Improving property tax collection: Lessons from Uganda

Authors: by Fred Andema, Nyah Zebong & Robert Raikes Mugangaizi
Date:
Blog

Local governments (LGs) across Uganda have recently been looking for ways to improve yields from their property tax systems. The main reasons for this growing interest are the rapid urbanisation taking place in the country, and the increased pressure from city dwellers for public services. Some property tax reforms have shown success in identification, valuation and property assessment. These reforms have helped to enhance the property tax base. But many LGs still grapple with low collection rates, mainly because of low or lack of enforcement. In this blog, we review the property tax enforcement regime in Uganda and propose a way forward that fosters collection in a more people-centred way.

Negative perceptions by citizens

Uganda has numerous mechanisms for property rates enforcement. These range from soft measures like issuing demand notices and charging interest or penalties on delayed payments, to harder measures like recovery by action, summary warrants, recovery from tenants and occupiers, or prohibiting the transfer of property with arrears.

Despite the  wide array of enforcement options available, most LGs choose to enforce collection by sealing off properties with arrears. Sealing off the property is typically seen as the fastest yielding option. This approach has improved local revenue collection and compliance levels, but it is fraught with numerous challenges—not the least of which involves deciding when, how, and what to seal. Variations in the size and nature of properties also pose serious challenges for enforcement. In some cases, politicians have decided to politicize the enforcement process under the guise of helping their constituents, undermining LG ability to mobilize revenues.

Importantly, enforcement by sealing off the property has never been viewed favourably by citizens. Many have argued with LG officials, sometimes accusing them of reaping where they did not sow. Ratepayers claim they are already paying many taxes—some of which even government officials fail to clearly explain. Most of these taxes are collected by the national tax body, the Uganda Revenue Authority (URA), and ratepayers wonder why LGs should be able to go ahead and collect from the same tax base as the URA.

Key enforcement issues

The past 10 years has seen unending enforcement battles between ratepayers and tax collectors, and it is important to understand the causes of this behaviour. For the most part, the issues discussed below explain the persistent clashes:

1. Property financing mechanisms

Project finance is sometimes used to develop high-value properties; such that repayment mainly comes from the proceeds of the building. Some properties, even those located in the Central Business District, face low vacancy rates that render loan repayments difficult. This was the case, for example, with a bank-funded, multi-storey building in Kampala where the top three floors remained vacant for many years. Faced with this challenge, the property owner chose to settle his debt to the bank first before paying owed property taxes. After the building was sealed, the property owner eventually agreed to enter a two-year payment plan to clear his debt. Nevertheless, this story shows the challenges for property tax enforcement that can arise with this type of project finance.

2. Inadequate communication with clients

Citizens broadly perceive municipalities to be unresponsive. As a result, ratepayers are predisposed to avoid dealing with collectors. Cases abound where owners of defaulting properties have unsuccessfully sought to halt enforcement operations in the hope of then discussing a payment plan. In circumstances where commercial buildings occupied by tenants are involved, and where there is risk of distress actions, the lack of willingness to listen creates the impression of an LG that is unresponsive to the needs of local residents.

3. Inadequate or outdated client data

Some properties in the valuation rolls have insufficient or outdated information. Others are dilapidated, under construction, or even demolished—and yet they still have accrued bills that the municipality forcefully demands. The Kampala Capital City Authority (KCCA), for example, recently opted to prosecute clients who, despite sealing off their property, had failed to pay. It turned out that some of these properties belonged to people who had died, and that could not be sued under local laws. Identifying the living administrators of these estates proved a mostly futile effort. Lack of information about the actual owners of properties has therefore sometimes led to incorrect enforcement decisions.

Options for improving collection

Enforcement operations, irrespective of their nature, timing, and mode, are widely detested by citizens. To overcome collection barriers, LGs need to become more people-centric in their operations. In Uganda, several approaches have already been tried, including:

1. Relationship management

Ratepayers are segmented, and a dedicated municipal officer is assigned to a specific segment. Segments are defined either by block (by village in rural areas), by industry, or by sector. Ratepayers who own several properties across segments are assigned a dedicated municipal officer. Municipal officers are expected to build relationships with their clients, understand their businesses, agree on payment terms, and ensure that any services needed by ratepayers are fast-tracked.

2. Third party enforcement

Third party enforcement is usually done by court bailiffs who are obtained through a procurement process. When serving the demand for payment of rates due, taxpayers are given a deadline for payment beyond which they are informed of likely inconveniences arising from enforcement actions by the court bailiffs.

3. Involvement of political leaders

This model involves local politicians in property tax administration. Politicians are engaged either for sensitization campaigns or the mobilization of revenues, and their time is compensated through proportionate emoluments.

4. Municipal Development Forums (MDF)

With increasing levels of urbanisation in Uganda, the service delivery expectation gap between urban dwellers and their LGs is increasing. The traditional approach to service delivery involves a team of technocrats who prioritize community needs through a budgeting cycle, sometimes with little or no consultation with urban dwellers. The MDF approach, in contrast, empowers urban dwellers to prioritize their own community needs. To enforce community decisions, LGs are required to ring-fence at least 50% of available funds for projects prioritized through the MDF.

The social contract

At the end of the day, property tax collection is a relationship between citizens and LGs. LGs need to improve local collection to finance public service delivery, but confrontational methods will likely do more harm than good. Finding innovative ways to improve collection that is consensual, and where people can see the benefits of the taxes they pay, should therefore be of strategic importance for LGs seeking to improve yields from property taxes.

Image credit: © Lauren Parnell Marino
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).
Fred Andema
Fred Andema is the former Acting Director of Revenue Collection Services at Kampala Capital City Authority.
Robert Raikes Mugangaizi
Robert Raikes Mugangaizi is the head of compliance and risk management in the Directorate of Revenue Collection at Kampala Capital City Authority. He is responsible for debt management, identification and prevention of revenue leakages, and improving business processes.