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close this bookFinancing Cities for Sustainable Development - with Specific Reference to East Africa (HABITAT, 1998, 98 p.)
View the document(introduction...)
View the documentAbbreviations
View the documentForeword
View the document1. Introduction
View the document2. Main Sources of Municipal Revenue
View the document3. Property Tax
View the document4. Income Tax
View the document5. Charging for Urban Services
View the document6. Tax on Provision of Goods and Services (Business Licences and Fees)
View the document7. Income-Generating Enterprises
View the document8. Borrowing
View the document9. Central Government Allocations
View the document10. Summary of Main Findings, Conclusions and Recommendations
View the documentReferences

3. Property Tax


The most important form of tax collected by local authorities in Kenya are the rates which are levied on land and buildings. The Valuation Rating Act Cap 266 and Rating Act Cap. 267 are the basis of rating. Three rating systems could, by law, be used: unimproved site value, improved site value and area rating. With the unimproved site value category, the tax is based on the value of land only. Improved site value rating allows for consideration of the investments; while the last category, area rating, has the land area owned as the basis of tax rates. In Kenya, unimproved site value rating is used, particularly in urban areas. Some rural local authorities, however, do use area rating as the basis of their taxes.

In general, rates form the major source of revenue in urban local authorities. The 1984-88 National Development Plan observed that, for 10 years prior to 1984, rates, licences and cesses contributed on average 43.2 per cent to the total revenue of the local authorities. Over the same period, fees and charges contributed about 17 per cent of the total revenue, with grants accounting for 37.4 per cent. In the case of Mombasa, rates contributed about 66 per cent to the total revenue collection over this period.

Other property taxes levied by local authorities in Kenya also include a levy on transfer of property (although stamp duty, which is the most lucrative in Kenya, is payable to the central government, through the Ministry of Lands) and some betterment taxes. The latter are charged when infrastructure, such as roads and water, are extended to a newly opened up area as in site and service schemes.

Under the law, rates in Kenya are payable by individual property owners, business and the government. They are payable to the local authority in which the property is located and are due on the first of January each year. Remissions are given for timely payments, while rate payers are penalized for payments outstanding after the year they fall due.

Rates are collected on the basis of valuation rolls prepared, or revised, after every ten years. Tlie law provides for a valuation court, in case of objections to the level of rates or to any change introduced either to the existing valuation roll or supplementary rolls.

There are institutions which are by law exempted from payment of rates, including cemeteries, hospitals, public religious worship places, museums and national parks, etc. These institutions are specified in the Rating Act, or may be gazetted on approval by the Minister.

Nairobi City Council still uses the 1982 valuation roll. Initially, the roll was to be reviewed every 10 years, this was later changed to 5 years and again to every 10 years due to political pressure by interested parties. Prices of land have, in the meantime, gone up drastically over the years. This rapid increase in land prices has made revaluation unpopular and a politically difficult issue, thus causing a slow growth of revenue from property tax.

Mombasa continued to use the valuation roll prepared in 1959 up to 1981. The reason cited for failure to prepare a new valuation roll was lack of staff to undertake the exercise. The valuation roll currently in use was prepared in 1991, based on land values of 1990/91. The effective date for this 1991 Valuation is 1996, with the current approved rate levy being 5 per cent for commercial properties, 2.5 per cent for residential properties and 1.5 per cent for agricultural areas falling within the municipality. Old town residents are currently paying half their rate values following their petition to the council after their area was declared a historical zone, which in essence has prevented re-development.

Rate revenue constitutes a major component of total revenue collection in Kenyan cities. In Nairobi, rates form over 60 per cent of the revenue of the City Council. In Mombasa, rate revenue stood at Ksh.143 million in the year 1995/6, while all other sources raised only Ksh.203 million. This shows that rates contributed about 41 per cent to the total revenue collection, which is in line with the national trend, indicated earlier. Nearly 90 per cent of the rate revenue is paid by general rate payers.

Rates are payable at the beginning of each year. The Councils in the past sent notification to payers on actual payments, but this has stopped in recent years. It has become the onus of the payers to remit their payments, with or without notification. Reminders may be sent to request payers to remit outstanding payments. The rates are paid in the revenue section of the Councils.

On a periodic basis (not clearly defined) notices are issued in the press giving names and amounts defaulters have to pay. Municipal appointed lawyers are then requested to follow-up on payments, after which defaulters are prosecuted if they still fail to pay-up.

The procedure for collection and recovery of late payments/arrears are generally poor. Enforcement is both time-consuming and cumbersome, as follow-up measures are not clearly defined. In some cases, lawyers hired to collect outstanding arrears have been known to hold the monies collected before remitting the same to the councils. The use of hired lawyers from the private sector also makes recovery of rate arrears expensive, and hence raises the administrative costs of rate revenue collection.

Table 2 gives the recent trend in rates collection by the Nairobi City Council over the five-year period from 1991/92 - 1995/96. According to Mombasa Municipal Council Estimates, rate revenue has risen from Ksh.52 million in 1982/85 to Ksh.143 million in 1995/6.

Generally, it can be noted that rate revenues are stable. The national level default rate is estimated at between 30 and 35 per cent, with the Government (including parastatal bodies) as a major contributor to this high magnitude. For Mombasa, the default rate in 1996 was excessive, at 68 per cent by the end of the financial year, but this was an unusual year because new rates were coming into place, hence the high level of the total dues in 1996. In Nairobi, arrears as at June 30, 1996 stood at Kenya Pounds 143 million. Table 3 shows Nairobi's recent trends in arrears.

Table 2. Trends in rates collection, Nairobi (KPounds '000 p.a.)




per cent





















Source: Nairobi City Council
Abstracts of Accounts 1991/92 - 1995/96
*Includes interest charged and excludes discounts given for early payments.

Table 3. Arrears of rates, Nairobi City Council (KPounds '000 p.a.)

June 30,

June 30,

June 30,

June 30,

June 30,

June 30,

Arrears of Rates







Source: Nairobi City Council Abstract of Accounts 1995/96 - 1990/91


It has already been noted that rates are a significant proportion of the total revenue in both Nairobi and Mombasa, as well as in all urban local authorities in general. Rate revenue is also stable, despite fluctuations arising from both short-term changes in the economy or shocks arising from increments. It can be concluded, generally, that rates is an important and valuable component of urban financing in Kenya.

The elasticity of property taxes in Kenyan local authorities is generally poor. They do not respond quickly to price, population and income changes. There are long delays in revising the valuation rolls, such as the long period between 1959-81 in Mombasa. It is also evident that when valuation rolls have been revised, there is still a lag in the implementation of new rates. Even the 10 year rolls-revision requirement is, on its own, too long. In between these adjustments, changes occur in the economy, rendering the rates outdated and making this form of tax highly inelastic.

The collection of rates is not administratively difficult and it merely requires a highly determined administration to achieve low default rates. The national default rate of about 30-35 per cent of rate payers is reasonable, for if the government and parastatals can pay their taxation, this can go down significantly. The revision of rates is, however, difficult due to problems in revising the valuation rolls, which is in turn associated with the shortage of qualified staff to do the revaluation. In addition, Kenyan law provides for the collection of arrears of rates as a civil debt and for their collection through the civil procedure code. This procedure is long and costly, as such defaulters are not dealt with quickly enough. In the case of Nairobi, the bulk of these arrears are owed by the central government, which has in recent years failed to pay any grants in lieu of rates. Currently, the arrears stand at Kshs. 1.2 billion. The Finance Minister has proposed amendment to the Rating Act to increase the interest on late payments of rates to 3 per cent per month effective from the beginning of the 1998/99 fiscal year. It is hoped that this new measure will encourage rate payers to pay earlier and hence reduce the arrears.

Rates collection is generally accepted, just like other national taxes. These taxes are, however, sensitive due to the fact that individual taxpayers also constitute constituencies for councillors. Councillors are normally reluctant to take actions that might lead to their own downfall. In such situations, the council is reluctant to push its officers to deal severely with defaulters.

In Nairobi, it is becoming increasingly difficult to raise rates, fees, licences and other charges due to the Council's failure to deliver services. A rate-payers association called Karengata, which is made up of the residents of Karen and Langata suburbs, has attempted, through a court order, to restrain the Council from collecting rates from the Karen and Langata residents on the ground that Council is not providing commensurate services, which is the rationale for levying and collecting the rates. At present, the association has been allowed to collect rates from their area and to deposit these into a special account until a final court ruling is made.

In general, urban local authorities in Kenya lack knowledge on the timing of land allocations and changing of ownership, which makes its records incomplete and out of date, as the Commissioner of Lands, a central government official, is responsible for land allocation and can allocate municipal land without reference to the municipal authority.

When one looks at the characteristics of the property taxes in Kenya, only two are salient. The first is that rates are highly inelastic. The second is that though they are administratively easy to collect, they are poorly collected due to problems in collection/recovery procedures and their political sensitivity.

Among the immediate steps that could be taken to improve the yield from property rates in Kenyan towns and cities are the following:

· Councils should review their current rating systems, which is based on unimproved site value, and hold the necessary consultations with the relevant departments of the Government with a view to adopting the improved site value rating system. The capacity to implement exists and implementation will not require amendment to existing legislation;

· The updating of valuation rolls should be speeded-up, by addressing the various constraints cited above, in order to reflect, to the best extent possible, current land values and recent land sub-divisions.

· Councils should discuss with the Government the possibility of the Commissioner of Lands making financial contributions to the City Council in lieu of property rates for all government land within the city boundaries.

The United Republic of Tanzania

The imposition of property tax in the United Republic of Tanzania goes back to the colonial period when various forms of hut and house taxes were levied. Today, powers to levy property taxes are provided under the Local Government Finances Act of 1982. Nevertheless, it is the Urban Authorities (Rating) Act of 1983 which sets out the modalities for the rating exercise itself.

The Urban Authorities (Rating) Act (1983) empowers urban authorities to levy rates. Rating authorities are taken to include both urban and township authorities. Rateable property means houses which are in actual occupation together with the improvements thereon. The rating authority can levy rates after the properties have been valued and a valuation roll prepared. Alternatively, where property valuation has not been carried out, the rating authority can levy a general (flat) or graduated rate on the properties, irrespective of the rateable value of such properties.

Before the commencement of the valuation for rating an area has to be declared a rateable area by the Minister responsible for Local Government. After the declaration of a rating area a valuation surveyor is appointed to carry out a survey and computation of rateable values and the preparation of valuation rolls.

The rateable value of the property is its market value, or where this cannot be ascertained, the replacement cost of the property. Where the property is not new, then the property has to be depreciated taking into account the various factors of obsolescence. However, the maximum depreciation allowable is 25 per cent of the property's replacement cost, despite the condition of the property. In the United Republic of Tanzania, the depreciated replacement cost approach is still the preferred method of valuation.

Two types of rates are provided for: a general rate levied for general purposes and paid by every owner or occupier of the rateable properties in the authority, and a special rate (or betterment tax) imposed and levied only in areas where a certain capital work scheme has been undertaken by the authority and has benefitted the people who own the properties in the area. It is levied only with the consent of the Minister.

After the valuation exercise, a valuation roll is prepared and the rating authority is required to publish it, inviting interested owners to inspect it. If there are any objections, these are referred to the Rating Valuation Tribunal which must determine all the objections before collection of the rates begins. The Tribunal's decision is final except on points of law when recourse can be made to the High Court. Once objections are determined, the owners are notified of the amount of rates that they are required to pay.

Only about 30 per cent of the properties in Dar es Salaam have been valued so far. In Mwanza, valuation has been completed in planned areas only. The DCC is charging a flat rate in areas that are yet to be valued, be they in planned or in unplanned areas. The rate varies depending on the size and use of the property, and the density of use of the area in question.

The picture in Mwanza is not very clear though valuation was carried out in the late 1980s and early 1990s covering buildings in planned areas. A flat rate is charged in unplanned areas.

Although property tax is considered to be the backbone of local authority revenue, the data in the United Republic of Tanzania indicates that it has not been well utilised. Partly this is because of lack of valuation rolls, but it is also a problem of the administration of this tax and general lack of tax payment enforcement within local authorities in the United Republic of Tanzania. In Dar es Salaam, property tax ranked sixth in terms of revenue performance (1990-95) but has an enormous potential. If properly administered it has a wider coverage and tax-base.

In both Dar es Salaam and Mwanza, estimates vary wildly from actual collection, indicating the lack of adequate data on which to plan and budget (Table 4). Up to 1995, collection remained below 6 per cent of total revenue in the two cities, sometimes falling as low as under 0.1 per cent (except 1996 in Dar-es-Salaam when rates accounted for 21.5 per cent). The actual collection also varies between the years without any pattern, indicating again, lack of data, and lack of seriousness in collection.

The efforts of the Dar es Salaam City Commission to raise revenue are obvious from the 1996 collection. This is as much a result of having the valuation roll in place as well as enforcing collection from the valued and non valued properties. Collection in Mwanza is picking up partly as a result of the support from the World Bank, which financed the valuation of properties for rating purposes in ten urban areas in the country, including Dar es Salaam and Mwanza.


Generally, property tax has the potential of yielding a considerable sum of money for local authorities since, with limited exceptions, all properties (i.e. those in planned and unplanned areas) within a rateable area are liable to this tax. Buildings are fixed so that identification is easy. There is some confusion on the status of government owned property since, though not specifically exempt, the government can argue that they are indeed exempt since governments do not pay taxes. It has been argued that the government should be compelled to pay taxes on its own properties, or if not, to provide a grant to local authorities in lieu of these taxes.

At a rate of 0.1 per cent, property tax has the potential of raising TShs 800 million on the basis of properties valued so far in Dar es Salaam. This could easily go up to TShs. 1.2 billion if the rate is increased to 0.15 per cent, as is being proposed. Overall, it is estimated that property tax can raise over 1.4 billion shillings if most of the properties in Dar es Salaam are taxed (Table 5).

Table 4. Property taxes: analysis of recent trends, Dar es Salaam and Mwanza 1984-1996 (million Tshs)


Dar es Salaam







per cent of
total revenue

per cent of


per cent of
total revenue

per cent of






















































































































Table 5. Dar es Salaam City property rates potential

Zone "A"

Zone "B"

Zone "C"


Properties potential rateable value (Tshs million)





Number of Properties




Revenue potential (at 0.1 per cent of rateable value) (Tshs million)





Source: (ESRF 1997)

In theory, this source of revenue can be elastic since the rate to be charged (in a shillings) is fixed annually by a resolution of the council supported by no less than two thirds of its members and approved by the Minister responsible for local government. In practice, however, this has not been the case for a number of reasons. First, both the central government and local councillors are many times unwilling to put up the rates, since this may be politically unpopular, and since many councillors and key official may themselves own number of rateable properties. Second, when a tax is levied based on property, property owners require to see fruits of their taxes in the form of improved infrastructure and environment, as well as having a system which is transparent. Local authorities in the United Republic of Tanzania have been unable to be transparent, thus their fear of revising or even collecting property taxes. Thus, problems of elasticity with regards to property tax are mainly a result of the problems in the administration of this tax.

Since most of the properties are not valued and a flat rate is used, it can be argued that the tax is inequitable, although the significance of this is minimised by adopting different rates for different neighbourhoods, house sizes as well as house use.

The rating legislation limits the depreciation on the valued property to a maximum of 25 per cent. This means that where the replacement cost method is used, properties in very poor condition can have a very high value totally unrelated to their condition. This is inequitable. In defence of this system, it is argued that the services enjoyed by properties are comparable within a given area, and that owners of rundown properties should be encouraged to improve them.

One major problem with administrating property tax in the United Republic of Tanzania is the long delay in the preparation of valuation rolls. The last valuation done in the early 1970s has been in use until recently. Thus valuation has had to be carried out in all the towns in the United Republic of Tanzania, including Dar es Salaam and Mwanza. This is quite expensive. In Dar es Salaam US$1 million dollars was used to value just an estimated third of all the properties in the city. It may take another two to three years to value the balance. Valuation is made even more difficult when basic information on property is missing in by far the majority of the properties to be valued. It should be remembered that, in the case of Dar es Salaam, over 70 per cent of all the properties are in unplanned areas and only a minority of properties carry title deeds.

The Urban Authorities (Rating) Act of 1983 adds to the problems of administering property taxation. For property tax to be levied, an area must first be declared to be a rating area by the Minister responsible for local government and this takes a very long time. It is not clear whether rates could be levied while objections to the valuation are still pending. In practice, the levying of rates has waited for objections to be dealt with, thus adding to immense delays in levying the taxes. The Rating Tribunal is centralised nationwide and can only be appointed by the Minister responsible for local government.

The valuation office in the two cities occupies a low rank under the Urban Planning Committee. It thus does not command the muscle necessary to maintain a sustainable property valuation status in the cities. Valuation expertise is in short supply as are resources such as motor vehicles, computers and so on. Going by past experience, a good amount of the valuation was carried out unsatisfactorily.

The lack of open market transactions in real estate makes it difficult to carry out a market property valuation. The United Republic of Tanzania has experienced many years of suppression of active property markets because of the negative government stance against the buying and selling of property. Many transactions are therefore carried out under the counter and the true purchase or sale price is never publicly disclosed or recorded.

Follow up on the tax payers is another difficult area. In Dar es Salaam for example 15.7 per cent of the demand notices sent out were returned undelivered.

Objections raised in the case of valuation have remained for years undealt with either because the Rating Tribunal was not in existence or it had no money to conduct sittings. Many objections raised in 1995 in Dar es Salaam were yet to be considered in 1997. They were only partially considered when the DCC financed the sittings of the Rating Tribunal.

A problem is being experienced with enforcing payment in the case of failure of payment by corporate bodies including parastatal organisations. Recently the DCC has listed a number of properties, most belonging to corporate bodies, including parastatal organisations, which it is threatening to auction for failure to pay property taxes.

A study carried out recently indicated that the 0.1 per cent (of the value of the property) rate is reasonably pegged and readily acceptable by the payers since collection can be done in phases. Nevertheless, the recent proposal by the DCC to increase the rate to 0.15 per cent is already yielding resistance, partly because of the resentment against paying taxes, but partly also because the same payers have many other taxes to pay to both the central government and the local government. There is a general and growing feeling that there are just too many taxes.

Another problem with property tax is that people expect immediate results for their money. The DCC and the MMC have yet to take steps to convince tax payers that their money is being spent for their benefit, for example on roads, drains, waste management or improving primary school infrastructure.

Already there are complaints in the local press that the Dar es Salaam City Commissioners are misusing the money by paying themselves very high salaries and benefitting from a lot of perks.


In Uganda, property tax was introduced during the colonial days in large urban centres such as Kampala and Jinja. Its performance in terms of yield was quite good. In Kampala and Jinja, property tax exceeded revenue from graduated personal tax (GPT), which had a much higher yield in the rural districts. However, property tax revenue started to decline in the early 1970s, largely as a result of the expulsion of Asians by Idi Amin's despotic regime in 1972. The decline in revenue collection from this source has continued to the present. Graduated personal tax, which was almost negligible before 1972 in urban areas, has now overtaken property tax and the trend continues, despite the fact that most of the Asians' properties have been returned to their owners.

Kampala and Jinja have a legal base to assess and collect property taxes from peri-urban areas within their jurisdiction, regardless of whether or not such property owners receive the same services as the property owners within the centre. It has been argued that lower charges could be applied to such areas, in correspondence with the minimum services that the authorities can and sometimes do provide.

Under the First Urban Project of the World Bank, Kampala and Jinja were selected for financing in order to build capacity, including the capacity to enhance revenue generation and collection. Kampala, in particular, had a component of revenue enhancement from property tax. Among the key problems that had to be addressed was that of updating the valuation rolls. The law as it stands now requires the Chief Government Valuer to conduct valuation of all urban properties. This has contributed to a lag in the preparation of valuation rolls, as the Chief Valuer has neither the necessary personnel capacity nor, by virtue of his position, any direct interest in the matter. At the time the World Bank Project was started there was only one qualified valuation surveyor, the Chief Valuer himself. Others were only technicians. The situation has not changed much since the 1993/94 Financial Year when the project entered its last phase. Another major constraint that had to be addressed was mapping and surveying of the urban areas. This problem is now made worse by the provisions of the national constitution which empower the citizens to own land under customary tenure. Customary land ownership generally encourages illegal structures, which can be put up over night. Urban authorities are likely to find it impossible to track down such illegal developments.

The First Urban Project funded by the World Bank assisted the City Council to revalue the properties, organise valuation rolls and the results have been quite positive. Whereas there were 6,428 rateable properties on register in the 1986/87 financial year in Kampala, by 1995/96 the figure had risen to 33,938 and some estimates put the figure at 39,000 for the 1996/97 financial year. Based on the 1995/96 figure of 33,938, rateable properties had gone up 5.3 times in ten years.

When the First Urban Project started in 1990/91, estimates of yield from property tax increased to UShs. 1,287,000,000 and actual collection increased to Ushs. 432,000,000, which was 30 per cent of the estimated amount, compared with the 1986/89 figure of 13.4 per cent as actual collection against estimates. Estimated income from rates for 1996/97 and 1997/98 is Ushs. 3,586,000,000 and Ushs. 3,500,000,000, respectively.

Practising valuation surveyors doubt the ability of Kampala City Council to move at the same pace as the developers. Most of the developers are in the suburbs. The Chief Government Valuer, who is charged with the responsibility, does not have any direct interest in frequently revising rates, even if he had the staff, as the resulting revenue does not accrue to his department. Kampala City Council has found it difficult to persuade him to authorise other qualified valuers to do the job. This issue has been taken up by the International Monetary Fund Team in its draft Report, Issues in Decentralisation. Their recommendation reads, "Completely revamp the present valuation procedures by moving the functions to the Uganda Revenue Authority which will permit better compensation for professional surveyors as well as improved management". The same IMF Report recommends, "Put in place a crash program to value all of the valuable properties in Kampala with particular emphasis on valuing newly developed or refurbished properties which are not paying taxes".

In Kampala, revenue from property rates is next only to graduated tax. The most encouraging point is that actual collection has increased annually, with the exception of the 1995/96 Financial Year. Another encouraging factor is that rates collection has been contracted out. The steady increase is partly attributed to this method of collection. Contracting out collection of revenue has been made a conditionality by the World Bank for lending more funds to the City Council.

Jinja Municipal Council is the only urban authority in Uganda where, for the last five years, revenue yield from property rates has either exceeded graduated personal tax or has been approximately the same. One of the contributing factors is that Jinja has been, traditionally, and still is, an industrial town. It is much easier to collect taxes from large profit-making organisations than from individual residential property owners, many of them in informal areas.


There are good prospects for Kampala to sustain or even increase income from property taxes. The increase in rateable property numbers after the World Bank First Urban Project is quite encouraging. However, constraints are also not to be ignored. Regular revaluation of properties is quite costly. The limited availability of valuation surveyors is also another constraint. The law has vested too much power in the office of the Chief Government Valuer. Urban authorities have no powers to appoint any qualified valuer without me approval of the Chief Government Valuer.

Both Jinja and Kampala do not have the capacity to collect rates from the existing large numbers of property rate-payers, particularly in the case of Kampala where the number is estimated to be around 40,000. As more and more properties spring up in the peri-urban areas, the more difficult it will be to collect property rates. The new approach of contracting out collection of this tax might reduce the burden on the administration of these urban authorities. In addition, the complexity of property ownership, including the legal existence of customary tenure within urban centres (as noted earlier) is one of the factors that make it difficult to collect property tax.

However, as in the United Republic of Tanzania and Kenya, a strength of the property taxation system in Uganda is the existence of Valuation Courts, which provides fairness in both valuation and the determination of rates to be paid. Any tax payer has a right to appeal against the value attached to his/her property and the rates determined by the authorities.