Why property tax collection shift to central govt triggers worry

Dar es Salaam. Members of civil society organisations (CSOs) and politicians are concerned about the government’s shifting of property tax (PT) regime to the Central Government from local authorities.

The government tabled the Finance Bill 2018 that amended the Local Government Authorities (Rating) Act, Cap 289 and the Local Government Finances Act Cap 290.

The government amended Section 3 of the Local Government Authorities (Rating) Act, Cap 289 to make the Tanzania Revenue Authority (TRA) as the rating body.

The amendment also saw Section 21 of the law repealed and replaced with rateable properties reading: “subject to this act, all rateable properties in a rateable area shall be subject to rate as prescribed under this act”.

Section 6 (m) of the Local Government Finances Act, Cap 290 was amended by immediately adding after the word “taxes” the phrase “fees for advertisements on billboards, posters or hoardings”.

Section 7 (1) of the Principal Act was also amended by deleting paragraph (n) and substituting for it a paragraph reading: “Fees for advertisement on billboards, posters or hoarding including fees paid in respect of rents of shops, butcheries, market stalls user charges and service charges.

Members of the CSOs said during the Policy Forum Breakfast Debate that the amendments meant the Central Government has overtaken local authorities in revenue collection responsibilities.

They said apart from fuelling dispute between the two sides the shift will greatly affect local authorities’ ability to execute development projects endorsed by the councils during their budgetary meetings.

They were debating a presentation titled ‘The central-local government relations in property tax collection in Tanzania’ that was conducted by Repoa in collaboration with the African Tax Institute and Chr. Michelsen Institute.

The Repoa director of commercial works, Dr Lucas Katera, said the 7.1 per cent country’s economic growth driven by the construction and service sectors was not matching with the rapid urbanisation recently recorded.

“Though real estate consumes large amount of capital, the sector has questionable impact on development of the same,” he said during the presentation.

He noted that PT accounted for five and 20 per cent of local authorities’ revenue which is equivalent to 0.3 per cent of Tanzania’s gross domestic product (GDP), observing that in developed countries the amount could reach 80 per cent of the revenues, about two per cent of the GDP.

Debating the presentation, the Good Financial Governance (GFG) programme officer, Ms Annette Mummert, said rapid urbanisation showed Dar es Salaam would become a megacity in the coming few years, noting that local authorities required to have revenue sources that will enable them execute significant functions in their respective area of jurisdictions.

“Tax collected by local governments should be linked with urban costs and realised benefits. Financial sustainability for urban cities is important for reliable and local authorities’ contribution in supporting the country’s economic growth.”

She noted that centralised revenue collections will narrow the local authorities’ revenue base and that broadened fees could not compensate centralised taxes.

“Local authorities will also not be able to claim disbursement of collected revenue once they are deposited into the Consolidated Fund. Therefore, implementation of development projects will be immensely affected,” she observed.

The German embassy’s protocol and political relations official, Ms Pamela Kamora, cautioned that unremitted funds from the Central Government would affect the citizens’ willingness to pay taxes.

“Normally, people are willing to pay taxes and contribute to development, but they are supposed to see the impact of the taxes they pay in terms of development. Otherwise, their willingness in tax payment will be put at stake,” she noted.

The 14ID Inclusive Development senior coordinator, Mr Japhet Makongo, said frequent shifts of PT regime were making Bunge assemblies, debates and resolutions meaningless.

“What is the meaning of parliamentary debates and fund allocations made by the National Assembly if entitled institutions charged with revenue and management roles are changed arbitrarily?”

Mr Moses Kimaro of Wajibu Institute questioned how much the move affected the ability of district councils in implementing development projects during specific financial years. “These decisions are contradictory. What message is the government sending to citizens in terms of service delivery, democracy and people’s participation?”

The chairman of the Local Authorities Accounts Committee, Mr Vedasto Ngombale-Mwiru, warned that the government’s decision on PT and billboards would plunge local authorities into serious problems.

“We will witness a shocking downfall of local authorities because experience shows bureaucracy affected timely disbursement of funds from the Central Government to local authorities. Experience has also shown that the amount of funds remitted to the local authorities was less than what was collected, affecting the implementation of local authorities’ budgets.”

The Kilwa North legislator on a CUF ticket said principally, the Central Government had robbed local authorities of important source of revenue, noting that even reported increase in revenue collections was attributed by what local authorities were supposed to collect by themselves.

“The shift could be beneficial to local authorities due to TRA experience, its network and expertise in tax collections, but bureaucracy and indiscipline will turn the decision into chaos,” he said.

Similar concerns were raised by the chairman of Regional Administration and Local Government Affairs Committee, Mr Jason Rweikiza, who outlined his fear, noting that though the shift could benefit local authorities, the dispute resolution mechanism is made complicated. “When tax was collected by local authorities, citizens were freely allowed to file their appeals in judicial organs over unfair taxation. But, under the new regime they will be required to pay one-third of the disputed amount for the complaint to have been lodged at the court for resolution,” he said over phone.

According to Mr Rweikiza, who doubles as the Bukoba Rural MP, poor citizens who could face the unfair taxation would be denied opportunities to advocate their rights.

He noted that most local authorities were struggling economically, hinting that it wasn’t surprising to hear that some have opted to design by-laws that in their efforts to increase their tax bases.

“But, requirement is that formulated by-laws should be aligned with the country’s constitution and laws of the land and that they need to be endorsed by the Prime Minister’s Office,” he said.

Background of PT centralisation and decentralisation

In his presentation, Dr Katera said the PT regime was decentralised in 2008 mandating local authorities with tax revenue administration and collection responsibilities.

However, local authorities recorded poor performance in revenue collections due to increasing claims of corruption and political interference by councillors.

The government was forced to centralise the PT revenue collections in the same year, mandating TRA to assume the responsibility on behalf of Municipality Councils (MCs) in Dar es Salaam Region.

“The decision saw poor, but slightly improved revenue collections after the 2012/13 fiscal year, with notable challenge including deteriorating cooperation and coordination between MCs and TRA,” he said.

He noted that in 2014 PT administration and collections were re-decentralised, re-directing responsibilities to MCs. He noted that the decision saw major increase in revenue collections due to mass valuation and updates of property registrations.

However, PT regime was re-centralised in 2016 with TRA given the task to collect revenue for 30 largest MCs. But, PT collections suffered major decline in 2016/17 fiscal year.

He noted TRA was granted PT administration and management roles because of its experience and expertise in the field, proper revenue collection systems, wide coverage and lessons from African countries including Rwanda and Ethiopia.

Cause of LGAs inefficiency

Mr Katera said top-down directives, poor incentives, loss of TRA reputations, loss of municipalities ‘control’ of revenue collection, discrete goals between TRA and local authorities, distrust and preconceptions between TRA and MCs were part of political factors that accounted to inefficiency.

However, he noted that poor preparation and implementation, outdated property registers and valuation rolls, the new mode of payment requiring use of bank deposits and Taxpayer’s Identification Numbers (TINs) were technical issues attributed to inefficiency.

Dr Katera said PT collections require cooperation, exchange of information and proper coordination between TRA, MCs and other entities, calling upon for establishment of mechanisms to improve the intra-governmental cooperation and coordination.

“This should be done by linking basic revenue administrative components, such as database maintenance, billing and enforcement with other revenue sources such as business permits, house rents, land rents and utility charges in electricity and water supply services, “ he said.

He said mechanisms should provide incentives that will enhance cooperation of TRA and LGAs and motivate TRA to increase tax collections hence improve revenue collections of LGAs.

“It is also important to assess the extent at which politicians and government officials provide support and cooperation to TRA. Clarification also needed on the division of functions and responsibilities of the central and local government administration,” he said.

Ms Mummert said frequent changes in legal framework increased uncertainty and undermined adaptation of administrative procedures, noting that the inter-governmental cooperation is necessary for sustainable growth of tax revenue. “Since both TRA and local authorities collect different types of revenues in the same category including business tax, business licence, registration fee, hotel levy and property tax versus land rent, they need exchange of standardised data to close information gaps,” she said. According to her, there is a room to widen the tax base and close information gaps through better methods of sharing information, calling upon stakeholders to work on success factors in order to enhance inter-governmental cooperation.

She called for political will and commitment of government executives involving multiple levels of governance and legal certainty for clear and coherent legal framework governing in data exchange.

Ms Mummert said development partners were ready to assist the government in establishing legal frameworks to facilitate institutional exchange of data, calling upon the public to think beyond efficiency gains in revenue collections.

”But there are more objectives for shaping inter-governmental fiscal relationships that include enabling the function of local authorities and strengthening social contracts at local levels,” she said.