Friday, March 26, 2010

African Land: An Un- or Under-Taxed Resource

25th March

Nairobi: The question of how to tax land figured highly in discussions today at TJN for Africa’s Pan-African Conference on Tax and Development. Despite the powerful case in favour of taxing land values in major cities, for example to fund the much needed railway upgrade programme in the Nairobi urban area, a wide range of political, social and technical matters stand in the way of progress. Land values consequently go un-or under-taxed. Unsurprisingly, speculation, inflation and rent-seeking activity is rife.

The major political barrier to change lies with the concentration of land assets in the hands of political elites and small land-owning classes, much of which has been acquired through corrupt means. This makes implementing a comprehensive land tax somewhat fanciful, but probably wouldn’t block the possibility of using a land value tax to fund specific infrastructure projects such as upgraded roads or railways, which would raise land values along their entire length.

On the social side, rural land tenure patterns vary enormously between huge private holdings, some carried forward from the colonial period and more recently from land purchase by foreign investors, and more traditional patterns of communal land use without formal property title. In urban areas there are sharp divides between formally owned property and squatters occupying vacant land without tenure rights. The latter seldom benefit from infrastructure investment since they are typically evicted before the investment goes ahead so that others can benefit from the rising land value. These issues need to be addressed without resort to making squatter families destitute.

In many cases it seems that the technical barriers to effective land taxation are linked to the political ones. Poorly maintained land cadastres, in some cases 20 or more years out of date, seem commonplace. This neglect might not be accidental. Ownership details and land values need updating, but the cadastral staff frequently lack appropriate technology and would benefit from additional training in land valuation, including mass valuation techniques.

Despite the barriers, the potential benefits to many African cities of adopting land value tax is too great to ignore. Linking the tax to major upgrade programmes would generate the public demand needed to overcome the political barriers mentioned earlier. A strong case can be made for allocating external funding, possibly under aid programmes, to make the necessary technical and capacity upgrades. This is an important part of shifting towards just and equitable tax systems for African countries.

The Pan-African conference has attracted over 50 participants from 17 countries. Today's discussions will be followed tomorrow by a focus on how tax havens and transfer pricing impact on the Continent's development.


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