Real Property Taxation in Tanzania An investigation on implementation and taxpayer perceptions Hidaya M. Kayuza Doctoral Thesis Building and Real Estate Economics Royal Institute of Technology Stockholm, Sweden 2006 Thesis for the degree of Doctor of Technology to be presented with due permission for public examination and criticism at F3, Lindstedtsvägen 26 at the Royal Institute of Technology on 22nd February 2006 at 12:15 pm © Hidaya M.Kayuza Royal Institute of Technology (KTH) Building and Real Estate Economics Department of Real Estate and Construction Management S-10044 Stockholm, Sweden ISBN 91-975358-9-3 ISSN 1104-4101 ISRN KTH/BFE/ M--06/71--SE To the loving memory of my late daughter Chikulupi Kayuza and my late mother Mkamite Sadima Abstract Many urban local authorities in developing countries are failing to cope with the increasing demand for urban infrastructure and other social services resulting from urbanisation. Insufficient locally generated finance is one among the reasons accounting for this failure. Real property tax is often identified as a major source of local government finance that has the potential to contribute substantially to locally raised revenue. This thesis reports on results of a study whose aim was to map out and examine property taxation practice in Tanzania. The thesis thus reports on the examination of property tax administration in Ilala, Kinondoni and Temeke Municipal Councils in Dar es Salaam. The study analyses the processes of property identification, valuation and the collection of property tax revenue. This is the better way to illustrate how property taxation is practiced. From the property taxpayer’s point of view the study explores property owners perceptions of property tax. Property owners’ views were collected from Magomeni, Sinza, Mbezi Beach, Manzese, Kimara and Makongo Juu settlements in Dar es Salaam. Study findings reveal that property tax generate very low levels of revenue when measured against the potential. This is a result of inadequacies in administration of the tax. Property tax coverage is low as large proportions of the property tax base are not valued and less revenue is collected from rateable properties captured in the property tax database. The study further observes inadequacies of non-supportive relationship among the key actors in property taxation. Property taxpayers express resistance to paying their tax bills on account of receiving little benefit or none in return for the taxes they pay. The observed deficiencies with the property taxation practice call for the urgent attention of the relevant municipal authorities if the property tax is to achieve the full potential. i Acknowledgements Writing a PhD thesis is a long journey that has been made possible by assistance from many people to whom I would like to extend my appreciation. My heart felt gratitude goes to my Principal Advisor Prof. Hans Lind who was generous with his time in providing me with invaluable guidance, comments and suggestions. I would also like to extend my sincere thanks to my co-advisor Prof. J. L. Kironde for his academic inspiration, guidance and comments. Gratitude is also extended Prof. Thomas Kalbro for accepting to be my opponent in the final seminar. His comments and criticisms were a great contribution to improving this work. Financial support from Sida – SAREC and the University College of Lands and Architectural Studies is greatly appreciated. I am also grateful to Real Estates Surveyors and Associates (RESA) Limited for financial support and use of facilities during the various stages of my study. I am grateful to Prof. W. Kombe, Prof. M. Mbago, Dr. F. Lerise and Dr. T. Nnkya for their invaluable help and encouragement in the course of pursuing this study. A warm appreciation goes to Dr. A. Lwaitama for editing. I would like to recognise the supportive atmosphere between all UCLAS Sida – SAREC sponsored PhD students with whom I had academic and social interactions. My appreciation extends also to fellow Doktorands at the Division of Building and Real Estate Economics (KTH) for the good moments we shared in the big PhD students’ hall. Special thanks are also due to Dr. Agnes Mwasumbi whose extraordinary help continues to go well beyond the call of friendship. Mr. Sultan Mundeme is thanked for taking care of RESA Ltd during the times I was away in Stockholm for my study programme. My appreciation also goes to Ruth and Masanja for their support during my stay in Stockholm. Data collection for this study provided me with an opportunity to mingle with various personalities. I am grateful to valuers with municipalities in Dar es Salaam particularly Mr. Nyange, Mr. Kawiche and Mr. Ndone for providing room for me in their extremely tight work schedules. I am also thankful to Ms. Z. Masunu (Property Market Consult Limited), Mr. E. Mbangukira (Proper Consult Limited), Mr. M. Mshasha (Thomas ii Kironde Associates) and Mr. Bengesi (TRACE Associates) for accepting to provide audience for the interviews. Thanks are also due to the local leaders and respondent property owners in Magomeni, Sinza, Mbezi Beach, Manzese, Kimara and Makongo Juu settlements for allocating time to respond to the questionnaire. I also appreciate the good work and support of my research assistants namely Mrs Agnes Ponera, Mr. Bon Sagamilwa and Mr. Christopher Sanga. Mr. Kristofa Nkembo of UCLAS deserves a mention in this study for assisting me with computer matters. I am deeply indebted to my relatives and friends for their support in various ways. There is no room to name each individual but believe me I am grateful to all of them. To wonderful Fatuma, I thank her for everything. Very special thanks to my children, Joseph (Jnr), Matthew, Michael and Mariam for their love and moral support. Whenever I spoke to them over the phone while in Stockholm they would ask “ Mom how are you progressing with your studies? We wish you the best of luck”. This inspired me and I will live to cherish the gesture. Finally, I would like to thank my husband, Mr. Joseph Kayuza. All the love and support he has given me are simply invaluable. While many people have been acknowledged for helping me in this work, I remain solely responsible for the shortcomings and views expressed in this thesis. iii Table of contents Abstract ..................................................................................................................................i Acknowledgements...............................................................................................................ii Table of contents..................................................................................................................iv List of Figures ............................................................................................................... viii List of Tables ...................................................................................................................ix List of Maps ......................................................................................................................x Acronyms ..........................................................................................................................x Chapter One ..........................................................................................................................1 INTRODUCTION ................................................................................................................1 1.1 Background .................................................................................................................1 1.2 The Research Problem ................................................................................................6 1.3 Research Objectives and Research Questions ............................................................8 1.4 Significance of the Study ............................................................................................8 1.5 Methodological Approach.........................................................................................10 1.5.1 Research Design.................................................................................................10 1.5.2 Data Collection ..................................................................................................13 1.5.2.1 Interviews....................................................................................................13 1.5.2.2 The Survey ..................................................................................................14 1.5.2.3 Direct Observations.....................................................................................16 1.5.2.4 Analysis of Documentary Evidence............................................................16 1.5.3 Validity and Reliability......................................................................................17 1.5.4 Data Analysis .....................................................................................................18 1.6 Structure of the Thesis ..............................................................................................19 Chapter Two........................................................................................................................21 THEORETICAL FRAMEWORK ......................................................................................21 2.1 Characteristics of a good tax system.........................................................................21 2.1.1 Economic efficiency ..........................................................................................22