Property taxes: Exploring the untapped potential for the city of Hargeisa

Property taxes: Exploring the untapped potential for the city of Hargeisa

Hargeisa, the capital of Somaliland, is a rapidly growing city. It is the largest city in a heavily decentralised political system. As a result of the system, the city is responsible for delivering a large number of services and investing in infrastructure. In the past years, the city government has made significant improvements in raising own-source revenues. However, at just over 8 million USD in the FY 2016, overall collection is still low and far from being sufficient to meet the growing needs of the city. Therefore, the city government is looking at further way to increase their revenues. Property taxes, for many developing cities, represent one of the largest untapped potentials for collecting revenues. Therefore, in the past years, there has been an increasing focus on reforming these tax systems across the continent. Property-related taxes already are some of the most important taxes, in terms of revenue yield, for the city. To date, there are four main property-related taxes that are levied, by both local and central governments. To increase the potential of these taxes, this paper outlines policy considerations for reform of the system. These include: • Improving the administration of property tax: This includes consolidating the amount of taxes, reducing the number of valuation bands, harmonising tax collection with central and local government and ensuring that the exemptions are transparent. • Expand data collection: Data currently collected as the basis of the property tax system is through a GIS valuation done in 2006 and currently being completed in 2017. In order to evaluate the potential tax gap and to benchmark tax rates. Furthermore, land registration will also support increased revenues as well as provide other benefits for the growth of the city. • Reforming the system to better capture increases in value: Currently land and property taxes are calculated on an area basis with minimal location characteristics incorporated. Keeping the banding simple is a good idea and the move to a fully value based system is not desirable for the current circumstances in the city. However, more intermediate valuation systems and ones that better link the tax transparently to annual property price increases, through regular valuation, will better capture value and may thus be considered.