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Tax land appreciation in the city, says expert

Paul Collier. Photo: Courtesy

Government should impose a tax on appreciation of land value in the city to expand its revenue base, a renowned scholar, Paul Collier, has said.

The professor of economics and public policy at UK’s University of Oxford said that usually the appreciation was not caused by the landowners but, rather, a collective effort. It is public investment in social amenities that push up the value of land around the city.

“Capture that appreciation and tax it,” Collier said. “This is a winnable political fight because the ethics and economics are on your side.”

Collier said this last week at Statistics house in Kampala while delivering a paper on, The policies that would help make Kampala a great 21st century city. The event was organized by Bank of Uganda and the International Growth Centre (IGC).

Already in Uganda, there is some tax paid on land transactions like stamp duty; income tax if it is rented or leased and it is generating income for the landlord. Also, if someone is buying land above Shs 50m, one is required to declare to the tax authority the source of money and if the source can’t be traced, a 30 per cent income tax is charged.

But Collier says because land in the city appreciated after government extended a power line there, water or a road has been tarmacked, it is certainly not the landlord responsible – hence the justification for it to be taxed. Some countries are doing it, including Kenya.

Jennifer Musisi, the Kampala Capital City Authority executive director, said the city was still grappling with what went wrong in the past and “we are trying to correct that.”

“The nature of land holding in Kampala is that we have six major landlords owning most land in the city; some of them don’t want to even discuss a sale,” she said.

Land value in the upscale suburbs like Kololo and Nakasero goes up almost every day, with a plot costing more than Shs 1bn. This leap in the value should be tracked by the city authority and taxed, according to Collier.

Meanwhile, Collier said a good city should make dwellers more productive. Collier says this calls for good policies to reduce congestion and ensure swift transport that allows people not just to reach work easily, but also to shop.

While close to 60 per cent of Uganda’s growth is generated from Kampala, many parts remain slums and less productive. Whenever it rains, three quarters of Kampala flood.

To reduce congestion, Collier says, government must lessen usage of private cars in the city and have bus lanes. City roads should also be expanded to cover almost 30 per cent of the area.

Traffic jam is counter-productive and those who walk long distances to work are less productive too. Collier added that there should be strong land rights, because “weak ones condemn the city to low investment.”

“When you allow people coming to the city to settle informally or squat on the land, the cost of putting up infrastructure becomes a lot,” he said.

He called for heavy investment in cities. Developers, he said, should build four to five-storied apartments which can be used for accommodation and the lower floors be used for small business so that those who stay can work there.

This has been done in Ethiopia and the apartments cost as low as $10,000 each. Collier advocates policies such as land registration to know who owns land and has a title; investment in public transport infrastructure to allow easy connectivity of people and workplace. There should be enforcement too, where some coercive force is used to bring some order.

Importantly, there should be heavy investment in public services like clean water, sewers, and the general quality of life of city dwellers.

“A city has a miracle of productivity, but there can be tragedy of squalor too,” he said


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