+

Property Rates 1674.27 1696.26 2050.21 2365.28 2459.89
Indirect Taxes (Licences &Cesses) 411.97 769.12 853.48 993.68 952.36
Property Rents 531.93 726.35 805.65 896.27 926.26
Current Transfers 1236.84 1294.58 1468.37 1701.17 1487.52
Sale of Good and Services 2369.69 2722.35 3125.32 3451.00 3082.56
Total 6224.70 7208.66 8303.03 9407.40 8908.59
Rates as % of Total 26.90 23.53 24.69 25.14 27.60
Source: Kenya Economic Survey, 2009
* Provisional
+ Estimates
1
Includes Nairobi City Council
Table 5.2: Town, Urban and County Councils; Economic Analysis of Recurrent Revenue in
(million units of Kenya currency, 2004/05- 2008/09)
Current Revenue 2004/05 2005/06 2006/07 2007/08* 2008/09+

Property Rates 224.11 285.69 502.22 388.72 400.38
Indirect Taxes (Licences &Cesses) 305.38 498.17 789.31 765.90 685.91
Property Rents 25.83 39.89 43.58 178.31 200.81
Current Transfers 658.02 798.34 994.78 797.79 681.51
Sale of Good and Services 761.59 862.78 1235.45 1323.88 1304.27
Total 1974.93 2484.87 3565.34 3454.60 3272.88
Rates as % of Total 11.35 11.47 14.08 11.23 12.24
Source: Kenya Economic Survey, 2009
5.1.5 Analysis of property Tax Revenue in

Kenya
As indicated in Tables 5 and 6, property taxes
constitute quite a small percentage averaging
(0.054%) of the total tax generated in the
country. However, in real terms the amount
of tax from property is significant as it runs
into hundreds of millions of shillings, which
in an emerging economy like Kenya’s is useful
in financing capital development projects.
27
in East Africa
Table 5.3: Tax Collection by Tax Regime in Kenya (In Kshs Billions)
2004 - 05 2005 - 06 2006 - 07 2007 - 08

Taxes on income, profit, capital gains 99.3 114.6 130.7 151.8
Property Taxes 0.2 0.21 0.25 0.33
Goods & services 133.5 141.6 174.4 201.4
VAT 76.0 79.9 96.5 111.8
Excise taxes 44.15 46.6 56.1 65.6
Custom duties 19.1 20.5 27.9 32.3
Source: Kenya Facts and Figures 2008, Kenya National Bureau of Statistics
Table 5.4: Property Tax as a % of Total Tax Collection
Year Property tax Total tax Property tax as % of

(Kshs Billion) (Kshs Billion) Total Tax
2004 - 05 0.2 372.25 0.054
2005 - 06 0.21 403.41 0.052
2006 - 07 0.25 485.85 0.051
2007 - 08 0.33 563.23 0.059
Revenue from property taxation has been In the case of Town and County Councils,
an important component of revenue sources the contribution of rates to revenue has
for Local Authorities in Kenya. For instance, averaged 12.15 percent, and varying from very
before Kenya attained her independence in low 11.35 percent in 2005 to a reasonably
1963, the city of Nairobi generated 45 percent good rate of 12.24 percent in 2008.
of its revenue from rates. Nationally, rates
contributed 42 percent of all local authorities’ The reduction in the percentage contribution
revenue. For Nairobi, this ratio increased to of rates can be attributed to the Kenya
over 50 percent from the mid 1970s all through Local Government Reform Programme, an
to the 1980s. In 2003, rates contributed an initiative that saw the introduction of central
average of 20 percent of the local government government transfers locally known as Local
revenue, a trend that has continued. Authorities Transfer Fund (LATF).
Property rates have therefore made a If rates are declining in real terms and in
significant contribution over the last 10 years. many local authorities, the rates struck used
For all the municipal councils put together, has been increasing over time, it can only
the rates have been contributing an average mean that the reduction in rates revenue is
of 27 percent of the revenue over the years, closely linked to non-payment by property
depending on the efficiency of recovery. The owners leading to cumulative arrears.
figures have fluctuated from a very low rate of
23.5 percent in 2005 to a rate of 27.6 percent
in 2008.
28
Chapter 5
5.2 Tanzania and efficiency. There are four critical ratios that
affect property tax performance, namely, the
5.2.1 Tax Collection and Enforcement coverage, valuation, the tax rate and collection.
Although the tax policy concerning tax base
While the local level valuation department definitions, exemptions, valuation standards,
is responsible for the valuation roll and and collection/enforcement provisions are
issuance of the tax demand notices, the actual important, the efficiency of the property tax
revenue collection activities are administered administration is of equal or perhaps more
through the Town Treasurer’s office. With the importance. That is, the government must
exception of Dar es Salaam which introduced ensure that all buildings are on the tax rolls
computerized billing for about 30,000 parcels (i.e., improve the coverage ratio), that these
in 1996, all tax demand notices are produced buildings are valued close to market value (i.e.,
manually, creating problems of delay and improve the valuation ratio), that the tax is
transcription errors. assessed correctly (improve the tax ratio), and
Demand notices are delivered either that the revenue is collected (i.e., improve the
manually or through the postal system— collection ratio) (Kelly and Musunu, 2000).
often with difficulty due to incomplete or
out of date addresses and names. In Dar es 5.2.2 Objection and Appeals Procedures
Salaam, for example, 15.7 % of the demand After a valuation roll has been published it
notices were returned as undelivered in 1996 remains open for inspection at the offices of
(Kironde, 1997: 19). the rating authority and the rating authority
The Urban Authorities (Rating) Act (UARA) is required to set a date for lodging objections,
law is silent on the due dates and the number which should not be less than 23 days after
of installments for the property taxes—leaving the date of publication of the notice in the
these to the by-laws of each local authority. Gazette. A property owner or occupier of
Under the by-laws issued by Dar es Salaam, any hereditament included in the roll, or his
for example, the tax deadline is defined as 30 appointed representative, may inspect such a
days “after receipt of the property tax bill. In roll and take any extracts there from. The rating
practice, tax payments in DSM are made in authority or property owner or occupier of
one installment, although large taxpayers are any rateable property may lodge an objection
allowed more than one installment. in accordance with Section 13 of the Rating
Act. A representative of the owner or occupier
Despite the various legal provisions to may also appeal against the valuation.
enforce payment, collection rates appear to
be quite low (e.g., less than 30-50% in Dar On the other hand the rating authority
es Salaam). There are a variety of possible may object to the valuation in respect of
explanations to this low collection rate— any rateable property entered in the roll or
ranging from a lack of taxpayer education/ any property that has been omitted from the
understanding to outright resistance, due to roll but it should have been included. The
lack of local services. Some attribute the low objection should be served on the owner-
collection rates largely to lack of political will occupier of the property concerned or his
and administrative efficiency (Kayuza, 2006). appointed representative and on the Valuation
Surveyor responsible for the roll.
Improvement in the application of the
legal provisions available for improving the The objection by owner or occupier or his
collection ratio would improve revenue, equity representative is served to the rating authority
29
in East Africa
in writing as prescribed in First Schedule 5.2.4 Enforcement mechanisms

Form designed for serving notice of objection.
For those taxpayers that do not pay the tax,
The objection must be served on or before the
the DSM By-Laws provide for a 25 percent
specified date and must state the concerned
penalty per year or imprisonment for a
property, the grounds for objection and the
term not to exceed one month, or both fine
entry in the roll, which the objector considers
and imprisonment, or any other penalty as
that it should be replaced.
contained in the UARA. The UARA itself
All objections are referred to the Rating provides for a 1 percent per month interest
Valuation Tribunal, which must determine all penalty on all outstanding amounts (UARA
objections lodged in connection with the roll. Section 47). In 1999, the UARA was revised
The law provides for an appeal to the High to increase the level of fines and penalties to
Court against an award on a point of the law more appropriate levels in line with current
but not against the amount of the award made economic conditions.
by the Tribunal or against a decision of the
The Law also provides for a warrant to
Tribunal as to whether or not the objection has
be issued to seize the personal goods and
been properly determined. After the hearing
chattels of defaulters up to the value of the
of objection rateable property owners are
outstanding rates. The Rating Authority may,
notified of the decisions taken by the tribunal.
at their discretion, recover any amount due by
civil action without further notice or demand
5.2.3 Determining Objections (UARA Section 26).
The role of the Rating and Valuation Tribunal In addition, all outstanding rates are to be a
is to hear and determine all objections that charged on the premise, having priority over
may be raised in connection with the valuation other claims (UARA Section 27) and the law
roll or supplementary roll in question. The allows for the premise to be auctioned to recover
Tribunal’s responsibility involves analysis of the rates outstanding (UARA Section 29).
objections or complaints against information
provided in the valuation or supplementary Procedures for enforcement of property
roll and that in the property data card. In the tax compliance are provided for in the Urban
course of deciding on the appeal the Tribunal Authorities Rating Act of 1983 and the Local
is obliged to conduct site visits to the property Government Finances Act of 1982. The legal
for which there is objection to the roll in order provisions that empower Councils to enforce
to verify the existence of the property and its rates compliance include:
description. Information obtained from the
physical inspection conducted by the tribunal i. Penalty imposed at the rate not exceeding
is then compared with that contained in one percentum per month or part thereof
the property data card and valuation roll, as or the amount of rates that remain unpaid
well as that presented in the objection form. (Section 47 of the UARA, 1983)
Finally, the decision is reached on the basis of ii. Distrain upon the personal goods and
the Tribunal’s findings. The decision together chattels of the rates defaulter under Section
with the facts guiding the ruling in respect of 26 of UARA, 1983.
each objection is recorded in a special form
designed for that purpose. The resultant ruling iii. Instituting proceedings for the sale of the
by the Tribunal enables the rating authority to premises whose rates are in arrears in order
proceed with the levying of the tax accordingly. to recover the amount due. (Section 29
UARA, 1983)
30
Chapter 5
iv.
Recovery of unpaid rates through roll or supplementary roll in accordance with
deductions from the defaulter’s wage or the law. Under Section 11 (1) c of the Urban
salary by employers in accordance with Authorities (Rating) Act 1983 the notice
Section 30 of the Local Government to publish the roll must state the date and
Finances Act, 1982. specify the place at which the Tribunal will sit
to determine any objections within twenty-
v. A penalty of twenty five (25%) percentum one days after the appointed date for lodging
per annum of the amount of tax in arrears objections. Despite this clear provision under
or imprisonment for a term not exceeding the law the Tribunal has not been able to
12 months, or both. This is prescribed in accomplish the responsibility in time. As an
the by-laws made under S. 13 and 15 (c) illustration, public notices for the Phase I
and (e) of the LGFA, 1982. valuation roll were given on the 23 September
vi. A fine not exceeding fifty thousand 1994,st
stating the date of the valuation roll
shillings or imprisonment for a term not as 1 thJanuary 1995 and the date of valuation
exceeding three months to a person who as 7 November 1993. Moreover the public
fails or refuses to pay rates under the Local notice had stated that the Rating and
Government Finances Act (S. 21), 1982. Valuation Tribunal would sit in Dar es Salaam
for the purpose of determining objections at tha
Notwithstanding that the law provides date to be announced but not earlier than 20
for enforcement instruments, councils find November
1
1994. But it took thirty months
it difficult to implement them in enforcing (2 / years) for the Tribunal to sit and decide
2
property tax compliance. For instance, most on the objections since the sitting was held in
local authorities find the procedures of going September 1997.
through courts as time consuming and costly.
Given the resource constraints confronting Similarly it took quite long for the Tribunal
rating authorities, enforcement of property tax to sit for the objections lodged against Ilala
compliance is an activity seldom undertaken. Municipal Council. While the revaluation
and supplementary valuation for the central
Even though the law provides clear guidance areas of Ilala Municipality were completed
on the procedures for rating practice, in April 2002 and the Phase IV rating
rating authorities experience difficulties valuation for Segerea ward was completed in
in adhering to the legal provisions. For February 2004, both the valuation roll andth
example municipal valuers responsible for supplementary roll were published on 4th
property tax face problems in interpreting May 2004. The public notice had stated 24
the extent of exemptions, as some of the day of April 2004 as the effective date of both
exempted properties do not legally qualify the Valuation and revaluation rolls, and that
to be exempted from property tax liability. the independent Rating Tribunal would sit
Also delays in completion of the valuation to determine objections to both th
rolls within
process and preparation of a valuation roll are twenty one days from the 11 day of June
a common problem. This subsequently delays 2004. But the Tribunal sat toth decide th
on the
the billing process, the appeals process and objections to both rolls on 13 to 19 January
determination of the appeals (Kayuza, 2006). 2005, some six months after.
At the Rating and Valuation Tribunal sitting

5.2.5 Handling objections – practical the valuation firm that undertook the rating
examples valuation and property owners who filed
The Rating Tribunal is charged with objections were invited to attend the session.
determining objections lodged to a valuation The Consultant valuer was required to attend
31
in East Africa
in order to defend their valuation and respond taxpayer it states the due date that the whole
to queries arising from the valuation roll. annual amount of the property tax should be
Surprisingly none of the property owners who paid to the rating authority.
had filled objection forms, with respect to
the valuation roll showed up at the Tribunal However, now days the procedure of
meeting (Kayuza, 2006). property tax collection has been changed where
by for example the Kinondoni municipal has
outsourced the Tanzania Revenue Authority
5.2.6 Capacity to Administrator Property to collect the property tax on its behalf and the
Tax in Tanzania
agent is paid a commission in return basing
The payment of property rates is the on the amount of property tax collected. It is
responsibility of any rateable property owner paid between 20-25% of the total amount of
as provided for under Section 48 of the Rating tax collected.
Act. In the absence of the owner of the rateable
property the rating authority is empowered 5.2.7 An Overview of Local Government
to demand the amount due and payable rate Authorities Revenue Sources
from a tenant or occupier in accordance with
Section 46 of the Rating Act. The tenant or Local government authorities in Tanzania
occupier is then entitled to recover the paid are authorized to generate revenue from an
amount from any rent or other amount array of sources provided for in the Local
payable by him/her to the property owner Government Finances Act (No. 9) of 1982.
or his/her successor in title. The collection of But powers to raise their own revenues
property tax is made possible by the billing, are subject to the approval of the Ministry
collection and enforcement procedures. responsible for Regional Administration and
Local Government. Thus, despite the sources
Valuation offices of the rating authorities are of revenue being listed in the legislation, a local
responsible for the preparation of the bills or authority can only utilize a source from the list
demand notices, which are mailed or delivered after approval by the Minister responsible for
by hand to the property owner. Upon receiving local government.
a demand notice the property taxpayer decides
on when to settle the tax liability despite the The sources of revenue for local government
thirty days period within which payment authorities are broadly categorized as
should be made. It has been observed that internal (or own) and external. Internal
there is neither a statutory date for the billing, sources of revenue include all local taxes and
nor a statutory date for payment (McCluskey miscellaneous receipts while external sources
et al, 2003). constitute central government grants and
borrowing. Previously the Local Government
Instead each rating authority specifies a due Finances Act, 1982 provided for fifty six
date on the demand notice as it is sent out to revenue sources from which a local authority
the ratepayer. The common due date is stated may choose to exploit. At present local
as thirty days from the date the notice was sent authorities have less revenue sources at their
to the ratepayer. disposal following the abolition of sources
identified as nuisance taxes. Table 2.0 below
Property tax rates are levied annually and illustrates some of the revenue sources for
in most instances payable in one instalment. urban local government authorities.
When the demand notice is sent to the
32
Chapter 5
Table 5.5: Own Sources of Urban Local Government Revenue in Tanzania
1. Business Licences
2. Property Tax
3. Advertising Fees (Billboards)
4. Industrial Cess/City Service Levy
5. Liquor Licence
6. Human Resource Licence
7. Transport of Mineral Products Fees
8. Health Inspection/Food Handling Fees
9. Billboards Tax
10. City Buildings Rent
11. Transport of Quarry Products Fees
12. Abattoir Slaughter Fees
13. Medical Services Fees
14. Building Permit Fees
15. Hotel Levy
16. Fence Building Fees
17. Meat Inspection Fees
Table 5.6: Aggregated revenues from main sources of own revenue for Dar es Salaam
Councils 1998 - 2002 Amount collected in TShs Millions
Sources of revenue 1998 1999 2000 2001 2003

1 City Service Levy 2,705 2,723 2,879 3,849 4,328
2 Development Levy 1,385 1,695 1,883 1,770 1,890
3 Property Tax 1,134 1,121 1,241 1,525 1,664
4 Business licences 655 851 1,881 1,859 2,444
5 Advertising and billboard fees 319 398 571 822 1,030
6 Bus terminal fees - - 310 448 479
7 Abbatoir and slaughter fees 130 157 209 268 296
8 Motor vehicle parking 91 127 167 280 258
9 Market dues and stall rent 10 116 169 153 137
10 Cattle market charges 15 57 174 135 120
11 Hotel levy 100 83 96 117 122
12 Forestry produce fees 62 105 118 131 107
13 Town bus licences - 33 71 83 0.73
14 Intoxicating liqour 88 75 102 97 80
15 Sale of fish - 33 42 50 68
Source: Franzsen & Semboja (2004)
33
in East Africa
Property tax is a very important source of 5.3 Uganda

local authorities own revenue especially in city
and municipalities. For Illala municipality, 5.3.1 Tax Billing and Collection
property tax contributes about 30 percent of
the total local revenue. Tax billing is done annually by local
authorities. Local authorities are required under
section 26 of the act to publish the chargeable
5.2.8 Major impediments to raising rates in the Gazette and local newspapers.
property tax revenue
Under section 29, local governments are only
The primary function of property tax as a required to prepare and send demand notes to
local source of revenue is to generate sufficient all property rate payers who have failed to pay
revenue for local government expenditure. The by the due date indicating the amounts due
local government authorities partly depend on for payment. In case of Kampala City Council,
this revenue for the provision of public services. demand notes and notices are currently being
However, like many local authorities in the generated using computer programmes.
developing world the Municipal Councils
in Dar es Salaam are failing to adequately Actual revenue collection activities are
exploit the property tax source of revenue. It administered by local authorities own
is evident that property tax collection levels staff. However, Kampala City Council has
have remained very low over the years the contracted private collectors to undertake
Municipal Councils have been operational. revenue collection. The private debt collectors
It is unlikely that property tax revenue as a are paid a commission of 10 percent of
shared locally raised revenue would increase to amounts collected. Despite the engagement
satisfactory levels unless deliberate measures of private debt collectors, the collection rate is
were taken to change the situation. Currently still low at about 50 percent of the projected
property tax on average contributes less than figures.
20% of the locally generated revenue for the
municipal councils in Dar es Salaam. 5.3.2 Enforcement Mechanisms
While records on property tax revenue Local authorities enforce the payment of
collection depict a gradual annual increase as property rates among tax payers through the
compared to the previous years, collection levels following:
with respect to the actual potential should be
• administering demand notices
an issue of concern if the municipal councils
in Dar es Salaam are to improve on their • recovery by action
financial strength. It is of more concern when
the increasing number of taxable properties • charge of penalties/interest
captured in the property tax database does not
• recovery from tenants and occupiers
bring a corresponding increase in collected
revenue. The major factors undermining • prohibition of transfer of property
property tax revenue collection include low
compliance with property tax liability. • imposition of a rate first charge on property
However, there is still low compliance rate

as tax payers do not want to pay.
34
Chapter 5
5.3.3 Capacity to Administer Property Tax of Uganda allows LGs to levy, charge, collect
in Uganda. and appropriate fees and taxes in accordance
Local authorities do not have the required with any laws enacted by parliament by virtue
capacity to effectively administer property of Article 152 of the constitution. Article 152
tax. There is generally lack of property tax itself forbids the imposition of taxes in Uganda
administrative system, trained personnel and by anybody or entity without authorization
synchronization of improved local service by parliament. The major sources of revenue
delivery with enhanced revenue mobilization. which LGs are allowed to collect revenue
With the exception of Kampala City from are specified in the LGA, Cap 243 and
Council, all other local authorities depend property rates is among these sources.
on the Ministry of Lands, Housing and Revenue collected by LGs includes
Urban Development to create, prepare and licenses and fees, user fees, property rates,
update the valuation rolls. The low capacity urban authority permits, revenues from
to systematically maintain and coordinate departments. Property rates are a major
the fiscal cadastre information has seriously source of local government revenue in Uganda
inhibited the possibility of adhering to the accounting for about 14% of total local
valuation cycle. revenue. The remaining 86 percent of the
In terms of human resource, until recently, local government revenue is obtained from
the training of valuers has been undertaken Central Government. Typically, property rates
outside the country. Makarere University generate about 2 percent of total government
started training valuers in the year 2004 with revenue and about 0.5 percent of Gross
the first batch (5 out 7) graduating in 2008. Domestic Product (GDP). The LGA provides
There are currently 27 students, 43 students for revenue raised from property rates to be
and 55 students in 4th, 3rd and 2nd years, used on delivering services to residents of the
respectively. areas. The requirement is that at least 75%
of rates collected should be used on road
The issue of trained personnel is not limited construction, garbage collection, anti-malaria
to valuation alone. There are serious problems drains (S2 and 3GRA 2008).
with collection, enforcement and monitoring
of change of user particularly from owner- Table 1 provides the details of revenue
occupier properties to rental market. sources for Kampala City Council for periods
2004/2005 to 2007/2008.
5.3.4 Overview and Analysis of Local

Authorities Revenue Sources
LGs are allowed, under the 1995
Constitution of the Republic of Uganda and
the Local Government Act Cap 243 Laws of
Uganda, to collect local revenue within their
jurisdictions. Article 191 of the Constitution
35
in East Africa
Table 5.7: Revenue Sources for Kampala City Council
Collection July to June 2004-2005

No Revenue Source Estimates Actual Collection
1 Graduated Tax 3,983,830,961 3,519,504,330
2 Rates (current) 5,695,781,305 3,030,917,444
3 Licenses 4,525,630,433 3,862,071,507
4 Taxi-park (General) 5,636,520,000 3,548,936,887
5 Markets 2,167,990,608 1,048,741,031
6 Ground rent 1,316,926,555 2,465,522,034
7 Other revenues 6,393,410,543 4,655,879,592
8 Rates Arrears 6,201,891,700 1,753,709,838
9 Other arrears 0 264,265,000
10 Sub-Total Local Revenue 31,938,151,144 20,630,043,333
11 Capital income 1,486,461,400 3,644,647,216
12 Total Local Revenue 33,424,612,544 24,274,690,549
Rates as % of Total Local Revenue 12.5%
13 Other funds
14 Government Transfers 25,534,952,700 24,983,327,130
15 Development Income from: 15 Government
16 External Funds 12,104,822,434 16,320,819,138
17 Sub Total
18 Total Revenue 71,064,387,678 65,578,836,817
Rates as % of Total Revenue 3.2%
Source: Kampala City Council Financial Report
Table 5.8: Collection July to June 2005-2006

1 Graduated Tax
2 Rates (current) 10,006,700,000 2,654,977,707
3 Licenses 4,619,000,000 3,572,317,000
5 Markets 3,229,000,000 1,064,748,497
6 Ground rent 1,465,000,000 2,465,522,034
7 Other revenues 2,089,000,000 2,049,140,837
8 Rates Arrears 4,696,000,000 2,442,336,383
9 Other arrears 1,670,000,000 386,843,367
11 Capital income 1,107,000,000 3,781,654,720
36
Chapter 5
13 Other funds
16 External funds 10,242,447,002 972,670,850
17 Sub Total
18 Total Revenue 68,745,931,503 49,675,466,975
Rates as % of Total Revenue 5.3%
Source: Kampala City Council Financial Report.
The collection in the year 2005/2006 decreased due to the presidential campaign then whereby
all politicians promised abolition of some taxes like the graduated tax. The residences occupied
by owners are exempted from paying property rates.

1 Graduated Tax
2 Rates (current) 5,110,727,000 6,350,764,251
3 Licenses 4,794,830,000 3,797,540,987
5 Markets 1,563,700,000 1,849,495,716
6 Ground rent 1,502,830,000 2,555,077,112
7 Other revenues 2,824,152,000 2,229,528,332
8 Rates Arrears 4,349,226,000 1,094,459,085
9 Other arrears 3,036,800,000 298,047,880
11 Capital income 969,200,000 3,076,697,617
13 Other funds
16 External Funds 1,745,000,002 87,685,700
17 Sub Total
18 Total Revenue 55,241,761,184 47,212,411,130
Rates as of Total Revenue 13.5%
Source: Kampala City Council Financial Report.
Regarding rates, there was marked improvement in collection of property rates tax by addition
3bn from 2.6bn. This was due to collection effort put by the Central Division. There was a slight
increase of UGX 286 million in licenses and improvement in markets collection due to clearance
of arrears by contractor of Nakesero Market
37
in East Africa

1 Graduated Tax
2 Rates (current) 4,904,580,000 7,177,677,217
3 Licenses 4,846,000,000 4,980,444,860
5 Markets 1,812,000,000 1,551,812,529
6 Ground rent 1,476,104,000 2,307,694,120
7 Other revenues 2,981,783,000 2,277,228,676
8 Rates Arrears 4,054,347,000 334,028,205
9 Other arrears 2,316,800,000 850,590,000
11 Capital income 1,312,900,000 4,335,932,502
Rates as % of Local Revenue 25.8%
13 Other funds
16 External Funds 1,042,000,000 35,433,125
17 Sub Total
18 Total Revenue 70,224,237,682 66,836,379,468
Rates % of Total Revenue 10.7%
Source: Kampala City Council Financial Report
Rates collected increased due to effective An analysis of the revenue sources for
billing, periodic advertisement and the weekly Kampala City Council reveals that property
programme conducted by the Council. The rates are a major component of local revenue.
projected revenue for KCC was UG 20 billion, In terms of actual collection, rates contributed
but with the amendment of the act, the 12.5%, 11.9%, 26.1% and 25.8% of the
expected revenue for 2009 was UG 9 billion total local revenue in 2004/05, 2005/06,
with the prime central properties generating 2006/07 and 2007/08, respectively. Of the
about UG 7.7 billion. total revenue, the rates contribution were
3.2%, 5.3%, 13.5% and 10.7% in 2004/05,
2005/06, 2006/07 and 2007/08, respectively.
38
Chapter 6
CONCLUSION AND RECOMMENDATION
CHAPTER 6 CONCLUSION AND RECOMMENDATION
This chapter gives a summary of the problems leading to increases in incomes and to the
identified in the tax systems of the study alleviation of poverty.
countries of Kenya, Tanzania and Uganda
and makes corresponding recommendations The KLGRP was initially conceptualized
towards the solutions to the said problems. in the early 1990s and became operational in
1998. From its beginning, the local government
reform focused on (a) rationalizing the central
– local fiscal relationship, (b) enhancing
6.1 Kenya
local financial management and revenue
mobilization and (c) improving local service
6.1.1 Challenges to Property Tax
delivery through greater citizen participation.
Implementation
The problems that face local authorities The KLGRP reform strategy recognized that
in the administration of property taxation successful local government reform must focus
include incomplete cadastral coverage both on the internal operating environment
making physical identification of property within the local authorities themselves and
difficult, lack of human resources capacity, the external intergovernmental environment
weak enforcement mechanisms, and taxpayer – that strong local governments can only
attitude. function well internally within a strong
enabling external intergovernmental
Kenya must therefore strengthen the Local fiscal environment. The key then was to
Authorities capacity to manage and administer strategically implement the KLGRP reform
all aspects of the property rates in order to initiatives, focusing first on establishing
increase the collection coverage and valuation a rational external environment and then
ratios, as necessary. linking those intergovernmental reforms to
provide incentives to strengthen the internal
6.1.2 The context and Rationale for functioning of local authorities.
Property Tax Reform
Improved local financial management
The Government of Kenya is currently and revenue mobilization are also critical
implementing a series of local government components of the KLGRP reform initiative.
reform initiatives through its Kenya Local In 1999, the Government introduced the
Government Reform Programme (KLGRP). Single Business Permit (SBP) system that
The ultimate KLGRP objective is to replaced the previous system of multiple local
strengthen the ability of local authorities to licensing. Linked to the establishment of
improve service delivery, enhance economic SBP, the Government developed a prototype
governance and alleviate poverty. It is expected Integrated Financial Management System
that better functioning local authorities will (IFMS) to assist improve the management,
lead to an enabling environment for improved operation and control of all local financial
economic and social development ultimately operations. This IFMS includes a property tax
39
in East Africa
administrative management system to assist in An evaluation of revenue collections

all operations related to tax base maintenance, from property rates shows an extremely low
valuation, assessment, billing, collection, collection rate with virtually no enforcement
enforcement and taxpayer service. against non-compliance. Thus, rather than
focusing on legal provisions, the rates
The KLGRP property tax reform strategy reform has focused on improving the basic
was designed to be implemented within administration components. The focus has
the context of this broader KLGRP reform been on improving the basic administration
initiative. Linking the property tax reform as management of the property rates system
an integral component of the broader local – linking the basic revenue administrative
government reform effort provides the proper component (e.g. database maintenance,
context for the reform itself and builds on assessment, billing, collection, enforcement
the existing political support and reform and taxpayer service) with other revenue
momentum – for example, the establishment of sources such as the single business permits,
the Local Authorities Transfer Fund, the Single house rents, plot rents, and user charges.
Business Permit and the Integrated Financial
Management System. The KLGRP reform – There is need to shift from the current
and its property tax reform component – will single parcel appraisal approach to a simpler,
need strong and sustained political, policy, more cost effective mass appraisal approach.
operational, public and technical assistance However, the work on property tax revealed
support to be successful. that the major obstacle to improved property
rates is not valuation but poor administration
One of the key KLGRP objectives is to and the lack of political will for collection
establish a suitable local revenue mobilization and enforcement. The focus however
capacity to generate the needed own-source should be on improving the property rates
resources-to be combined with the central – administrative procedures through developing
local transfers – for improving local service a rates module within the Integrated Financial
delivery, enhancing economic governance and Management System (IFMS). There is urgent
alleviating poverty. need to strengthen the revenue collection and
enforcement components.
6.1.3 Recommendations
Mobilizing political will requires education
An evaluation of the legal basis for the and incentives to those involved in the revenue
property rates showed that there are virtually mobilization effort. The taxpayer must be
no legal constraints to improved property convinced to pay the tax through receiving
rates collections. The primary problem is improved local services and perceiving that
weak administration and the lack of political the taxes and fees are being administered fairly.
will. The law itself provides flexibility in tax
base definitions, tax rate structures, valuation As with all taxes, attention should also be
techniques, assessment, billing, collection and given to educating the taxpayer on the rationale,
enforcement. procedures, obligations and responsibilities
related to the business licenses and property
The property tax reform strategy under the tax. Linking revenue collections to improved
Kenya Local Government Reform Programme service delivery and a better – educated taxpayer
(KLGRP) was therefore designed to focus on population will enhance compliance.
administrative reform – primarily improving
the collection and enforcement systems – and The government must strictly follow the
the mobilization of political will. established laws, regulations and procedures
40
Chapter 6
to earn the credibility that the taxes and fees (d) Lack of political will among the leaders has
are administered in a transparent, accountable negatively impacted on the efficiency and
and fair manner. Management and operational effectiveness of property related tax. This
staff must be motivated to assist in the revenue is coupled to the unwillingness of local
mobilization effort – to ensure that the authorities to invest in the improvement
property tax/business registers are complete of tax base through adequate information
and kept up to date, assessments are calculated management system.
properly, tax demand notices are distributed,
tax payers are made aware of their obligations (e) Limited Human Capacity. Both the local
and the procedures to pay, and taxes and fees authorities and central government suffer
are collected systematically and fairly from all from Limited Capacity to effectively
rate payers and businesses. undertake tax assessment, valuation, tax
collection, and enforcement. The local
In short, the major constraint to improved authorities are unable to recruit and retain
property rates is not technical (i.e. the ability qualified valuers to improve on the valuation
to administer the property tax) but rather and assessment of property for taxation
political (i.e. the willingness to administer the purposes. Tanzania Revenue Authority also
property tax). The focus must be on mobilizing has got limited capacity to police all the
the necessary political will to administer the potential tax payers, resulting in those in
tax in a comprehensive and equitable manner. formal employment bearing the tax burden.
6.2.2 Recommendations
6.2 Tanzania
There is continued need for tax reforms
6.2.1 Challenges to Property Tax to support local authorities in realizing
Implementation their revenue potential and enhancing their
service delivery capacity. The potential of
In all cases of property related taxes, there property tax is still high considered the rate of
are some problems that have been identified. redevelopments and urban renewal currently
being undertaken in major urban centres.
(a) In the case of property rates, the tax coverage
The areas to be targeted for reforms should
is haphazard in both rural and urban areas.
be creation of good data base through use of
For instance, in Illala municipality, tax
GIS and Mapping of developments. Improved
coverage is less than 50 percent.
technology such as the application of computer
(b) Low compliance levels as manifested by aided mass approval and valuation should be
high property tax sums in arrears are a encouraged.
noticeable feature with the Municipal
Councils in Dar es Salaam. This is despite
the fact that the unpaid tax amounts are 6.3 Uganda
resultants of taxpayers’ failure to discharge
their property tax liability (Kayuza, 2006) 6.3.1 Challenges to Property Tax
Implementation
(c) There is weak enforcement mechanism. Most
local authorities are grappling with challenges Much as property rates are considered to
associated with collection and enforcement be an ideal source of local revenue for local
resulting in widespread non-compliance by government, the potential has hardly been
tax payers. In Dar-es-salaam, the collection exploited. Of all the national and local taxes,
rates are less than 30-50 percent. the tax on the urban property has been the
41
in East Africa
least effectively exploited and the potential • In case where building is used both as a
revenue lost has been very large. There are residential or commercial property, it may
many factors which contribute to this poor be difficult to apportion the levy for the
performance and these include: qualifying property for rates.
• Inability to administer property rolls The legal basis for LGs value, assess and
adequately. Many properties are not on the collect rates on properties however is the Local
valuation list. Government (Rating) Act, 2005. Parliament
enacted the LGRA 2005 to replace the
• Outdated valuations lists, for example the LGRD of 1979 and repeal Part III in the fifth
property in the central business district of schedule of the Local Government Act 243. It
Kampala City were revaluated in 2005 after became effective on 1st November 2005. The
15 years i.e the last valuation list was done Act empowers local government to levy rates
in 1990. The law provides that revaluation on property within their areas of jurisdiction.
should be carried out after every 5 years to The Act is operationalised by the Local
update the valuation list. Government (Rating) Regulations, of 2006.
• Lack of an efficient property information According to the LGRA 2005, all Local
base Governments in Uganda are allowed to
• Property valuation has been extremely impose, levy such rates as they may determine
expensive and slow because prior to the on the basis of the rateable value of any
amendment in 2005, the law designated property within their areas of jurisdiction
the Chief Government Vauer as the valuer (S3.1 LRGA 2005). Therefore districts, cities,
for all urban authorities. The valuation are municipalities and town councils in Uganda
done on contract basis, are at a high cost, are allowed and should in fact levy rates on
and unaffordable by most urban authorities. properties in their jurisdictions.
• On collection, many bills served to ratepayers 6.3.2 Recommendations

remain unpaid over long period of time
creating big arrears. Further, many districts There is low performance of property tax
fail to enforce the legal penalties for non- due to both taxes administration inefficiencies
payment. Because of the big size of arrears, and poor political perceptions of the public.
many municipalities have transferred the Currently, taxpayers are demanding from the
collection of rates to private firms who work local councils to be told what rates collected
on commissions. are being used for. The failure to address
reforms in property taxation has practically
• The general public is ignorant about rating made it impossible for cities and local
law and their civic duty to pay rates. councils to effectively deliver the required
services. Rates currently suffer from political
• Shortage of technical officers and valuers, interference, particularly when it comes to the
which slows the pace of valuation work. implementation of structure plans.
• Many urban authorities lack the political The main shortcomings of the current
will to enforce the payment of rates imposed property tax administration including
much as the law gives them a lot of power. inefficiencies in maintaining tax base coverage
42
Chapter 6
amidst a poor fiscal cadastre, and over reliance

on individual parcel valuation have to be
addressed.
As the key to revenue buoyancy largely

depend on improved administration, the
focus ought to be on the following;
i. Tax compliance education
ii. Imposition of stringent punitive measures

to deter non-compliance
iii.
Networking with other stakeholders
such as National Water and Sewerage
Corporation and Uganda Electricity Board
to improve on the information data base.
The above if effectively undertaken will go

along way in addressing the shortcomings that
have continued to affect the realization of full
potential of property taxation.
43
in East Africa
44
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45
in East Africa
Tanzania National Website. Lands, http://www,tanzania.go.tz.lands.html., 2007.
The Republic of Uganda (1997), The Land Act.
The Republic of Uganda (1997), The Local Governments Act
The Republic of Uganda (2005) Local Government Rating Act.
The Republic of Uganda (2005) Local Government Rating Regulations.
The Republic of Uganda, Local Governments Property Rating Handbook, Ministry of Local
Government.
The Republic of Uganda, The Income Tax Act.
The Urban Authorities (Rating) Exemption from Liability of Rates Order 1997
URT (1994) Report of the Presidential Commission on Inquiry into Land Matters’, Volume
I: Land Policy and Land Tenure Structure. The Ministry of Lands, Housing and Urban
Development
46
The Global Urban Economic Dialogue Series
The report covers three basic issues: property tax legislation

and practice, the significance and magnitude of property tax
revenue, and the prospects of property taxation in the three
East African countries. For instance, during the period of
analysis, property taxes contributed quite a small percentage
(on average 0.054%) of annual national revenue in Kenya
and between 23-27% of annual municipal council revenue.
However, property taxes are not major contributors of revenue
to local governments without municipal status where its
contribution ranges from 11-14% of total local revenue
collection. Concerning the prospects, inadequate institutional
capacity is a major challenge to property taxation in Kenya.
Nevertheless there is potential for its development including
the levying of improvement value tax. The same problem of
inadequate institutional capacity afflicts property taxation in
Tanzania where the use of GIS is recommended to weed out
inconsistencies in the applications of taxes. In Uganda too, the
potential of property taxation is hardly exploited which calls for
awareness creation among all stakeholders.
HS Number: HS/029/13E
ISBN Number (Series): 978-92-1-132027-5
ISBN Number (Volume): 978-92-1-132566-9
UNITED NATIONS HUMAN SETTLEMENTS PROGRAMME

P.O.Box 30030,Nairobi 00100,Kenya;
Tel: +254-20-7623120;
Fax: +254-20-76234266/7 (Central office)
infohabitat@unhabitat.org
www.unhabitat.org/publications

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Property Tax Regimes

United Nations Human Settlements Programme

First published in Nairobi in 2013 by UN-HABITAT.

Chief Editor and Manager: Xing Quan Zhang

Principal Author: Washington H A Olima

Contributors: Minwei Chu, Senru Li, Bo Xue

English Editor: Roman Rollnick

Assistants: Joy Munene, Agnes Ogana

Design and Layout: Peter Cheseret

Ur b a n i z a t i o n provision of adequate housing, infrastructure,

The persistent problems of poverty and

List of Tables, figures, acronyms and abbreviations viii

CHAPTER 2 BASIC COUNTRY INFORMATION 3

CHAPTER 3 OVERVIEW OF THE TAX SYSTEM 11

CHAPTER 4 PROPERTY TAX REGIMES IN EAST AFRICA 17

CHAPTER 5 PROPERTY TAX COLLECTION AND ADMINISTRATION 25

CHAPTER 6 CONCLUSION AND RECOMMENDATION 39

List of Tables, figures,

• The significance and extent of property taxes

Figure 1.1: Map of East Africa

CHAPTER 2 BASIC COUNTRY INFORMATION

2.2.2 The Government Structure in Land use (Million ha)

The form of government is a constitutional

There are 6 landlords in Kampala City

• Kampala City Council – This covers public

• Uganda Land Commission

• Buganda Land Board

CHAPTER 3 OVERVIEW OF THE TAX SYSTEM

(a) Land rent: In Kenya, administration

Table 3.1: Land Rent Schedule for Kinondoni Municipality

Zone Subject Area Uses Rates in Tshs per M2

(d) Rates: Property rates in Uganda are levied

CHAPTER 4 PROPERTY TAX REGIMES

Although variation in rating is allowed

Table 4.1: Breakdown of Property Rating in Kenya (2001)

Source: Ministry of Local Authorities, 2001

4.1.2 Basis of Assessment • Places for public religious worship;

Section 8(2) provides the definition of • Outdoor sports; and

Table 4.2: Range of Tax Rates by Type of Local Authority, 2000

Source: Ministry of Local Government, 2001

potential revenue to urban local authorities. approve.

• Properties owned by organizations entitled iii. Ability of ratepayers to pay

An example: properties in all divisions and on commercial

CHAPTER 5 PROPERTY TAX COLLECTION

Current Revenue 2004/05 2005/06 2006/07 2007/08* 2008/09+

Source: Kenya Economic Survey, 2009

Current Revenue 2004/05 2005/06 2006/07 2007/08* 2008/09+

Source: Kenya Economic Survey, 2009

5.1.5 Analysis of property Tax Revenue in

2004 - 05 2005 - 06 2006 - 07 2007 - 08

Table 5.4: Property Tax as a % of Total Tax Collection

Year Property tax Total tax Property tax as % of

in writing as prescribed in First Schedule 5.2.4 Enforcement mechanisms

At the Rating and Valuation Tribunal sitting

Table 5.5: Own Sources of Urban Local Government Revenue in Tanzania

Sources of revenue 1998 1999 2000 2001 2003

Source: Franzsen & Semboja (2004)

Property tax is a very important source of 5.3 Uganda

However, there is still low compliance rate

5.3.4 Overview and Analysis of Local