Interview: “Municipal Revenue and PropertyTaxation in Africa”
In this Interview, Professor Saibu addresses the possibilities of increasing municipal revenue through Property taxation in Africa.
Olufemi Saibu is a Professor of Economics in the Department of Economics, University of Lagos, Nigeria. Apart from his traditional macroeconomic research and modelling research, he also specialises in housing, transport urban economic informality and finance as well as business development research.
Recent research activities in the area of housing taxation
I recently completed a study on property taxation and fiscal sustainability policy; where we examined the issue of tax equity and appropriate tax means; I have also carried out comparative research on tax burdens and mix between Nigeria and South Africa in recent times.
Africa hosts thirty-three of the forty-nine least developed countries in the world, with infrastructure deficit gap financing amounting to over $70 billion. Would property taxes provide enough revenue to address Africa’s infrastructural needs?
Given the challenges facing many African countries, the managers of every economy are trying to look for ways of balancing out the economy. Evidence abounds that suggests that to a certain level of threshold, there is a positive correlation between property investment and economic recession especially when such economic challenges results in higher inflationary pressure. When we observe an economy in recession, we notice that the property sector thrives; the government can key into this thriving period and generate something from it. In Africa, most…high income earners...hardly pay normal income tax because it is easier for them to hide their incomes than to hide their properties. Government can tax properties to bring them into the tax bracket....governments can increase their efforts in increasing the monitoring of these properties, ensuring that most of these properties are not only captured but appropriately evaluated.
At the end, government may reduce income tax and rely on property tax to finance its development. It is very easy to capture properties because they can’t be hidden, property tax is more objective in raising revenue, easier to identify and difficult to avoid and evade, therefore, it is the surest way for government to generate more revenue.
Taxing informal properties
There are so many dwellings that cannot qualify as property. By standards, what constitute property is clear and obvious and so government should be careful in not over taxing (people). There is a difference between accommodation supply and housing supply. In Lagos, Nigeria; for example, there is deficit in accommodation supply but not in housing supply: where people want to live is not enough but there are enough buildings. There are so many houses that are not occupied in Lagos and Abuja, so these houses are not categorized as being supplied, many vacant houses are built for speculation, government can tax vacant houses in order to increase accommodation, increase competition, bring down rental rates, provide revenue for government, reduce housing deficit and increase utilization. Property tax should be charged on properties that constitute investment and not structures that serve as dwellings but do not qualify as property. People’s income should be taxed not their life, any property that is not enough for the owner to survive on should not be taxed. In defining a property there is need to create a benchmark in identifying taxable properties.
“there is a need to create a bench mark in identifying taxable properties”
Issues associated with property taxation in Africa
We have institutional failures, the officials who rate and evaluate tend to be more subjective and allow themselves to be influenced by whatever means in evaluating properties. We need to be able to build capacity of people to ensure that they are disciplined, less corrupt and do their duties the way it ought to be done. Secondly, in most cases there is no economy in property tax, government do not need to increase property rate but what needs to be done is to re-evaluate their base parameters, increase properties in the tax bracket and re-distribute them, we can generate more income that way without increasing the rate. Values and utilities should serve as benchmark for valuation to ensure both horizontal and vertical equity in property tax.
Property tax outlook for Africa’s development
Comparing the tax rate and tax burden in South Africa and Nigeria we noticed that in South Africa around 6 million people are paying tax and around 14 million people are benefiting from it (tax). The burden on South Africa is much and the rate they are paying is higher, VAT in South Africa is 14% while it is 5% in Nigeria. So many people in Nigeria are not paying tax and because of that the tax burden is very low. The Nigerian government loses 2% of its GDP every year because they were unable to get what they ought to get from tax, yet South Africa is over taxed. Nigeria’s government needs to develop a mechanism to ensure that taxes are paid first, after which people are asked to file tax reports. The tax system will improve, and tax invasion and avoidance will reduce as BVN, monetary system and identity management become integrated as people’s income flow can be captured and monitored more efficiently.
Globally, property taxation is becoming the main source of government financing but the challenges government face is the social structure; the political structure as well makes it difficult for government to implement tax reforms because of the negative consequences on political aspirations. There is (also) need to enlighten people about the benefits they get from paying their tax. Again, government need to tie taxes to specific projects based on region so that people can see that the tax they pay is being utilized judiciously.
“Government should tie tax collected to specific projects”
Citation: Saibu, O. (2018, March 6). Personal Interview, available at http://chsunilag.com/municipal-revenue-and-housing-taxation-in-africa
Disclaimer: The views expressed in this interview are those of the respondent and do not necessarily represent the position of the Centre of Housing Studies.
Interview conducted by Dr. Basirat Oyalowo and Oluwayemisi Soneye