Museveni right on property tax
Jan 09, 2006
<b>By Hilary Onek</b><br><br>I refer to press reports that President Yoweri Museveni wants the Local Government Act amended to abolish property rates. Through M/s Ruyoka Uganda Limited, KCC has threatened property owners with court action and has advertised the properties for auction. Property rat
By Hilary Onek
I refer to press reports that President Yoweri Museveni wants the Local Government Act amended to abolish property rates. Through M/s Ruyoka Uganda Limited, KCC has threatened property owners with court action and has advertised the properties for auction. Property rate taxation by urban authorities is based on estimated possible rental value if the property were put to the market.
This is called “rateable value†— the net estimated annual rental value (not income). This makes the whole process discretionary and speculative.
The estimation of the rates presupposes that all properties generate income, properties rented are fully occupied at all times, homes generate revenue, rental income is not taxed and that urban authorities provide essential services to make the properties attractive to tenants. Ground rates are also taken into account.
Urban authorities currently levy the following rates on properties:
1.Lease for the land (sh1.5m-sh250m) for plots in Kampala.
2.Ground rates (sh0.15-1.5m).
3.Approval of plans at 1% of the value of the building.
4.Occupation Permit at sh300,000 as minimum.
5.Maintenance costs of the building structures.
6.Utility services (e.g water and electricity) often over 20% of domestic income.
The “rateable value†at rent of sh1.8m-sh60m per annum means that those owning low cost housing will spend almost sh0.6m per annum whether the property is rented out or occupied by owner.
The middle level housing owners will spend sh1.2m -sh1.5m per annum. The high level residential accommodation, normally rented by diplomats, would cost the owner sh6m per annum.
Urban properties are costly and usually developed under strenuous financial conditions as follows:
-High interest rates at 19-24% in banks.
- Unstable property market. Rents have dropped by half in the last 10 years.
- Due to low-incomes of middle managers and young professionals, middle level properties are expensive for them.
-High construction costs.
-Poor infrastructure affects value of properties negatively.
-Many foreign missions and organisations have opted to construct their own premises.
-The property rate may cause most property owners to lose their houses to the urban authorities.
This is the desired option by the greedy urban executives.
Double taxation and the burden of the proposed bill are clearly visible.
First, the Income Tax Act 1997 includes taxation of property owners’ rental income. The local governments tax properties based on how much rent the properties might reasonably be expected to fetch, irrespective of whether the property is rented or not. This implies double taxation. Thus rental income is taxed twice — by URA and by the urban authorities — and the taxation is based on opinion rather than income or revenue.
Revenue for urban authorities is derived from many sources, which are ever expanding. The sources include taxes, central government grants, ground rates for their leased plots, land lease fees, market rates, parking fees, trading licenses, graduated tax, rental income from properties owned by urban authorities, fees and fines imposed by LC courts, advertisement fees, agency fees, fishing licenses and others like bodaboda.
The problems faced by urban authorities are poor tax collection, efficiency and administrative losses.
The Bill on property rates amounts to double taxation since the Income Tax Act 1997 has already in detail included taxation of rental income.
Property tax encourages inefficiency, enhances corruption and the culture of consumption without investing. Urban authorities should maximize on collection of the ground rates and other taxes to increase performance of service provision.
The IGG in his findings (Second National Integrity Survey, March 2003) identified high taxes as the main deterrent to investment in Uganda. The local authorities should not overburden investors with such taxes.
I refer to press reports that President Yoweri Museveni wants the Local Government Act amended to abolish property rates. Through M/s Ruyoka Uganda Limited, KCC has threatened property owners with court action and has advertised the properties for auction. Property rate taxation by urban authorities is based on estimated possible rental value if the property were put to the market.
This is called “rateable value†— the net estimated annual rental value (not income). This makes the whole process discretionary and speculative.
The estimation of the rates presupposes that all properties generate income, properties rented are fully occupied at all times, homes generate revenue, rental income is not taxed and that urban authorities provide essential services to make the properties attractive to tenants. Ground rates are also taken into account.
Urban authorities currently levy the following rates on properties:
1.Lease for the land (sh1.5m-sh250m) for plots in Kampala.
2.Ground rates (sh0.15-1.5m).
3.Approval of plans at 1% of the value of the building.
4.Occupation Permit at sh300,000 as minimum.
5.Maintenance costs of the building structures.
6.Utility services (e.g water and electricity) often over 20% of domestic income.
The “rateable value†at rent of sh1.8m-sh60m per annum means that those owning low cost housing will spend almost sh0.6m per annum whether the property is rented out or occupied by owner.
The middle level housing owners will spend sh1.2m -sh1.5m per annum. The high level residential accommodation, normally rented by diplomats, would cost the owner sh6m per annum.
Urban properties are costly and usually developed under strenuous financial conditions as follows:
-High interest rates at 19-24% in banks.
- Unstable property market. Rents have dropped by half in the last 10 years.
- Due to low-incomes of middle managers and young professionals, middle level properties are expensive for them.
-High construction costs.
-Poor infrastructure affects value of properties negatively.
-Many foreign missions and organisations have opted to construct their own premises.
-The property rate may cause most property owners to lose their houses to the urban authorities.
This is the desired option by the greedy urban executives.
Double taxation and the burden of the proposed bill are clearly visible.
First, the Income Tax Act 1997 includes taxation of property owners’ rental income. The local governments tax properties based on how much rent the properties might reasonably be expected to fetch, irrespective of whether the property is rented or not. This implies double taxation. Thus rental income is taxed twice — by URA and by the urban authorities — and the taxation is based on opinion rather than income or revenue.
Revenue for urban authorities is derived from many sources, which are ever expanding. The sources include taxes, central government grants, ground rates for their leased plots, land lease fees, market rates, parking fees, trading licenses, graduated tax, rental income from properties owned by urban authorities, fees and fines imposed by LC courts, advertisement fees, agency fees, fishing licenses and others like bodaboda.
The problems faced by urban authorities are poor tax collection, efficiency and administrative losses.
The Bill on property rates amounts to double taxation since the Income Tax Act 1997 has already in detail included taxation of rental income.
Property tax encourages inefficiency, enhances corruption and the culture of consumption without investing. Urban authorities should maximize on collection of the ground rates and other taxes to increase performance of service provision.
The IGG in his findings (Second National Integrity Survey, March 2003) identified high taxes as the main deterrent to investment in Uganda. The local authorities should not overburden investors with such taxes.