47 Counties of Kenya: Source: http://softkenya.com/map/files/2012/03/Kenya-County-Map1.jpg
The importance of land revenue
Worldwide, land and property are greatly valued as revenue sources. Land revenue constitutes a major proportion of the national revenues of most countries. In Kenya for instance, the Lands Ministry is the second highest revenue collector for the government after the Kenya Revenue Authority. Its 2011/13 financial year revenue figure stood at 9.6 billion. This is enough money to run the annual budget of a number of Ministries. This could be so for many other countries and illustrates the centrality of land revenues to national economies.
Taxation systems must be simple and tax levels realistic and affordable
If taxation policies and enforcement methods are well thought out, land revenue will greatly aid the development of our counties. The taxation systems must however be simple and easy to understand. They must reflect equity and an element of co-sharing without appearing to place an unfairly disproportionate burden on some. The tax levels must realistic and affordable while the collection methods must be efficient and friendly. Taxation must also be seen to be legitimate by ensuring that the collecting authority draws democratic mandate from the taxed. Legitimacy is enhanced through benefits such as provision of service infrastructure, security and cleanliness to residents.
In the absence of the above, taxation systems meet with opposition and default, making collection frustrating and rather expensive. A key strategy of ensuring compliance with property taxation is ensuring that land use within a tax jurisdiction is kept optimal and that incentives are given to businesses to ensure maximum annual turnovers. Optimal land use is best achieved through the enforcement of a land use plan developed with the participation of county residents. Well thought out taxation systems make land tax affordable and annual payments a mere routine.
Poor taxation policies will attract political retribution
County governments in Kenya must be careful how they go about the matter of land and property taxation. Poorly thought taxation policies will attract political retribution. Some County Governors may lose the 2017 elections for the unfair or unrealistic tax imposed on residents within the first two years of their tenure. A lot of land in our counties is held under freehold tenure. Owners are therefore not used to taxation of such properties. County governments may therefore wish to keep such properties out of the taxation bracket unless where land use and services dictate some reasonable but justifiable measure of taxation. Even then, pre-sensitization to ensure that residents understand and accept the reasons for any new or extra taxation should precede implementation. Kenyans have lately witnessed demonstrations in various Counties as residents protested new or increments in taxes. Such incidents can be avoided through well planned pre-sensitization.
Many Counties are host to urban areas carrying many leasehold properties. Such properties attract taxation tied to the initial lease conditions and land use. Counties must carefully evaluate the taxation systems surrounding such properties to ensure that they make sense within local business contexts and land use.
County tax regimes and laws must align with national policy and legislation
In establishing taxation regimes, counties must take into account national policies and laws governing planning, surveying and registration of property. They too must consider national legislation on valuation and rating of property and seek the inputs of relevant professionals. Experienced surveyors, valuers, land managers, planners and conveyancing lawyers would be most helpful in this regard. Counties planning to enact local legislation or bye laws on land and related disciplines would be advised to take up consultants from this cadre to backstop the research, preparation and implementation of such legislation.
Within Kenya’s legal framework, it’s not easy to tax unregistered properties without attracting serious legal challenges arising from misidentification of property or the ownership. County governments must therefore aim at ensuring that properties within their jurisdiction are quickly brought onto the register through a process of planning, surveying and registration. Distinctly identifiable properties appearing in the county land register are easily amenable to valuation and hence taxation.
Sectional properties provides limitless untapped opportunities to Counties
There is also the matter of properties developed upwards such as high rise residential and office blocks standing on single land parcels but consisting of multiple separate residential units or offices. In cases like these, taxation is pegged to the single parcel of land on which such high rise blocks stand. Even then, there is a limit beyond which a taxation system can burden such single land parcels without looking inequitable. County governments may therefore wish to encourage the wider use of the Sectional Properties Act which enables the individual parcels within a high rise block of flats or offices to secure individual title deeds, with common areas separately secured for group enjoyment. Such single units with individual title deeds confer immense benefits to their owners including flexibility for mortgage, transfer and inheritance. They make it possible for more urban residents to obtain owner-occupied houses as opposed to periodic leasing. This too gives County governments the opportunity to boost property revenues since the registered individual units would become taxable.
This simple measure can tremendously improve the tax base of most counties. Land professionals, lawyers and County Executive Officers dealing with land who wish to optimize on this concept should are referred to the Sectional Properties Act 1987. Provisions relating to the registration of leases to apartments, flats, maisonettes, town houses and offices under the Land Registration Act 2012 will also be helpful.
Some concerns
But there are some concerns on the bigger picture. First, of the land revenue collected by the Lands Ministry, Nairobi County leads followed by Mombasa. Kajiado and Kiambu follow, a good indicator of a buoyant property market within these two Counties that is largely driven by Nairobi’s peri-urban property market. But some counties, particularly those without registered land hence no land registries, have few or no land transactions and contribute little or no land tax at to the national kitty. But the collected land tax is banked into the Ministry of Lands’ account and forwarded to the Treasury from where it is distributed to various national needs. So counties with high land revenue returns end up supplementing those with little or none. This inequitable situation will need policy attention as an incentive to motivate counties to improve their land taxes.
Secondly, some Counties like Kiambu and Kajiado have lately suspended some or all land transactions to buy time to review and address related transactional and planning concerns. Poor planning, unmitigated subdivision of agricultural land, inappropriate change and extension of user are some. But these vices must be looked at within the broader social-economic context of suspending land transactions such as decline in national revenue, inability to use land as collateral, delays in housing construction and other infrastructure development. Land owners keen on disposing their properties to defray their pressing economic needs or recouping their earlier investments have also taken an unexpected and unfair setback.
Use professionals to advise before suspending land transactions
While the Counties may have their justifications in slapping land transaction bans, they will need to appreciate the importance of liaising with professional associations like the Institution of Surveyors of Kenya, the Kenya Institute of Planners and the Law Society of Kenya before implementing such far-reaching decisions. In addition, they should liaise with the Kenya Private Sector Alliance or the local Chamber of Commerce and Industry branches. These key voices will help County leaders to better understand the impact of policy decisions to land transactions, business and revenue collection. Professionals can advise on how best to mitigate the concerns of affected Counties without making such radical decisions. The inappropriate application of property transaction bans has a negative ripple effect to real estate, employment and the construction industry and the tool must only be used in extreme circumstances.
Ibrahim Mwathane, a past Chair of ISK, a licensed Surveyor and the Chair of the Land Development and Governance Institute made this contribution for publication in the Institution of Surveyors of Kenya’s Property Digest magazine.
