Implementing property tax reform in Freetown
As with many cities in sub-Sahara Africa, Freetown has been suffering from inadequate municipal services largely due to low revenues collected, in turn explained by weak tax collection and extremely low property taxes. And like all other cities, Freetown has been searching for innovative methods to improve both as a basis for expanding the limited services it now provides, and also to contribute to the national goals of diversification. The Council has finally developed a modern, digitised system of tax collection together with a more objective method of calculating property taxes. As should be expected some of the citizens are crying foul. They argue that the percentage increases are too high, and that services provided are extremely poor and unlikely to improve anyway. The most powerful counter argument advanced is the timing – right in the middle of the COVID pandemic with its associated negative socio-economic impact.
Here is my take.
To begin with our entire tax system – both local and national – should be comprehensively reformed. Apart from minor patches here and there, it has remained essentially a legacy from the colonial system and inappropriate for a developmental state. A number of previously colonised countries are finally waking up to this reality and overhauling their systems. India, Ghana, Mauritius, Kenya have all taken some bold steps in the last 18 months.
Next, by any measure property taxes in Sierra Leone are among the lowest in the world. Using statistics to suggest increases are unreasonable in this case is misleading. Like the case of GDP growth in 2012 if the base is low, percentage changes can be very high but in absolute terms the level is still low compared to others. Hence if the tax is now only LE 200,000 per annum (US$ 20, for comparison purposes) – raising it to Le1 million ($100) per annum is still low compared to the rest of the region where people pay Le 2 m ($200) upwards for similar properties. It is therefore misleading to complain about a 1000% increase, when initially one was paying only Le 68,000 for a seven-bedroom house (confirmed case). Moreover, many if not most of the houses are rented and owners enjoy high rental incomes. Yet I can bet most of the vocal opponents to the rates increases are Landlords.
What Is even worse is that currently, rates paid vary widely and depend on the negotiation “skills” of the property owner. This results inevitably in the rich and powerful paying next to nothing while the poor pay proportionately higher. A modern five-bedroom house in a well-appointed section of the city pays on the average less than Le 500,000 ($50) annually while a two-bedroom building in a crowded part of the town pays around Le 400,000 ($40).
Note that for decades now, what used to be normal public services provided by the city and enjoyed in most countries across the world have all but disappeared; sanitation, fire services, pets (dogs) control, public order in markets, public toilets etc. Corruption and incompetence partly explain the loss, but it is largely due to the lack of funds. COVID 19 has pointed to the importance of making our cities liveable. The two-weeks lockdowns advocated by some would have been a disaster in the current state and condition of the city. We must return to routine provision of city services.
Without revenues, these services cannot be provided. What should come first, the revenues or the services – the chicken or the egg?
Starved of revenues, the City’s byelaws are hardly implemented or respected and some are even forgotten. In the last twenty years, from time to time the Central Government intervenes with poorly conceived and unsustainable measures to address an approaching chaotic situation. Such initiatives are usually short-lived and fade away after party-political successes are announced.
Needless to say, there are those that benefit from such disorder, and therefore stoutly resist change. But unless we accept CHANGE and genuinely move to a NEW DIRECTION, we will continue to spin wheels in the sands of our poverty and underdevelopment, irrespective of how much money is poured in by well-meaning donors.
A key area for change is Taxation.
Taxation is at the heart of the social contract between the governed and the authorities.It is also a tool for reducing income inequality – a trigger for rising crime and conflict. However, the introduction of a radical tax reform whether at the national or local level must be approached with caution. Furthermore, in this era of COVID, lockdowns and restrictions are building up tensions, the negative socio-economic impact is worsening misery and poverty, add to that the brinkmanship of competing political parties and the drivers of instability will emerge.
My personal view is that the Council must revisit the pace of implementation. One option is to stagger the payments and so reduce the burden; make it monthly for the first year.
Another is to allow a transition period of say, two – three years to allow a gradual introduction. A third option is to allow for extenuating circumstances where property owners can delay payments now but without waiving the obligation to pay. A fourth option is for a part of the COVID grants Government has received, to be used to subsidise the rates of the lower 50%. Lastly, informing the people should be paramount, particularly what the Municipality will deliver in concrete terms. Failure to do so will give the naysayers a field day. Explaining the virtues of the new system will win over many, especially with the promises of concrete services that will come on stream. This is what happened in Lagos
While I recognise that two different political parties are involved and therefore party politics is likely to weigh in, we should not let politics get in the way of development and progress. I believe tax reform is one area where both the party in power and the party in control of the municipality can and must work together. They must collaborate constructively to carry out tax reforms at all levels, and this may well be the first step. This time around let’s get it right and let’s put the interest of the country first.
The new system being proposed is modern, comparatively fair and progressive. However, these are difficult times and we cannot completely ignore the economic impact of COVID on the incomes of the Landlords. But this is exactly why we must reform our tax system so funds can be collected fairly and used appropriately to meet the needs of the City. We should find a win-win solution that keeps the system, but minimises the hardship. Both the Central Government and the Municipality should collaborate constructively to demonstrate to the people that Sierra Leone comes before party politics. I am optimistic this will happen.
Herbert M’cleod | June 2020
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