The APTI in Senegal: Accompanying the tax and land agency in improving property tax mobilisation

Authors: Nyah Zebong
Date:
Blog

Property Tax Reform in Senegal

In recent years there has been much focus in Africa on adopting forms of taxation that enhance economic growth, but also ensure equitable, stable and sustainable sources of funding to governments. This is true for revenue mobilisation efforts that benefit both national and sub-national governments across the continent. The need to pursue reforms designed to achieve these goals is most felt at the sub-national level in many countries that have adopted decentralised forms of governance, which in effect create huge expectations and funding needs at local levels.

There is growing consensus that property taxation (PT) offers unique opportunities for improving local government finances, but sadly remains highly underused across most of Africa. The extent of reform required is varied, but also quite extensive in most cases. These range from the need to update the property rolls, to computerise/digitise property valuation, tax assessment, billing and collection processes. In some cases parallel reforms are coming on-stream designed to address the manner in which property taxes collected from taxpayers would be spent. The present blog identifies and discusses ongoing reforms to improve PT collections in the Republic of Senegal.

Amongst countries pursuing reform in this area, Senegal makes interesting reading for three main reasons: firstly, there is broad recognition in the country that the existing PT system, largely built on the “cadaster method”, stifles the growth of revenue mobilisation efforts; Secondly, there is a strong indigenous drive to favour a home-built IT solution as they seek to change the status quo and to improve PT yields; and finally, while this is uncommon in many other countries, there is a curious blend of public, private and academic sector expertise working together on this reform project to ensure its successful implementation.

Three Main Challenges

One could easily identify several factors that inhibit effective mobilisation of property taxes in Senegal. However, three seem to militate in favour of pursuing urgent reforms: complex property valuation method, institutional shortcomings, and abandoned IT reforms.

First, the current valuation system, built on the cadastral method is complex and certain aspects of it are out-of-date. In determining the taxable rental value, the method takes into consideration the surface-area, physical features (construction material, finishing, etc.), and location of properties as basis for fixing the hypothetical market value per square metre. It is worth noting that details of the applicable prices for the select locations are locked into the law such that taxable rental values are not a direct reflection of actual market rates. Rather they are a function of fixed amounts that are clearly provided in the statute. Although the method looks simple and straightforward, taxpayers and officials agree that it poses significant implementation challenges.

First, the method requires detailed interior data about the property that is at best administratively very demanding, and quite difficult to obtain since many taxpayers are reluctant to allow cadastral officers access into their properties. Secondly, the details provided in statute and on which the method/system relies to assign values are inflexible, do not reflect property market trends, and are therefore likely to become obsolete at frequent intervals. This is actually the case given that the most recent updates date as far back as 1981.

Second, institutional and administrative weaknesses exist that make implementation of the system challenging. The competence to value properties for PT purposes resides mainly with the DGID’s Cadaster Bureau that is burdened, as some stakeholders have argued, by bureaucratic inefficiencies and delays in its handling of valuation case files before it. This has created a backlog of pending case files, which could be cleared by simply broadening the scope of valuation actors to include independent surveyors and other real estate professionals. Further, in cases where the Cadaster bureau has effectively applied the cadastral method and delivered to the Taxation services rental values that ought to be used for PT computation purposes, these have been accepted reluctantly. The main reason is that these values often present significant shortfalls when compared to going market rents, and in some cases lower than values that were declared by taxpayers. Given increasing pressures on tax officials to maximize PT yields, there is a growing practice to bypass the cadastral method and to simply implement actual rental values in cases where taxpayers are less prone/inclined to appeal. This notably happens in cases where the taxpayer opts to spontaneously declare a taxable rental value and is not ready to engage in what might otherwise turn out to be a costly/lengthy appeals process to have the said value reviewed by the Cadaster.

Third, the administration faces significant challenges in matching physical properties to assigned NICAD (cadastral) numbers. For example, during an APTI visit in August 2017 to test a simplified valuation method only 9 out of 21 targeted properties could be identified in the field due to difficulties matching NICADs to the physical properties – and this despite cadastral officers in Ngor-Almadies having previously visited all of the 21 selected properties. In these circumstances, it is not difficult to understand the low levels of PT yields observed in Ngor Amadies. While rough guestimates place the number of ratable properties in the Centre’s jurisdiction at about 100,000 some 2,584 taxpayers were registered on the Property Tax Roll, with fewer than 1,000 filing formal returns in 2017. Logically, properties that are hard to identify are less likely to be valued, taxed or to receive formal rate notices.

There is recognition within the DGID that urgent reforms are needed to address these and other shortcomings. And, indeed, there have been previous attempts, but with uneven results. For example, the administration previously adopted a private sector built MLR Software for valuing properties. However, it has not had the expected effect, in large part because regular changes in property tax regulations were not often matched by regular upgrades to the software.  Likewise, the Cadaster Bureau has developed and tested an in-house simplified approach to implementing the cadastral valuation method developed by the Cadastral Bureau, with a view to avoiding the need to enter inside properties, but it appears that this has yet to be validated at the DGID.

These challenges suggest the need to not only target weak links in the current system, but to develop a holistic reform strategy that produces a coherent system capable of optimising property tax yields throughout Senegal.

Recommended Steps to Strengthen Property Taxation

Driven by the need for urgent reforms the DGID is now partnering with the Paris School of Economics (co-sponsor) on a project to develop a comprehensive IT system to manage the property tax gathering chain in the country. A local software development firm IDYAL has been hired to build the software on an open-source platform and the African Property Tax Initiative (APTI) has been invited into the project to provide technical support to the firm and to vet for quality.

The software is designed to cover all key aspects of property taxation from the identification and registration of properties into the property register, through adoption of simplified solutions for valuing properties. It is also intended to ensure rapid computation and issuing of property tax bills to taxpayers, to be eventually linked to the treasury’s payment systems to ensure the return of regular data feeds when PT payments are made. Disputes shall also be managed by the system. This holistic approach offers a unique opportunity for Senegal to develop sustainable solutions to its PT problems that can prove useful to other countries facing similar challenges given the open source nature of the IT system under construction.

As noted earlier key inhibiting factors to effective property taxation in Senegal include the complex property valuation system and administrative hurdles. Logically, no meaningful improvements to property tax yields can be achieved without sufficiently addressing these issues within the framework of ongoing reforms.

On the question of valuing properties for tax purposes, the DGID needs to seek a solution that combines the principles of simplicity, efficiency, equitability and progressivity, while complying with Senegal’s laws. As part of its contribution to the project the APTI has demonstrated that points-based valuation method (PBM) is an interesting and simple fix to most observable shortcomings that plague the cadastral method. In effect the PBM approach assigns baseline “points” to the surface area of buildings while additional points are awarded or deducted respectively for positive or negative features of the property.  These points are, in turn, translated into PBM rental values using a predetermined formula that has been calibrated to ensure that PBM rental values correlate to market rental values.  The end result is valuations that conform to the existing cadastral method, but which are achieved much more simply and transparently. For more information on the PBM, see Paul Fish’s Practical Guidance Note.

Initial demonstration by the APTI of the PBM was carried out using test properties within Ngor Almadies. The test revealed a correlation rate of about 85% between results obtained using the points-based approach and those of the cadastral method, and over 95% correlation between points-based rents and actual market values. If anything, the method appears more accurate than the existing system, while ensuring much more complete coverage due to its simplicity. It therefore stands as a transparent, flexible and easily automated solution that is adaptable to existing Senegalese laws. Notwithstanding that further trials are needed in Senegal to confirm its viability as a practical option, these initial results make a compelling case for points based valuation as an attractive alternative to the challenges of the existing system.

On the broader question of responding appropriately to institutional and administrative shortcomings, the proposed development of an open source IT software designed to manage the entire property tax gathering chain is crucial. The solution has the advantage of automating much of the processes such that human and material errors would be reduced and time would be gained in accessing and processing information.

A Model Reform Project in Progress

Perhaps the most important point in this modernisation and automation process has been its ability to pull together stakeholders with often-competing interests around this common objective. One observes an unusual harnessing of synergies between the government (DGID), academia (PSE, ICTD-APTI) and the private sector (IDYAL) all working together to build a successful system. Government is the main beneficiary; PSE is sourcing information and feeding data into the process; IDYAL is building the IT system; and APTI is vetting/providing direct technical support and supervision to the developer as it implements the software design. This creates a model of collaboration for stakeholders with similar interests elsewhere on the continent.

The challenges to effective mobilisation of property taxes faced by Senegal today are not unique, and can be found across many countries in sub-Saharan Africa. The Senegalese experience is interesting in that the government has been proactive in diagnosing some of the key challenges and is now working with partners from academia and the private sector to conceive and implement solutions that would result in improved property tax yields in the years to come. There is recognition that for any real benefits to be reaped the valuation system needs to be simplified and the country has opted to rely on local content in building an open source IT system for managing property taxes, supported by researchers, experienced PT experts and IT programmers in order to ensure optimal outcomes.

Given that the system is built on an open source platform and integrates the entire property tax chain from the cadastral through fiscal operations, other countries experiencing similar challenges could greatly benefit from keeping an eye on developments in Senegal.

Image credit: © Initsogan
Nyah Zebong
Dr. Nyah Zebong has over 11 years of experience working with the Ministry of Finance in Cameroon on tax policy and administration issues including compliance, audits, appeals and collection. He wrote his doctoral thesis on taxation of the extractive industries, focusing on tax anti-avoidance and transfer pricing, and has been a visiting lecturer of tax law. He is now the Project Leader for ICTD’s African Property Tax Initiative (APTI).