Reforming Land Value Tax To Drive Economic Growth

Solving the mismatch of thriving private sector and bare-bones public purse.

Jan 02, 2023

Somaliland’s cities are booming and connectivity is world class. The country is benefitting from an unprecedented brain gain. Yet underfunded public infrastructure is putting the brakes on economic growth.

Sahamiye Foundation has been researching how progressive land and property tax reform could provide reliable, equitable and transparent revenue that would enable sustainable development in the country’s major urban municipalities, and allow local governments to capitalise on the opportunities presented by the growth.

A glaring mismatch

The mismatch is clear. While new buildings continue to pop up every week, the majority of the roads in Somaliland’s capital Hargeisa and around the country are unpaved and congested. Urban areas lack adequate water, sewage, sanitation and rubbish collection services. Access to them is highly inequitable. The power grid is drastically sub-standard. This does not equate to the minimum infrastructure platform needed to improve the wellbeing of and opportunities for citizens, and to catalyse economic growth.

Why focus on land and property tax reform?

Property-based taxes have untapped potential. They have long been regarded as a reliable and viable revenue source for local government for four reasons:

  1. Property and land are easily identifiable assets – not just what they are, but where they are. The data needs for tax purposes – such as geographic location and property characteristics – can be easily captured by tech e.g. GIS.
  2. Property taxes don’t discourage economic activity.
  3. Property-related tax can be directly linked to essential services, which can improve taxpayer willingness to pay.
  4. Property and land-based taxation are less affected by economic fluctuations, and so are a more stable and predictable source of revenue.

Is land reform in Somaliland possible?

Somaliland faces particular challenges to reform. There’s a lack of legislative and institutional clarity on which authority should collect certain taxes. There are the usual challenges of identifying, valuing and rate-setting for properties and land. Add to this billing, enforcement and compliance weaknesses, as well as an onerous in-person tax payment system and a lack of manpower. The picture looks challenging. But recent reform efforts in Lagos, Freetown and Mzuzu have shown us that it can be done.

The way forward

There are many ways of collecting property taxes and no single right way to do so. However, from our research, we advocate five strands of activity that we believe will reduce the barriers and promote the drivers to successful land tax reform:

  1. Pushing for consultation, coordination and information-sharing between stakeholders, with a view to clarifying fiscal responsibilities and co-ordination of action.
  2. Simplifying how land and property is identified and valued, by revisiting land registration fees, market-based valuation methodologies and building valuation expertise.
  3. Modernising how taxes are billed and paid, using digital billing and payment technology.
  4. Strengthening taxpayer support for tax reform by demonstrating fairness, increasing taxpayer engagement and articulating the link between tax, economic growth and quality of life.
  5. Building strong human capacity through training, incentives, good pay and a career structure.

The people of Somaliland have always been able to solve big, complex problems – they would not have come so far so quickly without this ability. Reforming land and property tax to strengthen public infrastructure will fuel more economic growth and opportunities for Somalilanders. It’s a big problem to solve, but it’s solvable.

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If Sahamiye transitions itself into a think-tank that only focuses on writing reports on policy, development and regulations. Also as an independent audit group that can provide gov’t an independent assessment and suggestions very much like PWC or Deloitte.

That is the missing piece in Somaliland.

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