i
ASSESSMENT OF VALUATION CHALLENGES IN PROPERTY
RATING IN TANZANIA: A CASE OF ARUSHA CITY
Charles Kitalya
Master of Arts Degree (MARLA) Graduate Essay
University of Dar es Salaam
May, 2020
i
ASSESSMENT OF VALUATION CHALLENGES IN PROPERTY
RATING IN TANZANIA: A CASE OF ARUSHA CITY
By
Charles Kitalya
A Graduate Essay Submitted in (Partial) Fulfillment of the Requirements for
the Award of Degree of Master of Arts in Revenue Laws and Administration
(MARLA) of the University of Dar es Salaam
May, 2020
i
CERTIFICATION
The undersigned, certifies that he has read and hereby recommends for acceptance by
the University of Dar es Salaam, a graduate essay titled; “Assessment of Valuation
Challenges in Property Rating in Tanzania: A Case of Arusha City”, in
fulfillment of the requirement for the degree of Master of Arts in Revenue Law and
Administration of the University of Dar es Salaam.
__________________________________
Dr. Hamza I. Abdulrahman
(Supervisor)
Date ____________________________
ii
DECLARATION
AND
COPYRIGHT
I, Charles Kitalya, declare that this graduate essay is my own original work and that
it has not been presented and will not be presented to any other college or university
for a similar or any other degree award.
Signature:……………………………
©
This Graduate Essay is a copyright material protected under the Berne Convention,
the Copyright and Neighbouring Rights Act, Cap. 218 R.E. 2002 and other
international and national enactments, in that behalf, on intellectual property. It may
not be reproduced by any means in full or in part, except for short extracts in fair
dealings, for research or private study, critical scholarly review or discourse with an
acknowledgement, without the written permission of the University of Dar es
Salaam, on behalf of the author.
iii
DEDICATION
To
My Children!
iv
ACKNOWLEDGMENTS
I would like to thank God for the blessings, the years 2018-2020 at the University of
Dar es Salaam, which stands out as one of my best years in my academic endeavours.
Special thanks are due to my supervisor, Dr Abdulrahman, H. I for his untiring
support and kindness. Thank you, Mr Stephen Samwel Malekano, for believing in
me, and for your invaluable support and advice. You greatly contributed in making
my learning of tax law seem easy and enjoyable. It has been a pleasure working with
you all together.
I would also like to thank Dr Boniphace Luhende (Lecturer & Head, Public Law
Department), Dr Abel J. Mwiburi, Dr Erasmo Nyika, Mr Ebenezer Mshana, Mr
Emanuel Masalu, and Mr Thomas Semu for their teaching and support throughout
the program. I am extremely grateful to Mr. Erick Sambu for his kindness. Thank
you, Erick, for going the extra mile to ensure that I enjoyed my study at UDSM. My
thanks also to Hon. Judge Ephery Sedekia, Mr. Carlos Mbwigamno, Nancy G. Waga,
and Jennipher Mathias for wonderful support.
My gratitude is also due to my classmates both from MARLA and LLM Taxation
especialy Catherine Mokiri, Salma Jarufu, and Mwita who were class
representatives; other friends in MARLA Regular class include Janet Eden, Melabi
David, Siael Mcharo, and Yakoub MousaGaba, thank you all for much needed
support and friendship. Lastly, I would like to thank my family and friends: To my
mother for her support and unconditional love; my children, Amos, Ester, Ansila,
and David, thank you so much for your love. Special thanks to Dr Deogratias N.
Mahangila of the Business School, University of Dar es Salaam for your thoughtful
insights, constant guidance, and constructive criticism. I would like to extend my
gratitude to my friends, especially, those I have met at the Institute of Tax
Administration and in the School of Law of the University of Dar es Salaam for
being so nice and supportive. May God bless you all.
In due respect of the inputs borrowed from various individuals to this graduate essay,
I remain fully responsible for any mistakes that may be contained herein.
v
ABSTRACT
Property Rating stands for the local government taxation of real estate wealth based
on tenure and physical ownership dynamics of real properties. It is a levy enforced
by central or local governments on owners or occupiers of landed properties.
Property valuation is deployed for the purpose of determining the tax base by
systematically assessing the value of any particular rateable property.
This study undertook to examine the challenges that relates to valuation issue in
administration of property rating in Tanzania. The motivation behind the theme of
this study is based on the realities that have taken pace in recent years where there
has been series of reforms in property rating leading to abandonment of value based
rating system and embrace the flat rate system.
In embarking into the study a descriptive approach with a case study strategy was
adopted and various categories of respondents were involved to provide the
responses on a number of key issues. The study, largely relied on secondary source
of information where questionnaire, interview, and documentary review techniques
were deployed, while the analysis of data and presentation has been through the use
of SPSS.
The study explored the property rating practices in Tanzania and by examining the
valuation challenges it was found out that making choice of the appropriate Property
Rating System (PRS) is difficult and that is why policy makers have kept on making
regular reforms. Other key challenging issue includes; unreliable property markets
data, there is great potential for GIS and digital satellite technology that can assist
administration of property rating; capacity constraints which results into agency
problem because of complex institutional structures; and the shortage of
infrastructure hinders the adoption of Computer Aided Mass Appraisal (CAMA).
Therefore, the study recommends that the Rating and Valuation legislation should
clearly define the aspects that affect property values and allow for flexibility in the
rating system. The authorities should consider adopting a combination of value
based, stratified flat rate, and self-assessment systems in administering property tax.
Further, rating authority should adopt simplified hybrid methods of value assessment
and embrace ICT based property markets data inventory and management of
information.
v
TABLE OF CONTENTS
Certification .................................................................................................................. i
Declaration and Copyright ........................................................................................... ii
Dedication ................................................................................................................... iii
Acknowledgments ....................................................................................................... iv
Abstract ........................................................................................................................ v
Table of Contents ......................................................................................................... v
List of Tables .............................................................................................................. ix
List of Figures .............................................................................................................. x
List of Abbreviations .................................................................................................. xi
CHAPTER ONE: THE PROBLEM AND ITS CONTEXT .................................. 1
1.0
Introduction ...................................................................................................... 1
1.1
Background Information .................................................................................. 1
1.2
Statement of the Problem ................................................................................. 3
1.3
Objectives of the Study .................................................................................... 4
1.3.1
Main Objective................................................................................................. 4
1.3.2
Specific Objectives .......................................................................................... 4
1.3.3
Research Tasks and Research Questions ......................................................... 4
1.4
Significance of the Study ................................................................................. 4
1.5
Conceptual Framework .................................................................................... 5
CHAPTER TWO: LITERATURE REVIEW ......................................................... 6
2.0
Introduction ...................................................................................................... 6
2.1
Theoretical Grounding ..................................................................................... 6
2.1.1
The Socio-Political Theory of Taxation........................................................... 6
2.1.2
Principal-Agency Theory ................................................................................. 6
2.1.3
The Theory of Planned Behaviour ................................................................... 8
2.2
Definition of Terms .......................................................................................... 8
2.2.1
Tax ................................................................................................................... 8
2.2.2
Taxation ........................................................................................................... 9
2.2.3
Property Rating and Property Rate(s) .............................................................. 9
2.2.4
Tax Base ......................................................................................................... 10
2.2.5
Property Taxation........................................................................................... 11
2.2.6
Property Valuation and Assessment .............................................................. 11
2.2.7
Incidence and Fairness ................................................................................... 12
vi
2.2.8
Vertical and Horizontal Equity in Taxation ................................................... 13
2.2.9
Property Valuation Accuracy ......................................................................... 13
2.2.10 Property Valuation Bias ................................................................................. 14
2.2.11 Taxonomy of Property Taxation .................................................................... 14
2.3
Review of Empirical Studies ......................................................................... 15
2.3.1
Property Rating in Global Context................................................................. 15
2.3.2
Property Rating in African Context ............................................................... 18
2.3.3
Property Rating in Tanzania .......................................................................... 21
2.4
Synthesis and Research Gap .......................................................................... 23
CHAPTER THREE: RESEARCH METHODOLOGY ...................................... 24
3.0
Introduction .................................................................................................... 24
3.1
Research Design ............................................................................................. 24
3.2
Study Area ..................................................................................................... 24
3.3
Sample Population and Sample Size.............................................................. 24
3.4
Sampling Procedures ..................................................................................... 25
3.5
Source of Data and Collection Methods ........................................................ 26
3.5.1
The Questionnaire Survey Technique ............................................................ 26
3.5.2
The Interview Survey Technique ................................................................... 26
3.5.3
The Review of the Documentary/Literature Technique ................................ 27
3.6
Data Analysis and Presentation ..................................................................... 27
3.7
Limitation and Delimitation of the Study ...................................................... 27
CHAPTER FOUR: DATA ANALYSIS AND PRESENTATION OF FINDINGS
........................................................................................................................ 29
4.0
Introduction .................................................................................................... 29
4.1
General Information of the Respondents ....................................................... 29
4.2
Demographic Information of the Respondents .............................................. 30
4.3
Presentation of the Findings in Relation to the Specific Objectives .............. 31
4.3.1
Valuation Methods and Property Valuation Systems .................................... 33
4.3.2
The Complex Institutional Arrangements in Property Rating ....................... 33
4.3.3
Poor Valuation Infrastructures for Mass Valuation ....................................... 34
4.3.4
Lack of Proper External Quality Controls ..................................................... 35
4.3.5
Government Interference Affects Property Valuation ................................... 35
vii
4.3.6
Valuation, Land Titling and Property Taxation ............................................. 36
4.3.7
Poor Community Engagement and Sensitization ......................................... 37
4.3.8
Reforms in Administration of Property Rating in Tanzania .......................... 38
4.3.8.1 Shifting Administrative Power from Local Government Authorities to TRA
........................................................................................................................ 38
4.3.8.2 Exempt Properties and Property Owners from Payment of Property Rates .. 39
4.3.8.3 Offences, Penalties, Interest and Appeals ...................................................... 40
4.3.8.4 Property Rating and Flat Rate System ........................................................... 40
4.3.8.5 Special Buildings and Possible Loss of Revenue .......................................... 41
4.3.8.6 Declaration of Rateable Areas ....................................................................... 42
4.3.9
Property Rating Practices Adopted in Arusha City in 2014 -2016 ................ 42
CHAPTER FIVE: DISCUSSION OF FINDINGS, CONCLUSION AND
RECOMMENDATIONS ............................................................................. 45
5.0
Introduction .................................................................................................... 45
5.1
Summary of Findings ..................................................................................... 45
5.2
Discussion of Key Findings ........................................................................... 45
5.2.1
Difficult in Making Choice of the Property Rating System .......................... 45
5.2.2
The Absence of Property Markets Data ......................................................... 46
5.2.3
Great Potential of GIS and the Role of ICT in Property Rating .................... 46
5.2.4
Requirement for Supplementary Valuation ................................................... 47
5.2.5
Poor Data Inventory and Management of Information .................................. 48
5.2.6
Complex Institutional Structures and Capacity Constraints .......................... 49
5.2.7
Legal Limitations to Unconventional Tax Base Options ............................... 49
5.2.8
Shortage of Infrastructure (Facilities, Equipment and Machines) ................. 50
5.2.9
Uniform Property Rating Procedures (Flat-Rates Requirement) ................... 50
5.3
Conclusion and Recommendations ................................................................ 51
5.3.1
The Rating and Valuation Acts Should Clearly Define the Value Affecting
Attributes........................................................................................................ 51
5.3.2
Allow Flexibility in Property Rating System ................................................. 52
5.3.3
Embracing ICT Based Property Markets Data Inventory and Management of
Information .................................................................................................... 52
5.3.4
Central Government Should Empower Local Government Authorities ........ 53
viii
5.3.5
Consider Simplified Hybrid Methods of Value Assessment ......................... 53
5.3.6
Adopting Consolidated Reforms in Administration of Property Rating........ 54
5.3.7
Promotion of Wider Community Engagement to Enhance Voluntary
Compliance .................................................................................................... 55
5.3.8
Enhance Training Programmes for Rating and Valuation Officers ............... 55
5.3.9
Property Rating Should be Administered by Local Government Authorities 55
5.4
Policy Implications ........................................................................................ 56
5.5
Area of Further Study .................................................................................... 57
REFERENCES ......................................................................................................... 58
ix
LIST OF TABLES
Table 3.1: The categories of respondents .................................................................. 25
Table 4.1: The actual respondents and response rate. ............................................... 29
Table 4.2: Age and Education Information. .............................................................. 30
Table 4.3: The General Summary of Responses. ...................................................... 31
Table 4.4: General summary of respondents’ opinion on arguments. ...................... 32
Table 4.5: Summary of responses on valuation methods and property valuation
systems. .................................................................................................... 33
Table 4.6: Summary of responses on institutional arrangements. ............................ 34
Table 4.7: Summary of responses relating to government interference. ................... 36
Table 4.8: Summary of records of rateable properties for Arusha City Council. ..... 44
x
LIST OF FIGURES
Figure 1.1: The Conceptual Framework ..................................................................... 5
Figure 2.1: Typical process involved in the determination of property tax. ............. 14
Figure 4.1: Chart showing response rate on Valuation Infrastructure for Mass
Valuation ................................................................................................ 34
Figure 4.2: Chart showing responses on valuation external quality controls ........... 35
Figure 4.3: Chart showing poor external quality controls ........................................ 37
Figure 5.1: (A&B) Use of Satellite Imagery in property rating in Arusha* ............. 47
Figure 5.3: Illustration of the impact of data inventory and information management
................................................................................................................ 48
xi
LIST OF ABBREVIATIONS
AVS
Automated Valuation System
BOT
Bank of Tanzania
CAMA
Computer Aided Mass Appraisal (Valuation)
GDP
Gross Domestic Product
GIS
Geographic Information System
ICT
Information and Communication Technology
IFW
Institutional Framework
LGA
Local Government Authority
LGFA
Local Government Finance Act
LGRCIS
The Local Government Revenue Collection Information System
PO-RALG
President’s Office, Regional Administration and Local
Government
PRIMS
Property Rate Information Management System
PRS
Property Rating System
TRA
Tanzania Revenue Authority
UAM
Unit Area Method
UARA
Urban Authorities (Rating) Act
UAV
Unit Area Valuation
UNCHS
United Nations Center for Human Settlement
USA
United States of America
USRP
Urban Sector Rehabilitation Program
VEO
Village Executive Officer
WEO
Ward Executive Officer
1
CHAPTER ONE
THE PROBLEM AND ITS CONTEXT
1.0 Introduction
Property rating is the process of assessing the real property to ascertain the property’s
tax liability as a local government revenue-raising tool. It is levied based on the value
of a property, in other words, property tax is an ad-valorem tax1 which is levied on
real estate especially buildings. The traditional levying authority is the governing
authority of the jurisdiction in which the property is located.
According to Dillinger,2 Property Rating is potentially an attractive means of
financing local government in developing countries. As a revenue source, it can
provide local government with access to a broad and expanding tax base. In
Tanzania, Property Tax is administered under the Local Government Authorities
(Rating) Act.3
1.1 Background Information
Atilola, concluded that property taxation is universal, it is hard to find a country
which does not levy a tax on its landed property. In Rome for instance, the literature
on property taxation indicates that it was introduced during the earliest times and it
was known as tributum.4 Evidence suggests that the tributum was paid in
proportionate to an individual's wealth established by their census group. It was not a
flat rate of taxation, being instead determined by Rome's annual military needs. 5
According to James and Nobes,6 the magistrate undertook the tax assessment and
kept a register in which the property of each citizen was recorded. The tax rates were
between 0.1 and 0.3 per cent of an individual’s property value. The tributum was
abolished in 167 BC and later on was replaced with a 5 per cent inheritance tax,
1
2
3
4
5
6
The term “ad valorem” is Latin for “according to value,” which means that it is flexible, and it
depends on the assessed value of an asset, product, or service. An ad valorem tax is charged by
state and municipal governments, and it is based on the assessed value of a product or property.
William Dillinger, Urban Property Tax Reform: Guidelines and Recommendations. Urban
Management and Municipal Finance (Washington: World Bank, 1991).
See Cap. 289, [R.E. 2010].
A Roman tax paid by citizens and usually levied as a head tax; later, when additional revenue was
required, the base of this tax was extended to real estate holdings.
Rosenstein, N. (2016), "Tributum in the Middle Republic", Circum Mare: Themes in Ancient
Warfare, 388, Brill, pp. 80–97.
James & Nobes (2000); The Economics of Taxation. 7th edition. London. Prentice Hall.
2
introduced in Rome in AD 6 on the estate of the deceased person. McCluskey,7
provide that a local rate was introduced in Britain in 1601 following the enactment of
the Elizabethan Poor Relief Act. Under this Act individual owning property had to
contribute in the form of tax based on the value of this property to the poor within the
community.
Further, property tax continued to spread in several European countries in the
nineteenth and twentieth centuries. For example, a wealth tax was introduced in the
Netherlands in 1892, in Denmark in 1904, in Sweden in 1910 and Norway in 1911;
and also, in Germany in 1922. In Africa, including Tanzania, property taxation was
introduced by the colonial governments during the twentieth century.
In the other hand, Dillinger suggested that property valuation as an important aspect
of property tax administration has to base on the principle of equality and fairness.
Valuation for the purpose of property rating has to be a statutory practice backed up
by law and governments must put in place an effective tax system where tax
payments are made by every citizen and where the canons of taxation are upheld.8
These canons of taxation include convenience, certainty, economy and equity in tax
administration.
In developed countries, the United States, Canada and Australia on average collect
Property Tax close to 2% of their GDP while in many African countries, it
contributes far less than 0.5% of the GDP.9 The main reason for poor contribution
has been an existence of challenges in the rating process and hence has negatively
affected an overall total revenue collection from property tax.
In Africa, local governments have a burden to finance the urban population with
public facilities like roads, street lighting, sewage systems and other sanitation
facilities. These social and human needs necessitate the rating authorities to levy
property tax. Furthermore, in Tanzania, the power to impose taxes and charges is
7
8
9
McCluskey et al, 1998; cited in Kayuza, H. (2006); Real Property Taxation in Tanzania. An
investigation on implementation and taxpayer perceptions. Doctoral Thesis-Royal Institute of
Technology. Sweden.
Antitola et.al, eds. (2017). Evaluation of rating valuation appeal procedure: A Comparative study
of the United Kingdom, Nigeria and Malaysia. International Journal of Real Estate Studies,
Volume 11 Number2.
Ali, M., Fjeldstad, O. H. and Katera, L. (2017). Property taxation in developing countries. CMI
Brief 1: 2017. Bergen: Chr. Michelsen Institute
3
enshrined in Article 138(1) of the Constitution of the United Republic of Tanzania10
while the administration of property rating is under the Local Government
Authorities (Rating) Act.11 For many years, the practice has been for property rates to
be imposed on capital value of all occupied buildings or structures situate within the
rateable areas. The reforms in the recent past has necessitated a turn to stratified flat
rate system. This is not the case for a country like Kenya where rating is based on
land value only, other countries like Egypt, The Gambia, and Sierra Leone practice
property rating based on annual value of the buildings. The improved value rating
system is used by South Africa, Lesotho, Malawi, Mauritius, Rwanda, and Zambia.
Thus, most of the reforms in Tanzania, have largely been focusing on institutional
basis with an intention to address the legal and administrative frameworks in order to
better the process of property rating. Much of these reforms adopted, have not given
much attention to the valuation issue in property rating in the country.
1.2 Statement of the Problem
Tanzania had long practiced value based property rating system. As an ad-valorem
tax, the legal requirement to establish a valuation roll for all rateable properties
within the retable areas necessitated a need for property valuation. Despite such legal
requirement, variation in valuation has been one of the major challenges hindering
the optimal benefits that can be achieved from property valuation. In such a case, it is
easy for both taxpayers and the rating authorities to lose confidence in the value
based property rating system.
The high rate of urbanization tend to increase the number of properties within
rateable areas. This urban expansion widen the tax base and increase the magnitude
of the challenges from time to time. Further, amendments made through the Finance
Act12 and the Written Laws (Miscellaneous Amendments) Act13 provides by
including the adoption of the form of specified strata flat-rates14 for some rateable
properties.
10
11
12
13
14
See Cap. 2, [R.E.2002].
See Cap. 289, [R.E. 2010].
See Finance Act, No 4 of 2017
See The Written Laws (Miscellaneous Amendments) Act, No 2 of 2019.
Simple Per-Unit (flat tax) system.
4
Likewise, the government of Tanzania has taken extreme measures by disregarding
the value based rating system and abandoned the requirement for doing property
valuation. This is an obvious indication of presence of valuation challenges in
property rating. Therefore, this study supposes that valuation challenges are the
reasons for the poor performance of property rating in Tanzania, and is pursued to
find the means and practical measures that could help inform policy decisions to
address the challenges.
1.3 Objectives of the Study
The study has been established in two types of objectives; namely: General/Main
objective and Specific objectives. To attain the goal, research objectives have been
linked with research questions.
1.3.1 Main Objective
The main objective of this study has been to assess valuation challenges in property
rating in Tanzania using Arusha City as a case study area.
1.3.2 Specific Objectives
Specifically, the study aims: (i) To examine the processes of property rating adopted in Arusha City.
(ii) To assess the challenges of valuation methods experienced in property rating.
(iii) To assess the institutional challenges that impede property rating in Tanzania
by using the city of Arusha.
1.3.3 Research Tasks and Research Questions
(i) What are the actual processes of property rating adopted in Arusha City?
(ii) What are the challenges of valuation methods experienced in property rating?
(iii) What are the institutional challenges that impede property rating in Tanzania?
1.4 Significance of the Study
The significance of this study, centers on the reality that, effective property rating
and collection of property taxes require proper valuation procedures for the purpose
of assessing property values, and hence property rates. The study has helped the
researcher to enhance skills and field experience and consequently help future
5
researchers to find out more in this area. Lawyers, Land Economists and Tax
Professionals will also learn more in this particular field especially in the areas of
property value assessment for Rating Purpose.
1.5 Conceptual Framework
The conceptual framework scrutinizes the independent, intermediary and dependent
variables related to valuation challenges in property rating in Tanzania. The
interrelationship between and among the variables is presented diagrammatically for
a supplementary understanding of valuation challenges in the property rating system.
Property rating is a dependent variable of several independent variables of which for
the purpose of this study, constitutes the valuation challenges such as valuation
methods and valuation systems, unreliable property market transaction data,
government interventions, regular legislative reforms, poor valuation infrastructures
for ICT and Mass Valuation, poor community engagement and sensitization, and the
agency problem while the intermediary variables are formed mostly by institutional
(both administrative and legislative) framework.
Figure1.1: The Conceptual Framework
Source: Researcher’s conceptualization
6
CHAPTER TWO
LITERATURE REVIEW
2.0 Introduction
This chapter contains a theoretical grounding on property rating, the definition of
terms, and empirical review of works of literature which were considered relevant to
the research topic and worth to be used as background in assessing valuation
challenges in property rating in Tanzania. By describing fundamental taxation
theories, the author has provided their relevance to the study; and, besides, an
empirical review on both property rating and valuation practices has been presented
in this chapter. The review highlights the thinking, views and opinions of other
scholars concerning the study topic.
2.1 Theoretical Grounding
In this study, three theories have been adopted, the Social Political Theory of
Taxation, Principal-Agency Theory and Theory of Planned Behaviour.
2.1.1 The Socio-Political Theory of Taxation
The Socio-political theory of taxation relates both social and political objectives and
underline their importance as major factors in selecting both taxes and taxation
systems. The theory was propagated by Adolph Wagner, who advocated that a tax
system should not be designed to serve individuals, but should be used to cure the ills
of society as a whole. The study adopts this theory because it is relevant it placing
the theoretical grounding for discussing various aspects of property rating in
Tanzania. The assessment and administration of property tax as a wealth tax cannot
undermine the relevancy of the social-political theory because it relates to the way
with which the government can impact resource distribution among members of the
society. The valuation challenges in property rating are to a large extent escalated by
social-political factors.
2.1.2 Principal-Agency Theory
The Agency theory explains social relations involving a delegation of authority (by a
principal to an agent), and starts from the observation that the relationship generally
results in problems of control. The most important problem arises from difficulties in
7
motivating an individual or organisation to act on behalf of another. Milgrom and
Roberts15 assert that: “Principal-agent problems are situations in which one party (in
this case, the rating authority) relies on another (the agent or the authority
responsible for property rating) to do work or provide services on his or her behalf.
The principal-agent problem can also be referred to any conflict in priorities between
a person or group and the representative authorized to act on their behalf. An agent
may act in a way that is contrary to the best interests of the principal. The Agency
theory assumes that the interests of a principal and an agent are not always in
alignment and there is always a problem of motivation as a result of difficulties
associated with the inability of principal to observe and control the actions of the
agent.16
Generally, the principal-agent problem is as wide-ranging as the possible roles of
principal and agent; and can therefore, be used to explain the valuation challenges
that encompass property rating as well. Property rating is a value based system where
a valuer (the agent) is entrusted to undertake valuation assignment to ascertain the
values of ratable property on behalf of a particular rating authority (the principal).
In practice, rating authorities (the principal) selects a valuer (valuation
firm/department) as an agent(s) to execute tasks (property valuation assignment) that
may vary in specialized skills, task complexity, scope of the task and other
requirements. The valuer is expected to have qualities and other aspects such as
knowledge, qualifications, aptitudes, abilities and other characteristics given the
nature of the jobs or tasks assigned, and as well may also be required to execute the
tasks within certain periods based on designated time lines, deadlines or time
pressures.
15
16
Milgrom and Roberts (1992): Economics, Organization and Management. Prentice-Hall. 2nd
illustrated edition.
Mwanaidi Ally Dedu (2015): Challenges Facing Property Tax Collection in Tanzania: A Case
Study Of Dodoma Municipal Council. Dissertation Submitted in Partial/ fulfillment of the
requirement for Award of the Degree of Master of Science in Accounting and Finance of Mzumbe
University.
8
2.1.3 The Theory of Planned Behaviour
The Theory of Planned Behavior is an extension of the Theory of Reasoned Action
promulgated by Ajzen and Fishbein17 and by Ajzen.18 The Theory of Reasoned
Action and its extension, the Theory of Planned Behavior, are cognitive theories that
offer a conceptual framework for understanding human behavior in specific contexts.
The behavior of individuals within the society or an organisation is under the
influence of definite factors and originates from certain reasons and emerge in a
planned way (intention). The intention to engage in a certain behavior is considered
the best predictor of whether or not a person actually engages in that behavior.
Behavioral intention in turn depends on three factors that is attitude towards the
behavior, subjective norms and perceived behavioral control. These three factors are
also under the influence of behavioural beliefs, normative beliefs and control beliefs.
The valuation challenges and the relationship between property valuers and the rating
authority (ies) can in similar way be discussed under the theory of planned
behaviour. Property valuation and the roles of the valuer in property rating can be
subject to challenges which stems from altitudes and subjective norms of the valuers,
property occupiers and the officials in rating authorities. As Snavely19 described,
human behavior in the area of taxation is influenced by social interaction in much the
same way as other forms of behavior. The ability to perform a particular behavior
depends on the fact that the individual has a purpose towards that behavior
(behavioral intention).
2.2 Definition of Terms
2.2.1 Tax
A tax is a compulsory fee charged ("levied") by a government on a product, income
or activity. If tax is levied directly on personal or corporate income, then it is a direct
tax. If tax is levied on the price of a good or service, then it is called an indirect tax.
The purpose of taxation is to finance government expenditure. One of the most
17
18
19
Ajzen, I., & Fishbein, M. (1980). Understanding attitudes and predicting social behavior.
Englewood Cliffs, NJ: Prentice-Hall.
Ajzen, I. (1991). The theory of planned behavior. Organizational Behavior and Human Decision
Processes, 50, 179–211.
Snavely, K. (1991); Governmental policies to reduce tax evasion: coerced behaviour versus
services and values development. Policy Science 23(1), 57-72.
9
important uses of taxation is to finance public goods and services such as street
lighting and street cleaning.
Besides, since public goods and services do not allow a non-payer to be excluded, or
allow exclusion by a consumer, there cannot be a market for the goods or services,
and so they need to be provided by the government or a quasi-government agency,
which tend to finance themselves largely through taxes.20 Tax is a pecuniary burden
laid upon individuals or property owners to support the government; a payment
exacted by legislative authority.
Fullerton21 insisted that, tax is not a voluntary payment or donation, but an enforced
contribution exacted pursuant to the legislative authority and is any contribution
imposed by the government, whether under the name of import duty, custom duty,
excise duty, subsidy, aid, supply, or other names. For the purpose of this study, the
term tax has been used to mean property tax, which is often levied and administered
direct by local governments or through agents.
2.2.2 Taxation
Mugerwa22 defines taxation as an inherent right a sovereign state uses to transfer
resources from private use to public use in the way that is most suitable and
consistent with the economic goals of the society. Likewise, Dalton referred the term
taxation to mean a compulsory contribution which is imposed by a public authority
irrespective of the exact amount of service rendered to the tax payer in return. While
to Orsbrnes, taxation is the imposition of duties to raise revenue. Taxes play a much
larger role in society and to the general economy than the mere raising of revenues.
2.2.3 Property Rating and Property Rate(s)
The process of assessing the value of the land or building for taxation purposes is
called rating. Thus, property rating means the process of assessing the property value
in order to establish a tax base. In the other hand, property rate(s) is the term used in
20
21
22
Fullerton, 2008; cited in Master Dissertation by Elibarick Raymond (2013) and Mwanaidi Ally
Dedu (2015), Mzumbe University.
Ibid
Cited by Germino Stephen (2014) in assessment of tax evasion practices in Tanzania: The case of
Temeke municipal. A Dissertation Submitted in Partial Fulfillment of the Requirements for the
Award of the Master Degree of Procurement and Supply Chain Management (MSc.PSCM) of
Mzumbe University Dar es Salaam Campus College.
10
many countries (especially those with a British colonial heritage) to refer to a
property tax levied at the local government level. Franzsen and McCluskey23
provided that, countries may use different terms for the same concept; for example,
in Anglophone African countries, the recurrent property tax levied at the local level
is referred to as rates, sometimes with an added descriptive noun (compound in The
Gambia, local in Mauritius, property in South Africa, or tenement in Nigeria).
2.2.4 Tax Base
Lubega,24 defines a tax base to mean the object on which a tax is based. For example
in property taxation, the base is the particular property value. Besides, this particular
property values can differently be considered during administration of property tax.
Further, administration of property tax is more involving and probably complex than
any other tax, usually with a series of procedures. Property taxation is different from
other taxes in terms of the varied basis of taxation (land only, land and
improvements, improvements only), and methods of assessment (annual value, unit
or area based, value based).
The basic taxable object in all countries levying property tax is immovable or real
property, which includes land, improvements to land and buildings. However, what
is taxed among the components of real property depends on the choice by the
respective country’s government as established in the law that governs property
taxation. Some countries tax only land and others tax both land and buildings (or
“improvement”). Unlike for other taxes, property taxpayers tend to be more aware of
the taxes they pay and what to expect in return from the taxing authority. The
visibility of the tax renders both the tax and the tax authorities to be more vulnerable
to scrutiny and criticisms; as traditionally, property tax was levied to finance services
that are visible such as roads, street lighting and cleaning, garbage collection,
neighborhood parks and so on.25 In Tanzania, however, the tax base for property
23
24
25
Riël Franzsen and William McCluskey (2017); Property Tax in Africa: Status, Challenges, and
Prospects. The Lincoln Institute of Land Policy. Cambridge, Massachusetts.
Lubega, (2000),”Income Tax Evasion In Uganda’s Informal Sectors in Uganda”, A Dissertation
Submitted by M.A. At Makerere University, Kampala
McCluskey, et al (1998), cited in Kayuza, H. (2006); Real Property Taxation in Tanzania. An
investigation on implementation and taxpayer perceptions. Doctoral Thesis-Royal Institute of
Technology. Sweden.
11
taxation is the buildings only (improvements) as it excludes the land on which it
situates.
2.2.5 Property Taxation
Property tax or millage tax is an ad-valorem tax levied on the value of the property
that the owner of the property is required to pay to a government in which the
property is situated. There are three general varieties of property: land, improvements
to land (immovable man-made things, e.g. buildings) and personal property (movable
things). It also referred to an annual amount paid by a land owner to the local
government or the municipal corporation of his area. According to Kayaga, 26 the
term property includes all tangible real estate property, the house, office building and
the property rented to others.
2.2.6
Property Valuation and Assessment
Property Tax, being an ad valorem tax; is based on the market value of a property
determined using the traditional methods of valuation and other developed mass
appraisal techniques. The valuation methods are the comparison, the depreciated
replacement cost and the income or profit method. As per Atilola et.all,27 these
methods, however, have some inherent challenges which often lead to variation in
the assessed property values.
The duty to carry out valuation assignments for property taxation purpose is
entrusted to professional valuers, be in civil servants or in the private sector.
However, for the Valuers to perform the valuation functions they must hold an
acceptable education qualifications as well as professional qualification as per
requirements prescribed by the country’s professional regulatory authorities.28 In
Tanzania, the requirements are provided under the Valuation and Valuers
Registration Act, which demand fully registration and be licenced by the Board.29
26
27
28
29
Kayaga (2007); Tax Policy Challenges Facing Developing Countries: A Case Study Of Uganda, A
thesis submitted to the Faculty of Law in conformity with the requirements for the degree of
Master of Laws. Queen’s University Kingston, Ontario, Canada.
Atilola et.all., (2016): A review of uniformity in property rating valuation in Nigeria; International
Journal of Real Estate Studies, Volume 10 Number 1
Kayuza, H. (2006); Real Property Taxation in Tanzania. An investigation on implementation and
taxpayer perceptions. Doctoral Thesis-Royal Institute of Technology. Sweden.
See The Valuation and Valuers Registration Act, No. 7 of 2016.
12
2.2.7 Incidence and Fairness
The term incidence of taxation is used by economists to describe the effects of
taxation on individual taxpayers. As previously noted, taxes are compulsory
payments to the government and when imposed, individuals will find a way to avoid
or shift it to others. The concern then is on who finally bears the tax burden.
According to Kayuza,30 the tax burden represents the difference between real
incomes before and after the tax is imposed.
The context of incidence in taxation has also been discussed in similar way by
Lymer, & Hancook,31 when they suggested that the burden of taxes is not necessarily
borne by those upon whom they are levied. They said tax incidence can either be
formal or effective, the formal incidence of a tax is one that falls on those who must
actually pay the tax while the effective incidence is that which falls on those whose
wealth is reduced by the tax. Further, according to Stigltz, tax incidence is closely
linked to fairness in taxation which is an aspect that should not be considered on the
basis of whom the tax is imposed on, but on who actually pays the tax.
Tax incidence is a critical aspect that requires due attention when considering
different tax instruments in order to reveal their effects on taxpayers. With property
tax, the incidence may be shifted to consumers of the capital investment. The fairness
of a tax system is a complex concept and, in many cases, it poses difficulties in
defining precisely what a fair tax is and what it is not. An attempt to illustrate the
fairness in taxation, scholars have provided different opinion; some consider
progressive tax system as fair while a flat rate tax system not fair, the reason given is
because middle class people would bear more of the tax burden than the rich
compared to what they would pay under the progressive tax system.
Besides, others perceive a tax system to be fair if the poor pay nothing, the middle
class pay something and the rich pay the highest percentage. On the other hand, Hall
& Rabushaka (inventors of the flat tax rate) suggests that a tax system that imposes a
30
31
Kayuza, H. (2006); Real Property Taxation in Tanzania. An investigation on implementation and
taxpayer perceptions. Doctoral Thesis-Royal Institute of Technology. Sweden.
Lymer, & Hancook, (2002); cited in Kayuza, H. (2006); Real Property Taxation in Tanzania. An
investigation on implementation and taxpayer perceptions. Doctoral Thesis-Royal Institute of
Technology. Sweden.
13
single flat percentage tax rate on every one’s aspect of tax would be truly fair
because it treats everyone the same. This view assert that:
…. the meanings of even, just and equal in keeping with rules and
logic, better fit a flat rate of taxation than any multiple rate system
that discriminates among different classes of taxpayers.32
As per Kayuza, the varying perceptions about what constitutes a fair tax system are a
clear indication that fairness in taxation is an elusive concept. However, the common
approach used by economists is to describe the fairness of a tax system in terms of
vertical equity and horizontal equity.
2.2.8 Vertical and Horizontal Equity in Taxation
The principle of vertical equity requires that the appropriate tax burden be assigned
according to different levels of the wellbeing of the taxpayers. That is, individuals
with a higher level of economic wellbeing should pay higher taxes than others should
do. While, fairness in taxation is also considered under the principle of horizontal
equity, which demands equal treatment of individuals who are equal in all relevant
aspects. Thus, the tax liability should be the same for taxpayers with equal taxable
capacity.
2.2.9 Property Valuation Accuracy
Waldy33 defines valuation accuracy as the measure of the closeness or divergence of
valuation estimates to the market value of a subject property. In the other hand,
variation in valuation (valuation variance) means the difference in the values arrived
at by different valuers when a subject property is being appraised and should not be
mistaken for valuation accuracy.34 Valuation impact can be viewed as being accurate
or inaccurate; and, when it is accurate the cost is low for the tax administration.
32
33
34
Kayuza, H. (2006); Real Property Taxation in Tanzania. An investigation on implementation and
taxpayer perceptions. Doctoral Thesis-Royal Institute of Technology. Sweden.
Ogunba, O. and Ajayi, C. (2007), "The response of Nigerian valuers to increasing sophistication in
investors' requirements", Journal of Property Investment & Finance, Vol. 25 No. 1.
Abidoye, R. B., & Chan, A. P. C. (2018). Hedonic Valuation of Real Estate Properties in Nigeria.
Journal of African Real Estate Research, 3(1), pp.122-140. DOI: 10.15641/jarer.v1i1.452
14
2.2.10 Property Valuation Bias
The concept of valuation bias is central to property valuation. The position of
Crosby,35 on bias is that, valuation bias occurs when there is a consistent
overvaluation or undervaluation of a subject property, in relation to the sales price
(target).
2.2.11 Taxonomy of Property Taxation
In property taxation, taxonomy refers to the arrangement from the origin to the
conclusion stages of carrying out property valuation for taxation purpose. Generally,
valuation falls within tax administration, and its duty is to determine the tax burden
to be shared by each taxable landed property.36 Property tax is imposed on the assed
base which could be only land, land and improvement in terms of building or
structures or improvement/building/structure alone.
In Tanzania, the tax base is a policy statement that is usually contained in the Local
Government Authorities (Rating) Act.37 The figure below (Figure 2.1) shows the
typical process involved in the determination of property tax.
Figure 2.1 Typical process involved in the determination of property tax
Source: Adapted from Babawale (2013a)
35
36
37
Crosby, N. (2000), "Valuation accuracy, variation and bias in the context of standards and
expectations", Journal of Property Investment & Finance, Vol. 18 No. 2, pp. 130-161.
Atilola Moses Idowu et al./Sains Humanika 8: 4-3 (2016) 17–23: A Review of Valuation Impact on
Property Tax, Department of Real Estate, University Teknologi Malaysia, 81310 UTM Johor
Bahru, Johor, Malaysia Department of Estate Management Covenant University, Otta, Ogun State
Nigeria
See Cap. 289, [R.E. 2010].
15
2.3 Review of Empirical Studies
2.3.1 Property Rating in Global Context
A brief synopsis of the relevant literature on property rating in global context can be
traced as far back as to the rating practices during the feudal era. There are literatures
that indicates real property taxation was first introduced in Rome during the earliest
times. The practice spread in several European countries in the nineteenth and
twentieth centuries. James & Nobes,38 provides that property tax, as a wealth tax was
introduced in the Netherlands in 1892, in Denmark in 1904, in Sweden in 1910 and
in Norway in 1911; and also, in Germany in 1922.
According to Emeny and Wilks,39 in England, the Anglo-Saxon Kings delegated the
duties of looking after over local affairs to the villages and towns authorities instead
of the state. As a result a number of local institutions developed including one form
which grew around the church vestry. These village or town authorities including
religious institutions which were chaired by township leaders or priests organized
themselves to execute social works such as construction of roads and bridges, and
church repairs. In order to meet the costs of these activities, villages or town councils
had to impose a rate to occupiers of land for the purpose of raising money to finance
the construction activities. This essentially, became the genesis of the traditional
levying practice of property tax under the local government authorities in many
developed and developing countries across the world.
Richard and Slack,40 discuss their view on the concept of property tax as a local tax;
by emphasizing a historical practices associated with local governments in most
countries. They suggested by giving a reason for property tax to be a local tax based
on the fact that real property is immovable because no one can evade payment
simply by shifting the building to another location in response to the tax.
However, in the long run, tax differentials may affect decision on where people have
to locate, but these effects are of a smaller magnitude than those that would occur
with income and sales taxes if are to be administered at the local level. Also, property
taxes are considered to be appropriate as a source of revenue for local governments
38
39
40
James & Nobes (2000); The Economics of Taxation. 7 th edition. London. Prentice Hall.
Emeny and Wilks (1984): Principles and Practice of Rating Valuation; The Estates Gazette Ltd,
London. Fourth Edition.
Richard M. Bird and Enid Slack March (2002); Land and Property Taxation: A Review.
16
based on the “quid pro quo” (give and take) concept as many of the services are
typically funded at the local level and the benefits are directly received by property
owners and to property values as well.
Fischel,41 contends that property tax in the United States is like a benefit tax because
it relates to the benefits received by taxpayers from local authorities. Property tax
promotes efficient in public decisions because taxpayers support measures for which
the benefits recount or exceed the taxes paid. Likewise, the compliance level is a
reflection of services received and such services are capitalized or translated into
property values.
Richard and Slack42 argues that in the United Kingdom, reforms were undertaken in
recent decades to replace the poll tax by property tax on residential properties. The
reforms, also, changed the focus of the tax base from rental value to property market
values. The current practice is to assign property bands in relation to values of
properties within a particular area at a particular time. The tax rate differs for each
band with higher rates applying properties in higher bands. Any subsequent changes
are not taken into account in the banding.
According to Mangioni, Denmark has the best implementation of property taxation
in the OECD countries. The tax is imposed after all the rateable properties have been
assessed by the central government, and then assigned to the municipal governments.
This practice and the taxation process has proved to be the most robust because the
data on real properties are collected by central government and this enables the
municipals to have uniform assessment and the administration of the tax is controlled
centrally with consistency.43
In India, property rating embraces three systems in which each has distinct features
that differentiate from the other. They are; one, is the annual rateable value (ARV) of
lands and a building, second is capital valuation (CV), and the third is unit area
valuation (UAV) method. Most of the Urban Local Bodies (ULBs) in India have
switched over to UAV method of valuation of properties. This method involves
41
42
43
William A. Fischel, “Home voters, Municipal Corporate Governance, and the Benefit View of the
Property Tax,” National Tax Journal, 54 (2000).
Richard M. Bird and Enid Slack March (2002); Land and Property Taxation: A Review.
Mangioni, V. (2010). The Evolution and Operation of Recurrent Property Taxation FIG Congress
Facing the Challenges-Building the Capacity, Sydney.
17
categorization of the city into relatively homogenous zones, grouping of buildings,
roads and construction type into categories, use of multiplicative factors, fixation of
unit area values for each zones, mapping of properties using GIS.44
The Unit Area Valuation (UAV) method or commonly known as Unit Area Method
(UAM) evolved as an effort of the rating authorities in India to do away with
valuation challenges especially valuation methods: As per this method, the unique
area value per sq.ft./meter of a property is fixed with reference to the characteristics
of the property such as location, occupancy, age, and structure of the said property.
This unique area value is then multiplied by the area of the vacant land or covered
space (built-up area) to arrive at its annual value. When the annual value is
determined on the basis of such a formula, property tax thereupon is to be paid by the
assesses or the taxpayers.45
Accordingly, the UAV method attempts to balance the principles of neutrality,
stability, accountability, ease of administration, fairness based on benefits received
and the ability to pay. The method is suggested to work better for residential
properties and embraces revenue neutrality and at the same time optimizes the
objective of vertical equity. It can further, be observed in the contrary, from the case
of State of Kerala vs. Haji Kutty46 wherein, the Court held that “imposing a uniform
tax on objects, persons or transaction essentially dissimilar may result in
discrimination.”
Źróbek and Grzesik47 discusses the valuation challenges in context of Europe and the
role of the European Union in regulating the valuation profession and standards.
They pointed out that, the main challenge for valuation professionals lies in
developing a deeper understanding of the market and better analytical skills with a
view to assessing accurate values.
44
45
46
47
Adopted from the work of Ajit Agarwal, Senior Consultant with PwC Advisory; Property Taxation
System in India
See Civil Appeal No(S).903-930 of 2019. New Delhi Municipal Council v. Association of
concerned Citizens of New Delhi and Others. Civil Appeals arising out of SLP (C) Nos. 2318623213 of 2019 & Ors.
State of Kerala V. Haji K. Haji K. Kutty Naha & Ors. Etc. 1969 AIR 378, 1969 SCR (1) 645.
Źróbek S., Grzesik C., (2013), “Modern challenges facing the valuation profession and allied
university education in Poland”, Real Estate Management and Valuation, vol. 21, No 1, pp. 14-18.
18
2.3.2 Property Rating in African Context
In Africa, a number of scholars have written enormously on the area of property
rating. In Kenya, most research-works focus on site value as an aspect of land tax.
There are also, those which immensely centers on the broad reviews of policy and
the national practices, as well as the implementation experiences of particular
municipalities within the country.
According to Mugendi, valuation challenges in property rating in Kenya are the
results of lack of adherence to statutory valuation cycles and non-availability of
funds to undertake valuations and revaluations of properties in the local authorities.
Without timely property valuation, the rapid growing of property markets results into
disparity of the assessed values in the valuation roll and their respective current
market value hence loss in property tax revenue by local authorities.48
Furthermore, Bahl49 provides empirical evidence on the challenge of undervaluation
in most declared property transaction data, especially which are in the tax base in
Kenya. The data available, suggest that the degree of underassessment is quite large
ranging between 20 and 70 percent in Kenya. The study contends that in order to
redress the challenge, rating authorities should carryout assessment to establish the
sales ratio for the purpose of determining the degree of underestimation; this will
improve the quality of data used for both to setup the tax base and the tax rates.
Uganda, as an East African country has a rating system that observes the value based
approach. The practice has been for the local governments to value, assess and
collect taxes within their areas of jurisdiction as per the Local Government
Authorities (Rating) Act.50 Muyomba,51 discusses the practical valuation challenges
that the local governments face in administering property rating to include
assessment of rental value on which property rates are based and the shortage of
qualified and registered valuers.
48
49
50
51
Mugendi (2012); Property Assessment for Rating Purpose in Kenya. A case of Mavoko Municipal
council. A research project paper presented for the award of B.A (Land Economics) degree.
University of Nairobi.
Bahl, Roy, Jorge Martinez-Vazquez and Joan Youngman, editors (forthcoming). Making the
property tax work: Experiences in Developing and Transitional Countries (Cambridge: Lincoln
Institute of Land Policy)
See The Local Governments (Rating) Act, No.8 of 2005.
Muyomba (nd); Property Rating Valuation Practice in Uganda: Experiences from Nabweru,
Nsangi and Ssabagabo- Makindye (Busabala & Ndejje Parishes only) sub-counties, Wakiso
District Local Government.
19
In Nigeria property rating practices are dependent on the standard methods of
valuation adopted and the ways with which they are used to ascertain property value.
The popular valuation methods used includes the comparison, the depreciated
replacement cost and the profit or income methods. These methods, have inherent
challenges which often lead to variation in property valuation. The challenges are
due to the peculiarity of the data which are applied to each method and the varying
opinion of valuers based on their personal experience and intuition in making choice
of the value attributes.52
As per Atilola,53 the inputs that can be used in the valuation methods can greatly
impact the ultimate value of ratable property. He emphasised that the form of nonuniformity if uncorrected may lead to low revenue yield, litigation and protests
during practices or implementation. Thus, the rating laws must clearly define the
methods and the attributes to be used. These value affecting attributes may include,
the size of unit area, the location, and the use of which the property is put to. There
are also policy consideration as to the base, should it be on rental value, or on capital
value of particular retable properties.
A discussion by Lin,54 expounds that the input variables needed in statutory valuation
can largely be grouped into two; the market input variables and the institutional input
variables. The first set constituting the market inputs can be determined by the
forces of demand and supply whereas the second category entails inputs which
should be itemized in the law as guidelines or regulations for the assessment. The
market input variables consist of the gross rent, cost of construction, land value, and
divisible balance. The institutional variables are depreciation rate, decapitalization
rate, tenant share, and outgoings. In property rating, these variables are expected to
be documented in what is called the ‘Tone of the List’, which forms the basis for the
Valuation List.
52
53
54
Atilola et.al, (2016). A Review of Uniformity in Property Rating Valuation in Nigeria.
International Journal of Real Estate Studies, Volume 10 Number 1.
Ibid
Lin, T-C. 2010. Property Tax Inequality Resulting from Inaccuracy Assessment-The Taiwan
Experience. Land Use Policy, 27, 511- 517.
20
Mwasumbi55 suggested that the concept of ‘value’ can also be a challenge in property
valuation in different parts of Africa and across the globe. This conceptual challenge
relates to the sales comparison approach of property valuation. She referred to the
usual Swahili house where the conception of ‘space’ is considered relatively
different when compared to a ‘western perception’ thereof. Accordingly, Franzsen56
perceived valuation to be not only as much an art as a science, but also a culture. The
rationale for this generalization centers on the reality that value can differently be
perceived depending on varied social-cultural deliberations.
As described, value-based property taxation system is embraced by most countries in
Africa. This taxation system require individual valuation of each property within the
rateable areas. It is the valuers who are vested with the roles and functions to
undertake the valuation assignments for property rating purpose. The valuation
assignments require only appropriately qualified and registered valuers to perform
these valuations. The challenge is when a particular rating authority or even a
country has an enormous number of rateable properties to be valued but has an
insufficient amount of valuers to do the work; the effectiveness and revenue yield of
the property tax are compromised.
Similarly, the shortage of valuers results into outdated valuation rolls and unequal
treatment of taxpayers. In such cases, it is easy for taxpayers to lose confidence in the
rating system. As per Franzsen,57 the valuation environment in African countries is
generally shaped by six key challenges; the mismatch between the number of
qualified valuers available and the number needed to keep the valuation roll up to
date; the level of government that should be institutionally responsible for the
valuation task and the frequency with which revaluations should be performed; the
establishment of a credible objection and appeal system; the quality control and
oversight; education and training; and certification of valuers.
55
56
57
Mwasumbi, A. (2001) ‘The challenges in applying the sales comparison approach to value
residential properties in Tanzania’. Paper presented to African Conference on real Estate 23-25
October, 2001 Arusha, Tanzania.
Franzsen, R. (2002). Property Assessment for Rating Purposes in Southern and East Africa:
Present Status and Future Prospects.
Ibid
21
2.3.3 Property Rating in Tanzania
In Tanzania, scholars have written on a wide range of topics in property taxation with
a major focus on revenue collection, property tax reform and general administration
of property tax.
Kironde,58 discusses extensively on challenges relating to property tax administration
which results in a poor collection of property tax revenue. He identified the use of
traditional means of sending invoices through post address of which most of them are
outdated. This hinder the effective communication of information between the rating
authorities and the taxpayers. In Dar es Salaam, for example, 15.7 percent of the
demand notices were returned as undelivered in 1996. Further, in the same year,
despite the various legal provisions to enforce payment of property tax, the collection
rates appeared to be quite low of less than 50% in Dar es Salaam.
However, the possible clarifications for the low collection rate envisaged in Dar es
Salaam were mainly due to lack of taxpayer education, inadequate services provided
at local government level and even blatant resistance. Further, as per Kayuza,59 it
was suggested that some attributes to the low collection rates are largely due to lack
of political will and administrative inefficiency. This is similar observation to the
study by Lynn60 which contends that no actual improvement in the quality of
property rating and valuation can be possible without first improving its
administration. A proper and good administration is a crucial factor in the operation
of property rating and can often the make poor tax tolerable whereas poor
administration will nearly always make an otherwise good tax intolerable.
In the last decade, Tanzania has instigated numerous major reforms on both the
administration and collection systems of property tax. The reforms have been
oscillating between decentralized and centralized collection regimes. According to
Fjeldstad O.H et. al.,61 there was a new system for property tax collection introduced
58
59
60
61
Kironde, J. M. (1997); Financing the Sustainable Development of Cities: The Case of Dar es
Salaam and Mwanza in Tanzania. Unpublished paper prepared for UNCHSHABITAT, December
1997.
Kayuza, H. (2006); Real Property Taxation in Tanzania. An investigation on implementation and
taxpayer perceptions. Doctoral Thesis-Royal Institute of Technology. Sweden.
Lynn, D. (1969); Property tax and its administration. Madison, University of Wisconsin Press,
1969
Fjeldstad, O.-H., Ali, M. and Goodfellow, T. (2017). Taxing the urban boom: property taxation in
Africa. CMI Insight 1: 2017 (March). Bergen: Chr. Michelsen Institute.
22
in the country’s largest city, Dar es Salaam in 2008. This reform shifted the
responsibility to the Tanzania Revenue Authority (TRA) to administer and collect
property tax on behalf of the three municipal councils (MCs) of Ilala, Temeke and
Kinondoni. The shift was expected to increase the revenue collection; it did not, and
the government decided to return back to the old system. The municipalities started
managing the collection of property tax in 2014, only to last for two years until 2016
when TRA was again assigned full responsibility for administration of property tax
in the country. This wavering trend of administration of property tax is an indication
that there are critical challenges that inhibit the practices of property tax
administration in Tanzania. McCluskey and Huang62 identified a key problem which
face the property tax revenue administrations in many developing countries including
Tanzania to be the dependence on manual paper-based recording systems. Property
taxation has a high magnitude of revenue leakage because of untimely collection,
corruption and under-collection. Further, the findings suggested that with manual
system of property tax administration it is difficult to estimate the missing taxpayers
from the registered rolls; and, to identifying the inactive taxpayers and the property
tax revenue that has been evaded through non-payments, corruption and ineffective
billing systems.
In the other hand, McCluskey and Huang63 suggested the redress measures to these
challenges to be the effective use of the recent advances in information and
communications technology (ICT). They explained of the strong drive to use ICT
across developing economies (including Tanzania) for the purpose to increase the
efficient in tax revenue collection.
Conversely, experiences are mixed with the introduction of Information
Communication Technology (ICT) systems and many attempts have remained
ineffective. The experience before the introduction of the Local Government
Revenue Collection Information System (LGRCIS) in Arusha, for example, the
register for taxpayers was largely incomplete. There were about 70 percent of
property owners unaware with the mandatory requirement of paying property tax.
This underperformance is alike to what was found in 2019 where about 30 percent of
62
63
McCluskey and Huang (2019); The role of ICT in property tax administration: Lessons from
Tanzania. CMI Brief No. 6. June 2019.
Ibid
23
the rateable properties were still out of the register despite the adoption of ICT
systems.
2.4 Synthesis and Research Gap
The review of various empirical studies has observed that several authors have
looked into the issue of revenue collection from property taxation, challenges of
defining the concept of value, methods of valuation, and property tax reforms and
administration hence emphasizing its importance. Usually, a research gap is a
problem which has not been addressed so far in a particular field. It implies a lack of
empirical studies (thus involving a particular context), either from a certain
theoretical perspective and or methodological approach. In this study, although there
is a large number of studies which provide knowledge and guidelines on property
taxation, generally there is a knowledge gap on valuation challenges in the field of
property rating. This study, therefore has shed light to the existing knowledge gap on
property rating with acute interest on valuation challenges envisaged in Tanzania and
to some extent in African countries with similar experience and has provided
recommendations on possible means to address the challenges observed.
24
CHAPTER THREE
RESEARCH METHODOLOGY
3.0 Introduction
This section provides for how the study was designed and how both primary and
secondary data were collected. It presents the procedure and methods used in
gathering data. The methodology applied, aimed at enabling the researcher to acquire
information and deduce conclusions about the research topic.
3.1 Research Design
The study used a descriptive survey design because it enables the researcher to
collect a large quantity of in-depth information about the population being studied,
having its base on the case study strategy. This study embraced a combination of
inquiry within qualitative and quantitative approaches.
3.2 Study Area
This study was conducted in the city of Arusha, located in north eastern Tanzania
and the capital of the Arusha Region. The study area was delimited within an
approved zoning plan area having fifteen neighbourhoods (called wards) comprising
of Levolosi, Kati, Kaloleni, Ngarenaro, Olorien (Part), Theme, Sekei, Unga
Limited(Part), Daraja mbili (Part), Sakina (Part), Engutoto, Lemara, Sombetini
(Part), Elerai (Part) and Osunyai (Part). Moreover, this case study area was used to
explore the valuation challenges envisaged in the process of property rating for an
assignment conducted in years 2014 to 2016. Comparing the processes availed by
rating laws, practical rating processes and priorities at the city level, defining the tax
base (rateable properties), and population characteristics, the case study aimed to
assess the potential for property rating improvements in the whole process and rating
chain.
3.3 Sample Population and Sample Size
The target population of this study was made of a total of 46,792 property owners.
The sample size consisted 65 respondents in total, mainly comprised of property
occupuiers and officials in proportion to their roles within the relevant institutions
and organizations as summarised in table 3.1 below. The respondents were chosen
25
based on the relevant information and knowledge required by the researcher to
accomplish the research topic. Therefore, the selection of the sample and the sample
size was done to ensure representatives came from each category of stakeholders in
order to reduce the sampling error and hence to ensure the validity of the research
work. Besides, the sample size consisted of an appropriate number of respondents of
which some responded for questionnaires while others responded on open ended
interview questions. The respondents for the interviews and questionnaires
comprised of the rating officers or valuers from the Tanzania Revenue Authority for
Arusha tax region, Arusha City Council and some from valuation firms and from the
office of the chief valuer.
Table 3.1: The categories of respondents
Respondents’ Category
S/No
Target Respondents
1
Property Occupiers
50
2
Valuers from Valuation Firms
4
3
Officers from Arusha City Council
2
4
Valuers from Office of the Chief Valuer
2
5
Ward Executive Officers (WEO)
5
6
Revenue Officers (TRA)
2
7
Total
65
Source: Author’s Sampling, 2020
3.4 Sampling Procedures
The study adopted the purposive sampling technique with a case study strategy; this
sampling
procedure
was
used
in
identifying
and
reaching
the
key
informants/respondents on particular themes. Thus, it was highly influenced by the
researcher’s expert judgment in selecting participants or respondents who were
representative of the population. Purposefully, the researcher considered such
variables as property ownership or occupation, valuation profession and experience
in rating valuation, obligation to administer and or supervise the rating assignments,
and administrative roles within rateable areas and for rating authorities. In using the
26
variables mentioned, the researcher purposefully selected a sample of a total of 65
respondents to represent the target population.
3.5 Source of Data and Collection Methods
Intentionally, this study utilized both primary and secondary sources of data and
accordingly, used three data collection methods for the purpose of achieving the
objectives of the study. The methods are; the interview survey technique, the
questionnaire survey technique, and documentary review.
The desired data from primary source ware obtained directly from the respondents
involved in the deployed interview and questionnaire surveys. In the other hand,
secondary data contributed towards the formation of background information and
helped the researcher to build constructively the research-work. This category of data
largely, were obtained from various literatures intended to comprehend thoroughly
the findings of this study.
3.5.1 The Questionnaire Survey Technique
This study deployed questionnaires for all 65 respondents. They were administered
to the property owners, ward executive officers (WEO), valuers, and revenue
officers. The main reason for administering questionnaires was to collect the
information about the administration of property rating and process adopted in
Arusha City Council . It was also, envisioned to examine the awareness on the
reforms and provisions of the Local Government Authorities (Rating) Act.64 The
advantage of using questionnaire technique is its ability to help the researcher
analyze the data easily and helps to compare and augment the responses easily.
3.5.2 The Interview Survey Technique
In order to attain the research objectives the researcher deployed the interview survey
technique for a total of ten (10) officials; the professional valuers, and the revenue
officers. This technique involved semi-structured face to face interviews with the
respondents and the researcher allowed freedom to alternative responses.
64
See Cap. 289, [R.E. 2010].
27
3.5.3 The Review of the Documentary/Literature Technique
The researcher reviewed a good number of works of literatures (documents and
articles) for the purpose of finding out the information necessary and which were
considered relevant to contribute to this study. This approach enabled the researcher
to obtain all the borrowed information that is contained in this research-work and
hence constitute part of the secondary data. Specifically, the documents were books,
journals, statutes, government policy papers (government gazette), and thesis both
published and non-published reports. The study also involved internet searches to
supplement quick access to literatures.
3.6 Data Analysis and Presentation
This study relied on descriptive approach and the analysis of data and presentation
were done using descriptive statistics with the presentation being in the form of
tables and pie charts for different variables. After the collection of data, the
Statistical Package for Social Sciences (SPSS) programme version 20 was used to
process the quantitative data and thereafter analyse the data as descriptive statistics.
Generally, descriptive statistics are used to describe or summarize data in ways that
are meaningful and useful. In the other hand, qualitative data were analysed
qualitatively through context analysation approach in which the researcher tried to
comprehend and interpret the respondents’ views. It involved putting in writing and
then matched the explanations with the literature and empirical findings from other
studies.
3.7 Limitation and Delimitation of the Study
This study though accomplished, it faced various challenges as some property
occupiers did not avail due corporation at the time of administering the
questionnaires. Some Private Valuers (valuation firms) were not supportive in timely
responding to the questionnaires giving excuses of tight-schedule on their daily
schedules. Accordingly, the study also considered a previous rating exercise which
took place in Arusha City Council in years 2014 to 2016. The purpose of deliberating
a previous rating activity was to gauge and review the expertise and practices and
thereafter evaluate the envisaged valuation challenges. However, the review did not
28
invoke into the testing of the relationship that exist between valuation challenges and
property tax revenues.
29
CHAPTER FOUR
DATA ANALYSIS AND PRESENTATION OF FINDINGS
4.0 Introduction
In this chapter, data and information gathered from various sources through different
means have been analysed and presented. The presentation contains; the response
rate, demographic information of the respondents, and results on specific objectives.
The pieces of information have been presented in tabulation and some illustrated in
pie chart and the analysis and interpretation of the data has been verbally described.
Further, the chapter features two main parts with a number of subparts, the first
provide respondents information and the second stands for respondent’s views on
valuation challenges.
4.1 General Information of the Respondents
The researcher pursued to establish adequacy in representation during selection of
respondents. Purposefully, the study used 65 respondents from various categories of
stakeholders in a view of their roles and responsibility to either property ownership,
valuation or administration of property rating. Besides, the responses were analyzed
to ensure there is no missing of significant information as indicated in table 4.1
below.
Table 4.1: The actual respondents and response rate
Respondent
Category
Property
Owners/Occupiers
Valuers from
Valuation Firms
Officers from
Arusha City
Council
Valuers from
Office of the
Chief Valuer
Ward Executive
officers (WEO)
Revenue Officers
(TRA)
Total
Target
Respondents
50
Actual
Respondents
48
Non
Respondents
2
Response
percentage (%)
96
No responses
percentage
4
4
4
0
100
0
2
2
0
100
0
2
2
0
100
0
5
5
0
100
0
2
2
0
100
0
65
63
2
96.9
3.1
Source: Author’s Study Findings, 2020
30
4.2 Demographic Information of the Respondents
The study embraced age, education and professional experience alongside property
ownership as the only demographic information as shown on table 4.2 below. The
table shows the responses based on age category, whereas all respondents were
above the age of 30. This indicates that respondents were mature enough to have
experienced practical issue relating to property ownership and rating.
Table 4.2: Age and Education Information
Details
Age (years)
Details
Education Level
Categories
21-30
31-40
41-50
51-60
Above 60
Categories
No Formal
Primary
Secondary
Certificate and Diploma
Degree
Post graduate
TOTAL
Actual Respondents
Percentage (%)
0
6
21
23
13
Actual Respondents
4
23
9
14
7
6
63
0
10
33
37
20
Percentage (%)
6
37
14
22
11
10
100
Source: Author’s Study Findings, 2020
The rationale for reviewing the respondents’ age and education level was intended to
assess the knowledge and ability of understanding the practical challenges (including
valuation challenges) as envisaged in property rating. Age has something to with
exemptions which is one of the challenging issue in implementing reforms in
property rating. The Finance Act, 201665 provides for exemption for one residential
retable property which is owned and resided by a person of above age of sixty (60)
years. The Above 60 category, out of 13 respondents 6 were owners of residential
rateable properties and all of them were not exempt from payment of property tax.
Meanwhile, Education relates to one of the basic requirement especially for valuers
and other officials involved in implementing property rating systems. Also,
experience is considered useful in enhancing the performance especially when it
65
See The Finance Act, No 2 of 2016
31
brings in the ability to expertise the job assignment. The study responses indicate that
professional valuers and rating/revenue officers recorded 90% (i.e. 9 out of 10) of
respondents to have postgraduate degree with more than 10 years of experience in
property rating. This indicates that they were aware of the challenges envisaged
during practices.
4.3 Presentation of the Findings in Relation to the Specific Objectives
This part presents and describe various information in perspectives of valuation
challenges in property rating as were obtained during the study from 10 professional
respondents (valuers and revenue officers). In providing their opinion on whether the
variable poses a valuation challenge to effective implementation of property rating in
Tanzania, the Likert-Scale has been used having five point scale marked in
categories of 1= Very Low (VL); 2 = Low (L); 3 = Moderate (M); 4 = High (H); and
5 = Very High (VH). The general summary of responses from 10 respondents who
were valuers and rating officers is shown in table 4:3 below.
Table 4.3: The General Summary of Responses
Statements of Inquiries
VL
L
M
H
VH
S/N
Response/Percentage
R
%
R
%
R
%
R
%
R
%
(i)
Valuation methods and Reliance
on the tradition way of doing
valuation.
Property transaction data and
unreliable construction rate.
Shortage of Skilled and qualified
Valuers.
The bureaucratic procedures in
procurement of professional
services is a form of interference
from central government.
Complex provisions of the Rating
Act, Cap 289.
Inaccuracy values.
0
0
0
0
0
0
0
0
10
100
0
0
0
0
0
0
8
80
2
20
0
0
0
0
0
0
5
50
5
50
0
0
0
0
7
70
2
20
1
10
0
0
0
0
1
10
7
70
2
20
0
0
0
0
0
0
0
0
10
100
Poor valuation infrastructures for
Mass valuation.
Property rating disputes and
grievances.
The use of poor and outdated
technology.
Numerous and frequent reforms in
property rating.
Lack of proper external quality
controls.
0
0
0
0
0
0
10
100
0
0
0
0
7
70
3
30
0
0
0
0
0
0
0
0
0
0
8
80
2
20
0
0
0
0
6
60
4
40
0
0
0
0
0
0
0
0
9
90
1
10
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
(x)
(xi)
Source: Author’s Study Findings, 2020
32
In the other hand, there were inquiries on the respondents’ opinion on some given
arguments relating to valuation challenges as indicated on table 4:4 below. The
Likert-Scale used five point scale marked in categories of 1= Strongly Disagrees
(SD); 2 = Disagree (D); 3 = Neither Disagree nor Agree (NDA); 4 = Agree (A) and 5
= Strongly Agree (SA).
Table 4.4: General summary of respondents’ opinion on arguments
S/N
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
(x)
(xi)
Arguments of Inquiries
Responses/Percentages
It is difficult to choose and adopt
a suitable method of valuation to
use in property rating leading to
inaccuracy in values.
There are no sufficient and
reliable property market
transaction data.
The construction rate (unit rate)
is always based on historical
evidence.
Property valuation is influenced
by multiple instructions to
valuers/officials from the
government.
The provisions of the Rating Act,
Cap 289 are not clear and
elaborate and hence difficult to
comply with.
It is tedious to conduct valuation
for each and every single
property within the rateable area,
better to adopt Mass Valuation.
The poor valuation
infrastructures hinder the
adoption implementation of Mass
valuation.
Property rating disputes and
grievances are the results of poor
community engagement and
sensitization (motivation).
Poor usage of ICT and other
digital systems can compromise
the quality of valuation
deliverables.
Reforms in property rating are
numerous and some are not
clearly known.
Property rating should be
administered by local
government authority.
R
0
SD
%
0
R
0
%
0
NDA
R
%
0
0
R
10
%
100
R
0
%
0
0
0
0
0
0
0
8
80
2
20
0
0
0
0
0
0
0
0
10
100
0
0
0
0
0
0
6
60
4
40
0
0
0
0
3
30
5
50
2
20
0
0
0
0
0
0
0
0
10
100
0
0
0
0
0
0
9
90
1
10
0
0
0
0
0
0
4
40
6
60
0
0
0
0
0
0
8
80
2
20
0
0
0
0
0
3
30
7
70
0
0
0
0
0
9
90
1
10
Source: Author’s Study Findings, 2020
D
0
0
A
SA
33
4.3.1 Valuation Methods and Property Valuation Systems
The survey on respondents’ view on the challenge of valuation methods and property
valuation systems involved respondents from valuers and revenue officers’
categories only. It entailed giving responses to the statements of inquiries (statement
(i), (ii), (iii), (vi), (vii) and (xi)) as summarized in table 4:5 below.
Table 4.5: Summary of responses on valuation methods and property valuation
systems
Statements of Inquiries
VL
L
M
H
VH
S/N
(i)
(ii)
(iii)
(vi)
Response/Percentage
Valuation methods and
Reliance on the tradition
way of doing valuation.
Property transaction data
and unreliable construction
rate.
Shortage of Skilled and
qualified Valuers.
Inaccuracy values.
(vii) Poor valuation
infrastructures for Mass
valuation.
(xi) Lack of proper external
quality controls.
R
%
R
%
R
%
R
%
R
0
0
0
0
0
0
0
0
10 100
0
0
0
0
0
0
8
80
2
20
0
0
0
0
0
0
5
50
5
50
0
0
0
0
0
0
0
0
10 100
0
0
0
0
0
0
10 100
0
0
0
0
0
0
0
0
9
1
10
90
%
Source: Author’s Study Findings, 2020
The summary in the table above presents that both valuation methods and property
valuation systems poses a high challenge to property rating in Tanzania. A total of 10
responses (100% of respondents), all agrees that it is difficult to choose and adopt a
suitable method of valuation to use in property rating leading to both inaccuracy and
variations in values as indicated in Table 4:5.
4.3.2 The Complex Institutional Arrangements in Property Rating
The administration of property rating and operations are largely formal phenomenon;
usually, it attracts institutional engagement in terms of legislations and administrative
arrangements. The records indicate that 9 professional respondents (90%) suggests
that complex legislative provisions are a challenge by marking the statement of
inquiry to a high scales (7 high, and 2 very high) while only one (1) respondent
34
indicates that the challenge is moderate. Similarly, 7 respondents agrees to the
argument that the provisions of the Rating Act, 66 are not clear and elaborate and
hence difficult to comply with (see Table 4:6).
Table 4.6: Summary of responses on institutional arrangements
Statements of Inquiries
S/N
Response/Percentage
The bureaucratic procedures in
procurement of professional
services is a form of
interference from central
government.
(v) Complex provisions of the
Rating Act, Cap 289.
(viii) Property rating disputes and
grievances.
(xi) Lack of proper external quality
controls.
VL
L
M
H
VH
R
%
R
%
R
%
R
%
R
%
0
0
0
0
7
70
2
20
1
10
0
0
0
0
1
10
7
70
2
20
0
0
7
70
3
30
0
0
0
0
0
0
0
0
0
0
9
90
1
10
(iv)
Source: Author’s Study Findings, 2020
4.3.3 Poor Valuation Infrastructures for Mass Valuation
The current situation in the Arusha City as regard to infrastructure for Mass valuation
is yet to be better (see chart 4.1).
Figure 4. 1 Chart showing response rate on Valuation Infrastructure for Mass
Valuation
Source: Author’s Study Findings, 2020
The ICT systems available are only for property inventories and ownership
attributes. These cannot suffice Mass Valuation because of lack of a single system
that defines the method and the value affecting attributes. The pie chart above
66
See Cap. 289, [R.E. 2010].
35
provides for responses on the argument statement given to professional valuer and
revenue officers.
4.3.4 Lack of Proper External Quality Controls
The charts in figure 4.2 below presents records of responses on two related
statements of inquiry which were given to valuers and rating officers. It is apparent
from the findings that the way property valuation were administered in Arusha and
elsewhere in Tanzania under the value-based system lacked a proper external quality
control. The process of procuring the valuation services were largely under the
ministry responsible for local government authorities with less direct involvement of
a particular rating authority.
However, during implementation, it was local governments which had to work
directly with the consulting valuers, this created a vacuum of external control to
valuers. This resulted into what can be referred to as agency problem between the
employer (Ministry) and the valuer (the agent and service provider).
Figure 4.2: Chart showing responses on valuation external quality controls
Source: Author’s Study Findings, 2020
4.3.5 Government Interference Affects Property Valuation
Respondents were given two statements of inquiry to indicate on whether the
government interfere and influence the undertaking of the valuation assignments in
property valuation for rating purpose. The majority of those who responded to these
inquiries felt that there was government interference. The response rate were 60% of
responses constituted of those who agreed while 40% strongly agreed on the
36
argument that property valuation is influenced by government interference through
multiple instructions to officials. Similarly, there were 70% of response on medium,
20% high, and 10% very high on the magnitude of the statement which provided that
there is government intervention and bureaucratic in procurement of professional
services. The table below indicate the number and percentage of responses to each
statement of inquiry.
Table 4.7: Summary of responses relating to government interference
Arguments of Inquiries
S/N
(iv)a
Response/Percentage
Property valuation is influenced
by multiple instructions to
valuers/officials from the
government.
Statements of Inquiries
SD
R
0
D
%
0
R
0
VL
NDA
%
0
R
0
L
%
0
A
R
6
M
SA
%
60
R
4
H
%
40
VH
S/N
Response/Percentage
R
%
R
%
R
%
R
%
(iv)b
The bureaucratic procedures in
procurement of professional
services is a form of interference
from central government.
0
0
0
0
7
70
2
20
R
1
%
10
Source: Author’s Study Findings, 2020
4.3.6 Valuation, Land Titling and Property Taxation
When the respondents were asked to explain briefly the concept of value and how it
can be attained in assessing property value; the answers, based on key policy and
administrative issues suggests that there is a challenge of defining property value
based on the option adopted to administer property rating in Tanzania. In general,
there are three distinctive assessment approaches which are used for property rating:
they are the area-based assessment, value-based assessment, and self-assessment.
The value based assessment is divided into two, the capital value and the rental value
approaches. The challenge in setting up the rateable value is based in the reality that
value is attributed by other factors which may include location, tenancy terms,
zoning regulation (land user and use of the building), neighborhood quality, and both
size of the plot and built-up area. Previously, in Tanzania the assessment of property
tax was a value-based assessment of buildings, structures or definite development.
The practice was to assess the market value (or replacement cost, if market value was
not available) of a particular structure.
37
However, before the current practice where the only option has been to base on
Simple per-unit (“flat tax”) systems, the Local Government Authorities (Rating)
Act,67 required valuation be undertaken based on the market value (i.e. by way of a
reference to a bargain made at arm’s length). All respondents (100%) converged to
what can be similar to the definition given by Bird and Slack,68 that “market value is
defined as the price that would be concluded between a willing buyer and a willing
seller in an arm’s length transaction.”
4.3.7 Poor Community Engagement and Sensitization
The overall responses to the inquiry on the issue of community engagement were
positive to the argument that property rating disputes and grievances are the results
of poor community engagement and sensitization (motivation).
The responses
indicates that all respondents agrees (40% agree and 60% strongly agree) to the
argument that poor community engagement and sensitization may hinder property
valuation for rating purpose.
Figure 4.3: Chart showing poor external quality controls
Source: Author’s Study Findings, 2020
67
68
See Cap. 289, [R.E. 2010].
Bird and Slack (2005): Land And Property taxation in 25 Countries: A Comparative Review;
CESifo DICE Report 3/2005
38
4.3.8 Reforms in Administration of Property Rating in Tanzania
There has been diverse opinion about reforms that are undertaken and the rationale
towards enhancing an efficient property rating practices in the country. There are
those who consider the reforms are a necessary move especially by shifting the
administration to TRA as it ultimately strengthen the capacity because of it’s
comparative advantage over local government authorities. Some, however, view the
reforms as compromising local government authorities in terms of their financial
autonomy. The recent reforms adopted in property taxation has mainstreamed the
way key issues can be delt-upon, the valuation system has been abandoned and
replaced it with a simple per-unit (“flat tax”) systems.
Moreover, as part to series of legislative reforms the Finance Act, 2015 69 amended
the long title of the Urban Authorities (Rating) Act,70 and consequently gave power
to urban, district and township authorities to impose and collect rates. Also, the
amendment substituted the word Urban with Local Government, so the name
become the Local Government Authorities (Rating) Act.71 Likewise, the word
township was extended wherever it appears in the Act, to mean district and
township.72
4.3.8.1 Shifting Administrative Power from Local Government Authorities to
TRA
There were two distinct issues introduced in 2016, they are: the powers which were
formerly under the Directors of Local Government Authorities were transferred to
the Commissioner General of the Tanzania Revenue Authority (TRA) and the
Minister or the Council as the case may be, was given the power to exempt any part
of an area or areas of their jurisdiction from the application of all or any, of the
provision of the Act.73 These two changes were a result of the amendment made via
the Finance Act, of 2016.74
69
70
71
72
73
74
See Finance Act, No 16 of 2015.
See Cap. 289, [R.E. 2010].
Ibid.
See Finance Act, No 16 of 2015.
See Cap. 289, [R.E. 2010].
See Finance Act, No 2 of 2016.
39
Besides, the reforms introduced new terms on the interpretation section, the Tanzania
Revenue Authority and the Commissioner General. Also the interpretation for the
word Minister was deleted and substituted for it to mean the Minister responsible for
Finance instead of the Minister responsible for Local Government Authority.
Further, the valuation surveyor was now required to possess qualification necessary
as a valuer in accordance with the Valuation and Valuers Registration Board Act,75
and that TRA in consultation with respective local government authority, may
appoint valuation surveyor for preparing rolls or supplementary rolls for a particular
local authority.76
The Minister for Finance is mandated by the Finance Act, 201677 to open a special
account at the Bank of Tanzania (BOT) for the benefits of local Government
Authorities. Also, section 6 of the Act,78 was amended to give power to the Minister
for Finance in consultation with the Minister responsible for Local Government
Authority to declare any municipal city, municipal council, municipal town or
township in any region within Tanzania mainland to be a retable area for the purpose
of Tanzania Revenue Authority. Furthermore, the Minister can issue regulation to
empower and direct or guide councils to declare other areas other than those been
declared to be retable areas. Also, the Minister can make regulations prescribing
methods of rating properties and collecting property rates.
4.3.8.2 Exempt Properties and Property Owners from Payment of Property
Rates
The most obvious finding of this study was a great concern of respondents on
reforms that relates to exemptions from payments of property rates. The exempt
entity(ies)
according to the Finance Act, 201679 includes; property owned by
religious organization which are not used for commercial purposes or economic
profit gain; property owned by non-profit organization which are not used for
commercial purposes or economic profit gain; property owned by Government,
Government Agencies and other similar institutions which are not used for
75
76
77
78
79
See Valuation and Valuers Registration Board Act, No. 7 of 2016.
See Tanzania Revenue Authority Act, Cap 319 of 1995.
See Finance Act, No 2 of 2016.
See Cap 289 of 1983 R.E. 2010.
See Finance Act, No 2 of 2016
40
commercial purposes or economic profit gain; property owned by Local
Governments and their institutions which are not used for commercial purposes or
economic profit gain; One residential retable property which is owned and resided by
a person of above age of sixty (60) years or a person living with disabilities who has
no source of income.80 The evidence gathered during the study provides that thirteen
(13) property owners were above the age of sixty (60), six of them owns residential
properties for which they were not exempt from payment of property rates, not even
being aware of their entitlement to the exemption package.
4.3.8.3 Offences, Penalties, Interest and Appeals
As part of reforms, offense, penalty, interest and appeals have been discussed in this
part. These issues are now have to be delivered under the Tax Administration Act.81
For example, if the occupier refuse to disclose names of the owner or provide wrong
or false information relating to property details, such occupier shall be considered to
commit an offense and on conviction is liable to the relevant penalty. Also, if any
person is aggrieved by a tax decision made by the Commissioner General, that
person can appeal against such a decision to the Commissioner General. If the
decision made there afterwards do not satisfy the aggrieved person, then that person
can appeal to the Tax Revenue Appeals Board.
However, appeals to the Tax Revenue Appeals Board is under the Tax Revenue
Appeals Act.82 Tax decision that can be Appealed under the Tax Administration
Act,83 and the Tax Revenue Appeals Act,84 for the purpose of the Local Government
Authorities (Rating) Act,85 includes tax assessment, valuation, collection or recovery
of rates revenue.
4.3.8.4 Property Rating and Flat Rate System
The common view of the respondents was that the introduction of flat rate in
property rating is unhealthy because it undermines the principles of fairness and
ability to pay. Also, it compromise the basic concept of property tax as an advalorem
80
81
82
83
84
85
Ibid.
See The Tax Administration Act, Cap 438 of 2015.
See Cap 408 of 2001, R.E. 2010.
See The Tax Administration Act, Cap 438 of 2015.
See Cap 408 of 2001, R.E. 2010.
See Cap. 289, [R.E. 2010].
41
tax. New insight to property rating was brought by the Finance Act, 2017 86 where it
amended section 16 of the Principal Act,87 by introducing the concept of flat rate for
all unvalued properties.
Consequently, two rates were imposed, Ten thousand shillings for ordinary buildings
and Fifty thousand shillings for storey buildings. For storey buildings, each fraction
belonging to one or several co-owners in accordance to the Unit Titles Act,88 shall be
treated as separate building. In order to make the frat rate system inclusive to all
rateable properties both in urban and rural areas, the government reformed the rates
under the Written Laws (Miscellaneous Amendments) Act.89 The amendments made
on section 16 of the principal Act,90 provides for the rates to be used to charge
property rates. The rates are: In the case of City council, Municipal council and
Town Council; Ten thousand shillings for ordinary buildings and Fifty thousand
shillings for each storey in a storey building. In the case of district council areas; Ten
thousand shillings for ordinary buildings and Twenty thousand shillings for a storey
building. Provided for each fraction of a building belonging to one or several coowners in accordance to the Unit Titles Act,91 shall be treated as separate building.
4.3.8.5 Special Buildings and Possible Loss of Revenue
One of the most significant findings of this study is that some special buildings does
not fall within the ambits of the law. They are outside the tax net despite the efforts
made to reform both the property rating system and practices. The rateable properties
are in the categories of ordinary building and storey buildings. Under the Written
Laws (Miscellaneous Amendments) Act,92 the term ordinary building was in similar
way redefined under subsection 4 which excludes storey building, mud huts, thatched
houses, mud houses and such other similar houses ordinarily used for residential
purposes.
Special buildings: Are buildings which are not used for residential purpose, and
which do not qualify to be storey building. They include petrol stations, factory
86
87
88
89
90
91
92
See Finance Act, No 4 of 2017.
See Cap. 289, [R.E. 2010].
See The Unit Titles Act, Cap 416 of 2008.
See The Written Laws (Miscellaneous Amendments) Act, No. 2 of 2019.
See Cap. 289, [R.E. 2010].
See The Unit Titles Act, Cap 416 of 2008.
See The Written Laws (Miscellaneous Amendments) Act, No. 2 of 2019.
42
buildings, warehouses, and workshops (garage and yards) houses. Most of these
buildings are high yield structure and hence ought to be included in the reforms.
Meanwhile, section 3 of the Act,93 was amended by deleting the interpretation of
words ‘authority’ and ‘retable property’ and substituting for them the words,
authority means Tanzania Revenue Authority, and the retable property to mean: In City councils, Municipal councils and Town Councils: In the case of
plot with a single building, a building which is in actual occupation
including all improvements on, in or under any such building. In the case
of a plot with more than one building, all buildings in actual occupation
in that plot including improvement on, in or under such building.
In District Councils and Township Authorities: In the case of plot with a
single building, a building which is in actual occupation including all
improvements on, in or under any such building. In the case of a plot
with more than one building, only one building which shall be charged
the highest rates in that plot.
4.3.8.6 Declaration of Rateable Areas
The power to make declaration of rateable areas is vested under the Minister for
Finance. The minister in consultation with the Minister of Local Government
Authorities may publish in the gazette to declare boundaries of rateable areas in the
headquarters of district council and township authorities and any other area to be a
rateable area.
Section 6 of the Principal Act,94 is repealed and replaced by new provisions on
declaration of rateable areas. All areas declared to be City council, Municipal
council, Town council, District council and Township authority shall be rateable
areas. In district councils, only the area within the boundaries of the headquarters of
the district councils and township authorities shall be rateable areas.
4.3.9 Property Rating Practices Adopted in Arusha City in 2014 -2016
Reports about practices in property rating in the Arusha City Council for the 2014 2016 valuation assignment/task are largely based on Local Government Revenue
93
94
See Cap. 289, [R.E. 2010].
See Cap. 289, [R.E. 2010].
43
Collection Information System (LGRCIS). This was the first modern and integrated
approach to be practiced in Tanzania with a geographic information system (GIS)
platform. The new system permits the local governments to use satellite data to
identify all properties within the rateable areas.
The actual process of transforming the traditional manual to GIS based system began
earlier in 2013/2014 and involved such procedures as data captured by satellites
(imagery), digitalization, and declaration of rateable areas, sensitization and actual
physical verification of data captured by satellites. The actual valuation undertaking
was during financial year of 2015/2016 and involved visiting of each individual
property by valuers to conduct physical inspection and subsequently compute
rateable values. This practice required a good number of workforce by engaging both
qualified valuers and local government officials.
The method of valuation adopted was the depreciated replacement cost (DRC) of the
rateable buildings; the choice of the method was because of absence of property data
for the market values. The DRC method allowed adjustment for depreciation of
which according to the Local Government Authorities (Rating) Act, 95 should not
exceed 25% of the total property value. Furthermore, the 2014 to 2016 rating practice
involved private valuation firms (valuers) which were responsible for doing
valuation assignment while the local government officials had to ensure properties
and owners are clearly identified and enhance due cooperation between professional
valuers and property owners. The valuation undertakings involved office works
especially for computation of property values and ascertaining of tax amount by
using the tax rate approved by the Arusha City Council and endorsed by the Minister
responsible for Local Government Authorities.
Besides, the valuation firms were also assigned to prepare ‘Valuation Roll’ by listing
all properties alongside their values. The Valuation roll for 2015 was the second roll
for Arusha City Council following the first which was prepared in 2002. The total
number of properties recorded in the valuation roll prepared in 2015 was 7200
rateable properties and there was a supplementary roll prepared in 2016 with 4200
rateable properties. Therefore, the total number of properties listed in the Valuation
95
See Cap. 289, [R.E. 2010].
44
Roll according to existing records is 11,400 rateable properties out the total rateable
properties available in the whole city of Arusha.
Surprisingly, Property Registers have major gaps as the study observed that the total
number of rateable properties recorded by TRA differs greatly to that of the Arusha
City Council (see Table 4:8); the reason was given by TRA officials that most of
properties were recorded more than one, some are government and institutional
properties, and some properties did not fall within the new definition of rateable
properties (to include only storey building and ordinary buildings).
Table 4.8: Summary of records of rateable properties for Arusha City Council
Authority
TRA
Total number of rateable
Properties within
Percentage (%)
Properties
Valuation Roll
46,792
11,400
24
123,472
11,400
9
Arusha City
Council
Source: Author’s Study Findings, 2020
Accordingly, responses indicate that about 30 percent of properties in Arusha City
Council have not been registered especially in wards situating in the periphery like
Muriet, Terrat, Moshono, Moivaro, Olasiti, Olmoti, Sinoni, and Sokoni One. New
constructions is considered to be the main reason for the increase of unregistered
properties within the jurisdiction.
45
CHAPTER FIVE
DISCUSSION OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
5.0 Introduction
This chapter presents summary discussion of findings, a conclusion, and
recommendations based on the objectives of the study. Also, the chapter presents the
policy implication of the study and avenue for further research.
5.1 Summary of Findings
The findings of this study is the presence of various valuation challenges which
arises very often during implementation of property rating. The findings can be
grouped into valuation issues and administrative issues which can further be
categorised as both policy and non-policy challenges. To mention a few, the findings
include the existence of challenge in making choice of the rating system between
value or non-value approaches (area-based assessment, value-based assessment, and
self-assessment), the absence of property markets data, the inadequate valuation
resources, the challenge of exploiting the potential of computer aided valuation and
geographical information systems (CAV/GIS), the revaluation requirement for
supplementary valuation rolls, simplicity and flat rate requirement challenges and the
series of frequent reforms in the rating system (both legislative and administratively).
5.2 Discussion of Key Findings
5.2.1 Difficult in Making Choice of the Property Rating System
The study observed that making choice as which system has to be adopted is critical
and poses a challenge to the rating authorities. This is a policy consideration of
which the Minister responsible for rating of properties has to make decision. For a
number of years since the enactment of the Local Government Authorities (Rating)
Act;96 property rating has embraced the value-based system in which property values
were assessed through valuation. The method of valuation which has been in use
over all the times was the depreciated replacement cost (DRC) because of inadequate
property markets data. Of recently, the government introduced the simple flat-rate
system where properties are assessed based on two categories identified as Storey
96
See Cap. 289, [R.E. 2010].
46
buildings and Ordinary buildings. This approach is not only a big challenge to
property valuation and taxation principles but also to the overall administration of
property rating. With flat-rate system, rating authorities can manage to widen the
base and enhance voluntary compliance but greatly loose potential revenues and
undermine fairness and the ability to pay principle.
5.2.2 The Absence of Property Markets Data
It was found that all respondents agreed that there is lack of reliable property market
data which could be used to assess property values based on comparable and income
methods of valuation. The records on property values can hardly be obtained from
the office of the chief valuer of which are not open for the public consumption. The
only source remain to be the unlicensed property agents whose records cannot be
relied upon because of lack of authority. The absence of property market data, makes
it difficult to adopt the self-assessment as a parallel system with the existing practice
because of lack of relevant reference to most recent property market records. Rating
authority should carry out an assessment of sales-ratio for the purpose of determining
the degree of variations in values.
5.2.3 Great Potential of GIS and the Role of ICT in Property Rating
One of the observations from the study is that there is great potential in adopting
Computer Aided Valuation (CAV) in line with the use of Geographical Information
Systems (GIS), the experience of practices adopted in Arusha is an eye witness of the
potential. With proper usage of geo-referencing satellite images and mapping, most
of properties were identified even in unplanned areas. This could otherwise be
cumbersome without exploiting the use of satellite imagery. The only challenge is
that still valuation has to be undertaken over each and every individual physical
rateable property. This limits the options for both valuers and rating authorities to
adopt the Computer Aided Mass Valuation, because they can only make choice out
of traditional valuation approaches. The available methods of valuation are
comparable, depreciated replacement costs, and profit or income method. The
limitations to the use of modern technology hinder the adoption of Computer Aided
Mass Valuation which would otherwise enable a big number of properties to be
assessed within a short period of time with relatively low costs of implementation.
47
The following images illustrate how technology can assist valuers in identification
and description of various attributes for the purpose of rating (see Figure 5:1(A&B)
and Figure 5:2 (C&D)).
Figure 5.1 (A&B) Use of Satellite Imagery in property rating in Arusha*
Figure 5.2: (C&D) Identification of buildings and taxpayers in field data
collection in Arusha City*
*(A, B, C & D) Images obtained from the work of William McCluskey Professor,
African Tax Institute, University of Pretoria, South Africa. (Source: PO-RALG)
5.2.4 Requirement for Supplementary Valuation
The law required at least after five years or such longer period as the Minister could
approve to undertake a supplementary valuation to take into consideration the new
properties and change in value of the existing properties within the rateable areas.
This requirement is featured on section 8(3) of the Local Government Authorities
48
(Rating) Act97 and was later abandoned after the adoption of the flat-rate system. The
need for revaluation and preparation of supplementary rolls were among of the key
challenges towards proper implementation of property rating in the country.
5.2.5 Poor Data Inventory and Management of Information
This is an administrative issue which brings about the ways on which data are
collected, analysed and stored; the study found that the data given by TRA and the
Arusha City Council varied greatly. This shows the gap in data and information
management. The records on the total number of rateable Properties given by the
City Council which is 123,472 implies that the data were completely raw and were
simply extracted from satellite images of which could have included other properties
which does not qualify for being rateable properties in the context of the Local
Government Authorities (Rating) Act,98 as amended. Data quality assurance is a
challenge when it comes to property rating because it distorts the tax base and if
collection targets are set or established based on wrong information the result will
always be low level of tax collection and the efforts could seem not being real.
Figure 5.3 Illustration of the impact of data inventory and information
management
Source: Author’s conceptualization
97
98
See Cap. 289, [R.E. 2010].
Ibid
49
5.2.6 Complex Institutional Structures and Capacity Constraints
The existing institutional structure for administration of property rates is complex
and has posed a barrier to effective implementation. It has separate agencies which
are responsible for land titling and valuation (Ministries responsible for lands and
local government authorities), and property tax collection and accounting (TRA).
Most of these agencies are semi-autonomous and do not share data effectively,
making it difficult to implement the value-based rating system.
However, practice in the previous where internal valuers (in local government
authorities) worked hand in hand with the consulting valuation surveyor (contracted
valuation firms) in undertaking valuation assignments and preparation of valuation
rolls has been hampered by the government decision to shift or transfer the
administration of property rating to TRA. Most of valuers under the local
government authorities were also transferred to TRA where have been charged with
other administrative roles including collection of property rates and not doing their
core role of property valuation. In so doing, the efforts to expand and strengthen the
valuation capacity at different institutional level have been blocked by TRA mainly
for the interests of preserving its status quo and the traditional function of revenue
collection in the country.
5.2.7 Legal Limitations to Unconventional Tax Base Options
It is obvious that in some parts within the rateable area, some properties are subject
to exclusion and exemption. Excluding and exempting some properties located
within the rateable area tends to distorts/erodes the tax base. Properties which does
not meet the legal definition of Storey buildings as well as Ordinary buildings are
automatically excluded in property rating because of only not falling within the
ambits of law. This is even challenging when special properties like petrol station,
warehouses and industrial workshops which are neither storey building nor ordinary
buildings are included in the rateable property register. If the law is to be fully
complied, then these properties will not constitute part of the rateable properties
thereby distorts the tax base. Should property rates be levied upon them, it could
contravene the legal position of taxation in Tanzania. The Constitution of the United
50
Republic of Tanzania (CoURT) provides under article 138(1) that there should be no
tax without a clear word of the law.
On the other hand, exemptions from payment of property tax have been provided
under the Finance Act,99 which includes properties owned by religious institutions
not used for commercial purposes or economic profit gain. Further, properties owned
by non-profit organization which are not used for commercial purposes or economic
profit gain and properties owned by Government, Government Agencies, Local
Governments and their institutions, and other similar institutions which are not used
for commercial purposes or economic profit gain are exempt from payment of
property rates. Also, one residential retable property owned and resided by an elderly
person (of above age of sixty years) or a person living with disabilities who has no
source of income are as well exempted from payment of property rates.
5.2.8 Shortage of Infrastructure (Facilities, Equipment and Machines)
Local government authorities suffered from acute shortage of facilities, equipment
and machinery to enable them undertake their administrative functions related to
property rating within their jurisdictions. The GIS-based rating system that took
place in Arusha City Council in years 2014/2015 to 2015/2016 was possible from the
support of the President's Office Regional Administration and Local Government
(PO-RALG) under the Local Government Revenue Collection and Information
System (LGRCIS). The LGRCIS integrated three interrelated systems into one userfriendly management solution whereby human resources information system,
document and file management system, and the revenue collection system enabled
easy connection via mobile phone to money transfer networks such as M-pesa, Tigopesa, and Airtel Money.
5.2.9 Uniform Property Rating Procedures (Flat-Rates Requirement)
The legislative reforms made through the Finance Act,100 came-up with
ammendments including section 16 of the Local Government Authorities (Rating)
Act.101 Additionaly, section 16 (1) provided for the possibility of having a dual
99
See Finance Act, No 2 of 2016.
See Finance Act, No 4 of 2017.
101
See Cap. 289, [R.E. 2010].
100
51
system for assessing the rateable values. These are the flat-rate system for buildings
which has not been valued and the value-based system for valued properties. The
rates for flat-rate were given in two categories; the first was for ordinary building
mostly used for residential purpose whose rate was fixed at Ten thousand shillings
only regardless of the size of the bulding, location, and condition of the subject
property. The second category consisted of storey building of which each storey had
to pay Fifty thousand shillings regardless of the size of the storey and its floor area,
location, and condition of the structure.
Nevertheless, the introduction of the Flat-rate system in property rating in Tanzania
undermined the very basic principle of property tax as an ad-valorem tax.
Furthermore, in February 2019 there was a new progress made towards property
rating in the country. The Written Law (Miscellaneous Amendments) Act,102
amended section 16 to do away with tha value-based sytem as well as the
requirement for doing valuation for the purpose of property rating.
Besides, the flat-rate system embraces rating practices with consideration of an
element of juridical location based on the status of the local government authorities.
However, This approach has affected only storey buildings by introducing two subcategories; the twenty thousand for each storey building within district councils
whilst fifty thousand has to be imposed on storey buildings for each storey within
city councils, municipal councils, and town councils.
5.3 Conclusion and Recommendations
This study has assessed valuation challenges pertinent to property rating in Tanzania
by using Arusha City Council as the case study. The study focuses on the way the
identified challenges tend to impede the property rating practices in the country as
well as slow down the efforts towards developing a vibrant property valuation and
rating system. This study therefore, recommends that:5.3.1 The Rating and Valuation Acts Should Clearly Define the Value Affecting
Attributes
The piece of legislation relating to property rating should be clear on the concept of
property value for the purpose of rating and lay down the most common attributes
102
See The Written Law (Miscellaneous Amendments) Act, No. 2 of 2019.
52
that can be considered in ascertaining the values. The methods, property size,
location, zoning regulation, and other property description consideration should not
be left to professional to envision. This would enable transparent and accountability
in property rating and reduce disputes which would otherwise occur in absence of
clear legal and administrative guidelines.
5.3.2 Allow Flexibility in Property Rating System
Property rating systems should be flexible to enable much wider approach, instead of
going to simple flat-rate system. The government should consider adopting a
combination of value-based, stratified flat-rate, and self-assessment systems.
Though, this might seem to be a complex approach but it ensures equity in rating and
also promises an increased revenue collection. Allowing flexibility encourages
voluntary compliance to taxpayers as the practice could seem to be a true and a
reality of their ability to pay; based on the doctrine of ability pay.
5.3.3 Embracing ICT Based Property Markets Data Inventory and
Management of Information
The government should establish a property market data center especially under the
supervision of the Chief Valuer as provided under section 6(1)(c&d) of the Valuation
and Valuers Registration Act.103 The data center will guarantee the availability of
reliable data at all times of need and also ensure data quality and parity. The
availability of quality and reliable data can suffice the use of valuation methods such
as the comparable and income or profit methods. It will also permit the use of GIS
and satellite based mass valuation because both digitalization and customization can
be possible for a big number of properties. Furthermore, the usage of geo-referencing
satellite images can create up-to-date financial maps which can provide a reliable and
strong reference for both the administration and for the rating personnel team. The
satellite imagery can be linked to GIS database in order to minimize exclusion of
rateable properties. It can also facilitate identification of both property and urban
extension.
103
See The Valuation and Valuers Registration Act No.7 of 2016.
53
5.3.4 Central Government Should Empower Local Government Authorities
The government should deploy full support and efforts to empower Local
Government Authorities by providing them with both human and financial resources.
The support will permit procurement of facilities, equipment, and machines. In so
doing, the Local Government Authorities become practically capable and can be able
do away with challenges relating to administration of property rating within their
areas of jurisdiction. Further, it will enhance the control over the whole property
rating practices, and will raise morale for both the rating authority and the taxpayers
due to the quid pro quo nature of property rates. High morale will be translated into
high level of community engagement and sensitization and subsequently enhance
voluntary compliance.
5.3.5 Consider Simplified Hybrid Methods of Value Assessment
The lack of property market data usually require the valuer to use the method of
depreciated replacement cost (DRC) as an alternative to the comparable method of
property valuation. The best alternative could be to use the rental value and specific
charges on the surface area – the simplified hybrid methods104 which can bring about
equity in the whole process and can practically be feasible.
Meanwhile, the simplified hybrid method is based on the surface area approach,
which takes into consideration of locational and qualitative factors such as class,
zones and construction aspects. The good example could be the practice by the New
Delhi Municipal Corporation which adopted the property rating system based on
adjusted area, known as the Unit Are Method (UAM).105 The UAM has a flexibility
of improvement through regular revision of the coefficients for property attributes
such as location, age, the user category (residential and non-residential use), and
occupancy term.
Furthermore, in using the UAM, the rateable value is obtained as a product of the
unit-area value, the built-up area, and the multiplicative factors which can either be
less than 1.0 or greater than 1.0 depending upon the agreed rate by the particular
104
105
Based on the work of Nyah Zebong, Paul Fish and Wilson Prichard (2017); Valuation for Property
Tax Purposes: ICTD Summary Brief Number 10.
Adopted from the work of Ajit Agarwal, Senior Consultant with PwC Advisory; Property Taxation
System in India.
54
rating authority. These alternative approaches could help the rating authorities to
avoid one of the valuation challenges (the valuation method dilemma) and the
traditional way of doing valuation.
5.3.6 Adopting Consolidated Reforms in Administration of Property Rating
This study recommend a complete repeal of the Local Government Authorities
(Rating) Act,106 and go for a new legislation alongside with rating regulations. There
has been series of reforms in administration of property rating in Tanzania. These
have rather been confusing and discouraging to both rating officers and taxpayers.
The recommended new legislation should embrace and retain reforms that adhere to
the basic principles of property rating and the canons of taxations.
However, it is wise to reconsider the reforms made under the Finance Act, 2016107
and permit for a combination of those made under the Written Laws (Miscellaneous
Amendments) Act.108 This has an obvious advantage of renitroducing the valuebased alongside the stratified flat-rate systems all together to operate for the common
good. The existing reforms has a narrow scope taking into consideration properties
which does not fall within the tax-net by being neither storey buildings nor ordinary
buildings.
Furthermore, the scope of rateable properties should be widened by redefining into
three categories, namely; storey buildings, ordinary buildings, and special
structures/buildings. The third category should be for properties like petrol station,
warehouses, and industrial workshops/buildings. Generally, these recommended
measures to adopt a consolidated reform in property rating can be grouped into four
related considerations. They are: defining the tax base, determining the tax rate,
evaluating administrative options, and finally the mitigation measures during
transitional period.109
106
107
108
109
See Cap. 289, [R.E. 2010].
See The Finance Act, No 2 of 2016.
See The Written Law (Miscellineous Amendment) Act, No. 2 of 2019.
Based on observation by Jay K. Rosengard (2012); The Tax Everyone Loves to Hate: Principles of
Property Tax Reform. Harvard Kennedy School: M-RCBG Faculty Working Paper Series | 201210.
55
5.3.7 Promotion of Wider Community Engagement to Enhance Voluntary
Compliance
Poor community engagement has been identified as one of the challenge in
implementing property rating. Authorities should lobby and promote community
engagement to enhance voluntary compliance. It is healthy for both the
administration and the taxpayers to broaden the scale of participation during
sensitization and dissemination of information. This eliminates the un-necessary
frictions and disputes which could otherwise not happen if proper engagement has
been deployed. Property rating practices have to be people centered and every
process or action taken must be well communicated to the members within a
particular rateable area.
5.3.8 Enhance Training Programmes for Rating and Valuation Officers
To enhance efficiency in property rating practices, continuous professional
development (CPD) training programmes are a must. Every reform assumed comes
with new requirements and hence needs change in practices. Without proper training
to responsible personnel, nothing could better the end. Support can be in the form of
giving them permit to attend training, funding training expenses, and if possible
indulge into financing researches to better the practices and ultimately improve
voluntary compliance.
5.3.9 Property Rating Should be Administered by Local Government
Authorities
The findings of this study have suggested that respondents favor going back to the
old practices; to the value-based system. The way property tax administration is
implemented, it is clear that only the administration of property rating which has
been shifted to central government. Even with such functions as property
identification and registration, maintenance of the property registers, revenue
collection, and accounting of the tax revenues being under the power of the
Commissioner General for TRA. The levying authority and the beneficiary of the
revenue remain to be the local government authorities.
56
Furthermore, in order to uphold the financial autonomy of local government
authorities provided under the Local Government Finances Act,110 it is better only
collection of property rates be shifted to TRA and the revenue be accounted into the
account of the local government authority. Fjeldstad111 suggested that TRA is not
well positioned to link voluntary compliance on payment of property rates with
enhanced local services.
5.4 Policy Implications
The main aim of this study was to address total lack of research evidence on what it
means of valuation challenges in property rating. The researcher has done so by
directly assessing, observing, and reporting on both the practice (works and practical
experience of valuers and other rating officials) and policy considerations. The
findings of this study delivers to the audience the implications for both policy and
practical attention.
Apparently, policy consideration are vital in designing an efficient property rating
system. The main focus should be on the basis of administering property rates and
decide whether to be area-based, value-based, flat-rate, self-assessment or a
combination of two or all systems. If the decision embrace the value-based system,
the role and scope of valuation has to be clearly pronounced and set to attain suitable
funding, plans for supplementary valuations, and strategies for external quality
control. Another important policy decision which has to be made is the property rate
to be adopted. The reform must clearly establish whether the rate(s) can be
administered on local bases or at national level, and if it can be single rate or multiple
rates.
Therefore, the study on valuation challenges enlighten and help inform policy
makers of the effective policy implementation of key procedures which must be
accomplished by various stakeholders involved in property rating. The knowledge
about valuation challenges and the recommendations identified thereto, should serve
to advance a mutual understanding of the objectives of the policy and their respective
roles to ensure a wide-ranging working relationship between the key players.
110
111
See The Local Government Finances Act, No 9 of 1982, [R.E. 2002].
Fjeldstad, O.-H., Ali, M. and Goodfellow, T. (2017). Taxing the urban boom: property taxation in
Africa. CMI Insight 1: 2017 (March). Bergen: Chr. Michelsen Institute.
57
5.5 Area of Further Study
This study, being descriptive in nature, raises a number of opportunities for future
research, both in terms of theory development and concept validation. More research
will in fact be necessary to refine and further elaborate the unique findings. While the
study has generated a number of useful findings that helps understand the valuation
challenges which impede property rating practices. A very little has been said of the
nature of information and work of the larger population of valuers and rating officers
in Tanzania. The study could therefore be extended in search of impacts of valuation
challenges in administration of property rating and revenue collection based on liner
regression model rather than a simple descriptive study which has been pursued here.
Also, the study offers the opportunity to improve and authenticate the concepts and
constructs that appeared from the analysis made. For example, the idea of an
alternative to tax base option (the simplified hybrid methods) will need further
improvement and amplification, in terms of both its attribute elements and its internal
dynamics.
58
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