| dc.description.abstract | This research examines equity in local government property taxation in Kenya with Nairobi City as the case study area. Urban areas in Kenya are growing both in population and in physical extent. This rapid urbanisation especially in Nairobi has resulted in increased demand for urban services. Property taxation is a source of local government revenue that if fully exploited can supplement the provision of growing demand for urban services. Equity is one of the tax principles used to evaluate the performance of the property tax system. Though revenue generation is the main objective of property taxation, equity is also an important objective that has an impact on revenue generation. Equity in property taxation is impacted by the property tax base and coverage and valuation of the property tax base.
The main objective of this research was to assess equity in property taxation in Nairobi based on property tax base, its coverage and valuation or assessment. The research started with a review on literature on local government taxation and examination of best practices in the world. The literature review came up with the concepts that together with interview of key persons at the NCC, Department of Valuation was used to address the first objective which is to evaluate the property tax base and coverage in Nairobi.
Equity in property taxation is evaluated under the principles of ability to pay and benefit received. The value of a property acts as a proxy of the owner’s ability to pay. Properties with higher values should therefore have higher taxes. Under the benefit-received principle, the value of public services provided by the local government in a neighbourhood is capitalized in the value of a property. The properties that benefit more from the public provided urban services enjoy high property values and should therefore pay high taxes. Property taxation should therefore capture the increase in property values that result from public expenditure in infrastructural services.
The study looks at the impact of the administrative process of property tax coverage and valuation or assessment on equity. The research evaluates the relationship between property tax and the value of the property which highlight whether there is uniformity in the valuation process. Equity was also assessed based on location of the property.
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Vertical equity and horizontal equity were used to analyse taxation of properties in same location and different neighbourhoods. To examine the impact of property valuation on equity, the research used case study areas in Nairobi to achieve the objectives. The impact of property taxation on equity was evaluated by use of ratios.
The population sample comprised of residential properties in Kilimani, Buruburu estate and Riruta areas. These areas varied depending on the density of development as recommended by the planning regulations of the NCC, the level of service provision and consequently, the property values. Riruta area was under area rating while Kilimani and Buruburu areas were under site value rating.
The research used ratios to analyse data. It relied on ratio studies as used by International Association of Assessing Officers (IAAO) to evaluate equity in property tax administration. The relationship between value of the property and taxation was analysed by the ratio of assessed value to the market value. Where there is uniformity in valuation, this ratio should be equal to one. Horizontal and vertical equity is used to assess whether there is equity in property tax assessments of valuations of properties based on location. Coefficient of dispersion was used to evaluate horizontal equity while price related differential was used to assess vertical equity. To compare property taxation between site value rating (Buruburu and Kilimani areas) and area rating in Riruta area, effective tax rate was used.
Some of the major findings that impact on property tax equity includes use of different regimes as the tax base namely Unimproved Site Value (USV) and area rating, numerous exemptions and omissions from taxation, lack of laid down procedures on updating of the valuation roll and an out-dated valuation roll that has no relation to current market values. On assessment of equity, though there is uniformity in the valuation for the areas under USV rating, there is no vertical equity. High value properties are assessed favourably as compared to low valued properties. The Effective Tax Rate (ETR) is also higher for the lower valued properties. The study has recommended that Nairobi City adopts improvement rating to capture the values of the properties, adopts one regime of taxation and regularly updates the property values to benefit from increase in revenue because of rising property values in the City. | en_US |
