This article was originally published in Africa in Fact, the journal of Good Governance Africa.
By Paul Fish
In sub-Saharan Africa, property tax is rarely seen as a source of significant local revenue. As tax expert Charles Mou noted in a 1996 study of property tax in eastern and southern Africa, property taxation is “one of the most lucrative … yet least tapped sources of revenue to support urban government in Africa.”
One reason often cited for the lack of such taxes in low-income countries is the high cost of administration. In 1991, William Dillinger, a noted commentator on tax reform stated: “In part … low yields reflect failures in the administration of the tax [in low-income countries]. Many properties are missing from the tax rolls, or are inaccurately valued, and collection is extremely inefficient.”
In 2006, in my capacity as advisor to the Revenue Development Foundation, a non-profit consultancy, I became involved in implementing a Revenue Mobilization Program (REMOP) in Sierra Leone. REMOP, which has been implemented in several sub-national governments, addresses the high costs of gathering local taxes by using modern technology and developing a recording structure to capture all properties. It simplifies and automates the valuation process, employing computer-aided mass valuation, and enhances both enforcement of tax laws and collection of tax revenues.
The REMOP system is currently operating in seven councils in Sierra Leone, while implementation has a comprehensive annual cycle that includes the following of stages of implementation: formation of a buildings database, automated valuation of buildings, a citizen engagement program, development of payments systems, and a payments compliance program.
Revenue mobilization in Sierra Leone was first tested in Makeni City Council, in Northern Province. Begun in 2006 with the registering of properties, the remaining parts of the cycle—the billing, collection, and compliance phases—were implemented in the years following and revenues increased significantly.
Unfortunately, the changes introduced to the property tax system in Makeni did not last long. One view is that they were circumvented by local administration with entrenched interests. Another is that the local council was supportive of efforts to expand the property rolls, but was unwilling to enforce compliance given the political sensitivities involved. However, the implementation offered an opportunity to develop and test a viable model for Sierra Leone.
More recently a model based on the REMOP program has been installed to revive the property tax system in Makeni City. In 2010, prompted by the initial success in Makeni, the ministry of finance requested an extension of the service to Bo City Council, the second largest city in Sierra Leone, with a population of 250,000. Here the introduction of the REMOP was effective, partly because the city’s popular mayor, Wusu Sannoh supported the program. The first year of the REMOP yielded strong results and it is still operational today, although precise figures have not been obtained.
As with Bo City, the key to the success of the introduction of the program in Bo District Council was the strong support of the head of the council, chairman Joseph Bindi. Bo District Council’s revenue mobilization efforts were supported by both the Voluntary Service Overseas, a global development organization and Welthungerhilfe, a German aid agency. The project began in 2011, and the council issued its first demand notices in 2012, collecting revenues of $17,900 from over 6,000 property owners, up from $2,500 in the previous year.
However, the introduction of the property tax system faced several obstacles in these districts.
For example, Bo District includes the periphery of the Bo City area, and the overlapping boundaries brought the two councils’ respective abilities to collect tax into sharp focus. Conflicts arose between the council and local chiefdoms regarding who was responsible for collecting property taxes. Disagreements with chiefdoms reportedly led to “interference” in some areas, with local leaders actively encouraging non-compliance. The district council will also face challenges in expanding revenue collection from the peri-urban areas bordering Bo City to more remote rural areas with lower concentrations of high-value housing and commerce.
Moreover, the 2014 outbreak of Ebola and its magnified effects on local economies resulted in a shutdown of local administrations, especially in the latter part of the year. Last year the councils requested further support from the International Fund for Agricultural Development to restart the process of introducing property tax in selected local governments in the country.
In 2011 the author was awarded a contract on behalf of the Revenue Development Foundation, then newly formed, to undertake a REMOP in four other local councils. Despite their remoteness, these areas, known collectively as KKKK, proved a good test. Initial results in the first year of the tax cycle, 2013, exceeded expectations. A common feature of the municipalities is the political strength of their councils and in particular the mayors or chairpersons of the polities. The support of these figures drove the initial acceptance of the program, in particular among business leaders.
There are several advantages of this method of introducing and raising property tax. First, it offers a relatively simple but at the same time comprehensive method of determining and collecting own-source revenues, such as property taxes. A highly technical and complex form of valuation is costly to maintain. Councils in a poor country such as Sierra Leone are more likely to maintain the smaller administrative costs of an automated process.
Second, the comprehensive approach helps to build taxpayer support for the program as the system becomes more stable and self-sustaining. Prior to implementation, it is critical to gain the total commitment of local council members and its administrators. An overview of the program, in particular the more difficult compliance stage, and the stated goals should be presented. An agreement to adopt requires a council resolution.
Third, the comprehensive nature of the system allows councils to levy property tax only from those citizens most able to pay, who are generally those people who own the larger and more valuable houses, and/or commercial properties. The most vulnerable in the community are not taxed, since they do not usually own property.
Fourth, the database for an effective property tax system can form the basis of a property register in the absence of a formal system, since Sierra Leone lacks a formal register of property owners.
A fifth advantage is that the introduction of a simplified, comprehensive property tax system can be used to form the basis for evaluating community needs and the initiation of formal town planning. Sixth, the introduction of a property tax can help to develop citizen engagement and participation in council affairs. However, our experience is that such participation can be very difficult to initiate if citizens have a low opinion of council activities. A communication campaign about the new tax system is very important to its successful introduction, including effective use of the available media.
Seventh, REMOP is a comprehensive system, with each stage handled by a single administration, and at the same time, linked to the others. Use of a dedicated software tool such as that developed for REMOP leads to better transparency and accountability.
And finally, the system’s database can be extended to the introduction of business licenses, another potential revenue stream.
There are also a number of challenges to the introduction and implementation of a property tax regime where none has existed before. It can take between six to 12 months after the implementation of a REMOP process before revenue starts coming in. Generally speaking, councilors’ opposition to property tax declines when the revenue is recorded.
The intention and final goal of introducing property tax must be the provision of services. However, the development and implementation of services can be sluggish. Typically, it takes two annual cycles for these to materialize. Early-stage examples are the development of toilets at the markets in Koidu and Bo City and in the building of bridges in Bo District.
The early stage of the implementation is the most sensitive period. In Bo City and Makeni, sending summonses to defaulters encouraged immediate payment response. New programs of implementation are now contingent on an agreement that defaulters will be summonsed.
A tendency to outsource the property tax system to contractors was also noted. The aim was to avoid the administrative costs and inefficiencies of council administration. Makeni, Bo City, and Kailahun tried this approach but their attempts did not last more than a single annual cycle. Reasons for the performance failure are not clear, but there are suspicions that corrupt practices were involved.
Corruption can, indeed, be a significant obstacle to the introduction of a new property tax system. In Sierra Leone, local councils had traditionally used revenue collectors to coerce cash from residents on a door-to-door basis. This method focused on the poor and marginalized, who were often fearful of authority. This approach gave rise to opportunities for corruption and which proved to be a roadblock for progress.
However, interest groups’ initial resistance to a new collection method can be overcome when revenue by alternate methods is recorded. With the REMOP process, payments are made only through commercial banks or local financial associations. This helps to reassure residents that funds are being handled in a transparent manner and ensures that recording of payments is made more accurately.
Another challenge is to build sufficient capacity for the new property tax system. REMOP is dependent on the ability of trained valuation officers. If the council fails to employ an assistant who acquires the skills from the valuation officer, the system will fail if the valuation officer leaves or falls ill, for example. The central government plays an important role in the training of valuation officers and in adopting the REMOP for other councils. The ministry of finance, through its local government finance department, is now adopting the program for staff training and will implement REMOP in other councils.
A system of revenue mobilization can only succeed if the comprehensive program is implemented by the council administration and supported by the polity. The advantages are clear and the challenges, though significant, tend to dissipate when the revenue is clearly recorded. The system can be readily transferred to other jurisdictions. The author has successfully implemented a pilot in the Malawian City of Mzuzu with good initial results.
Paul Fish is a Member of the Royal Institute of Chartered Surveyors (MRICS) and worked for nine years in Sierra Leone, developing and initiated the Revenue Mobilization Program (REMOP) in seven local councils.
[Photo courtesy Patrick S. Bangura]