by Giorgio Brosio, University of Turin and OEET, and Jelle Gerbrandy, Paratii Foundation Sihtasutusby
Sintesi
Gli autori discutono in merito all’importanza che una corretta definizione dei diritti di proprietà sulla terra riveste al fine di sostenere i processi di sviluppo economico. Alla luce di tale considerazione, viene analizzato il caso della Tanzania. Il paese rientra infatti a pieno titolo nella categoria delle economie emergenti e, negli anni recenti, ha vantato tassi di crescita del PIL intorno al 6%-7%. Tuttavia, la performance dell’economia tanzaniana, largamente basata sul settore primario, rischia di essere frenata da un sistema di registrazione dei diritti di proprietà terriera inefficiente ed iniquo. Gli autori forniscono quindi una serie di suggerimenti per superare tali inefficienze, sottolineando in particolare la necessità di un’efficace tassazione della proprietà e della digitalizzazione dell’amministrazione fiscale.
Growth prospects Tanzania is still a low income country, but has experienced high growth rates based on its vast agricultural and mineral resource wealth and tourism. GDP growth in 2009-16 averaged 6%-7% per year.
The primary sector accounts for more than one-quarter of GDP, provides 85% of exports, and employs two-thirds of the work force. Tanzania aims at achieving a middle income status at the end of the Second Development Plan (2016/17-2020/21). No fundamental transformation of the structure the economy is envisaged; growth is expected to stem from increase of agriculture productivity, from an ambitious infrastructure construction plan, and from expansion of access to public services. In the recent years Tanzania has performed an almost full transition to a market economy, although the government retains a presence in key sectors, such as telecommunications, banking, energy, and mining.
Registration of property titles, leading to the effective definition of rights on land, both in the rural and the urban areas, is essential for increasing agricultural productivity, for expanding delivery of basic services and for executing massive infrastructure investment programs. However, in Tanzania registration of titles is gravely delayed and also restrained to a small share of properties, due to lengthy, inefficient and also inequitable procedures. Making these procedures more efficient would remove a most important constraint to continuation of growth and would also help to provide much needed revenue, particularly by making taxation of property effective (Ahmad, Brosio, Gerbrandy, 2017). These are the main (and not frequently considered in a growth perspective) arguments developed in this contribution. It also suggests the need of radical innovations in procedures, such generalized use of digital mapping and block chain technology for registration of properties. Most of the arguments developed here apply, to a large degree, to most emerging economies, particularly in Sub Saharan Africa.
Impact of missing definition of property rights on land
Abysmal delays in registration and assignment of property titles characterize not only Tanzania, but the whole of Sub-Saharan Africa. In Tanzania, less than 15% of plots are registered, despite recent efforts to speed up the process. This is, however, a much higher share than that prevailing in Africa. According to Toulmin (2006) in West Africa only 2 to 3 per cent of land is held by written title and also this is being mostly confined to a few major cities and development areas, such as irrigation schemes. In Burundi, it is estimated that less than 1 per cent of land is registered. In East and Southern Africa, higher levels of registration exist, given the longstanding occupation of land by large commercial farmers. However, even the existence of paper titles is not a sufficient condition for tenure security, as experience in Zimbabwe in recent years has demonstrated.
Without defined property rights on agricultural land, investment by small farmers is discouraged. Having no principal to offer as guarantee, farmers are denied access to credit. On the other hand, the assignment without a clear and effective definition of property titles of occupancy rights to modern economic activities, such as mining, timber production, large-scale farming, tourism and conservation, has created growth in Tanzania, but also frequent opposition, when not harsh conflict, with the local population and village authorities, particularly on projects potentially endangering the environment. If conflicts about rights are not settled, they can impinge on the present approach to growth. As a matter of fact, the government of Tanzania is presently reconsidering the rationale of promoting the recognition of only private property rights and is thinking to revive, at least partially, the traditional conventions, in the framework of former President Nyerere’s, Ujamaa vision (1).
To give an idea of the relevance of the issue it is worth recalling that land in mainland Tanzania falls into three types: a) Village land; b) Reserved land; and c) General land. Village land covers approximately 70 per cent of mainland Tanzania and accommodates about 30 million people in 2012 (see Figure 1). Reserved land is set aside for natural parks, conservation areas, forest and game reserves. It amounts to 28.5 percent of mainland Tanzania and in principle cannot be occupied. However, despite the legal ban, it is estimated that 300,000 to one million people live on reserved land, mainly pastoralists, displaced people, or even small scale informal tourist ventures. General land is neither village nor reserved land. It covers only two percent of the national mainland areas and accommodated about 13 million people in 2012. Most of general land is situated in the urban areas, with a small portion of it located in the rural areas.
Figure 1. Land tenure in Tanzania
Registration of land plots is almost inexistent in village land, where most of the expected increase of agriculture productivity should take place, since almost three fourths of rural population inhabit this area. Registration of land plots is also largely missing in the urban areas, where most of the potential of property taxation is concentrated.Registration of land plots is almost inexistent in village land, where most of the expected increase of agriculture productivity should take place, since almost three fourths of rural population inhabit this area. Registration of land plots is also largely missing in the urban areas, where most of the potential of property taxation is concentrated.
Delays in registration and assignment are due to procedures that, although derived from the best practices applied in the industrial countries, are completely unsuited to most emerging and developing economies. Registration of land starts with request from occupier, who has to provide evidence of this claim. If there is no opposition after a given time, the occupant has to hire a surveyor who will draw the map, make the measurement of the plot and provide all the required detailed information. The last step is the insertion of map and information on a register (the cadaster). As we can see, the process is quite lengthy, especially if there is opposition to the claim of property by the occupant, it is costly for the poor and is subject to exactions by a corrupt bureaucracy (2).
Urbanization as an asset rather than a burden
Tanzania is a rapidly urbanizing country, although the overall urbanization rate remains low (29.1% in 2012; see Wenban Smith, 2014). The growth of cities, especially Dar es Salaam, is driven by the construction and service sectors. Investment in real estate is massive, absorbing huge amounts of capital. Despite increase of housing stock, a large share of settlements is still informal. According to the World Bank (2002), 70% of Dar es Salaam’s population lives in poor, unplanned settlements. Residents are usually too poor to pay for services or infrastructure and the authorities are too resource-constrained to maintain these; as a consequence health and environmental conditions are generally extremely poor (CollIer and Jones, 2016). Access to clean water and sanitation are major problems and contribute to widespread illness. Congestion and pollution are also extremely high in the urban areas. The relatively small size of the other main cities in Tanzania is reflected in lower, although growing, congestion and pollution. Continuation of rapid economic expansion requires also a more balanced spatial pattern of growth with the creation of new economic hubs, in addition to Dar es Salaam.
Urbanization does create growth by itself. At the same time there can’t be growth in cities if they don’t create growth-facilitating infrastructure. There can’t also be growth, if basic services contributing to human capital, such as education and health, are not provided. Infrastructure and services are very costly and municipal finances could receive a decisive help from a properly working property tax, more precisely a tax on immobile property levied annually. This tax is the backbone of local finances around the word. In Tanzania it exists but its revenue is simply missing. Property taxation – that includes a rent fee on land (see below), contributes only roughly 0.16 percent of GDP. If we take for granted that the potential property tax revenue for a similar country is about one per cent of GDP, Tanzania is performing at one sixth of the benchmark for this group of countries.
This reflects huge problems in the structure of the tax and its administration, compounded by evasion or avoidance by the rich taxpayers, as well as political resistance.This reflects huge problems in the structure of the tax and its administration, compounded by evasion or avoidance by the rich taxpayers, as well as political resistance.
Officially, only one instrument of taxation is recognized in Tanzania, the property tax. But an additional instrument is levied, the land rent fees. The property tax is levied on the improved value of land (meaning buildings), while land rent fees are based on (pure/non built) land. The property tax is assigned to be collected by local governments. The Ministry of Lands, Housing and Human Settlements Development is responsible for collecting the land rent fee. This assignment creates huge problems for the assessment of the tax base. In principle, the value of buildings and improvements must be deducted from the total value of property to determine the pure land value on which to set the rent fees (30% shared with local governments), while the value of pure land must be deducted from improved land to determine improvements to levy the property tax. The Minister of Land has resolved the problem by simplifying, quite appropriately, the method for determination of the tax base. More specifically, land fees are determined according to the size (square meters) of plot and to use of property (3).
Local governments are still relying on the traditional (in fact a legacy of colonial times) method based on assessment of value made by surveyors. Since the method is lengthy (4) surveyors are in short supply it will take year to assess the properties that are presently registered. With no assessment no tax is levied. This suggests that a simplified method similar to that adopted for land fees should be used for the property tax. A good approximation of the tax base could be reached by weighing the size of property with location and use.
Digital technologies for innovating tax administration
If the property tax has to make a significant contribution to local revenue, radical innovations in registration of properties and of assessment of tax are needed, with use of digital, also cheap, technology starting with mapping of plots and properties
.Mapping is problematic, as in most cases street names and addresses of property are not available, while traditional methods (such the project on adressage in Dakar, see Ahmad, Brosio and Gerbrandy , 2017) are costly and problematic.
Use of satellite imagery together with a system of geographical coordinates to identify plots is available as a more convenient alternative.
For example, Open Streep Map (https://www.openstreetmap.org) is an international collaborative mapping project where all data is freely available and reusable. Information from these sources can be increased locally at a reasonable cost. A small but quite interesting example, worth quoting, of the opportunity of using new technology is the Ramani Huria community-based mapping project began in Dar es Salaam. It trained university students and local community members to create highly accurate maps of the most flood-prone area. As we can observe in the graph below, the result of the project (map on the right) provides much more (and also apt for tax purposes) information than that on which the project started.
Figure 2. Building on Open Street Map in Dar-es-Salaam, before and after Satellite Imagery
An even larger innovation potential for the whole public sector derives from use of the block chain. This is a family of technologies and organizational principles aimed at creating a “trustless public ledger”; this is a register that does not depend on validation or control from above to be trusted by all stakeholders. (Nakamoto, 2008; Buterin, 2014, UK Government Chief Scientific Adviser, 2016).
An even larger innovation potential for the whole public sector derives from use of the block chain. This is a family of technologies and organizational principles aimed at creating a “trustless public ledger”; this is a register that does not depend on validation or control from above to be trusted by all stakeholders. (Nakamoto, 2008; Buterin, 2014, UK Government Chief Scientific Adviser, 2016).Block chain technology is applicable where large numbers of people need to agree on who owns what: money, internet domain names, property registers. This is clearly the case of registers of property built for tax purposes and/or definition of property rights. These technologies promise to replace bureaucracy and centralized institutions with software code and decentralized consensus mechanisms.
There is already in fact a number of experiments in applying block chain technology for electronic property (both vehicles and buildings and land) registers in Baltics and the Former Soviet Union Republics, such Georgia and Estonia and Lithuania’s s well as Sweden and by private firms (for example, Maersk and IBM).
Block chain technology could in principle allow emerging countries to “leapfrog” old and expensive technology (classical cadasters) with cheaper and more streamlined procedures, and crowdsourcing of data. The possibilities are quite exciting and could be developed further with experimentation. Ironically, in countries with weak institutions and procedures, the block chain options may be easier to introduce, as there is less that needs to be dismantled, and what is there does not work very well in any case.
Notes
(1) According to Nyerere, an ideal, African, society, needed to be based on equality, because only on that basis will men work cooperatively; freedom, because the individual is not served by society unless it is his; and unity, because only when society is unified can its members live and work in peace, security and well being. Common, or communal, property of land was, according to Nyerere a kingpin of this society.
(2) As a matter of fact corruption is pervasive in Tanzania, affecting all levels of government and administration. According to the 2016 Corruption Perceptions Index by Transparency International, Tanzania is ranked 116th out of 175 countries (with 175 being the most corrupt). Tax officials are perceived as the most corrupt according to information provided by Afrobarometer.
(3) The total fee (FT) is determined by multiplying a unit, per meter, fee determined by the government (F), for example 5 shillings, by the number of square meters (N), and by a coefficient associated to use (U), for example, 1 if agricultural land, 1,5 for built land. In formula TF = FxNxU.
(4) Surveyors assess property values based on building costs, with deductions for depreciation of buildings. Values can be well below market values, and the comparison is not immediate, since market value includes necessarily the value of pure land. Taxpayers can object to their assessed value, in which case the case is brought to The District Land and Housing Tribunal. The whole process takes at least a year.
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