Property tax, ground rent: Who is supposed to pay what?
Jul 18, 2008
IS owning a property a crime? If not why am I asked to pay tax on it? These are some of the questions many property owners ask when local government officials order them to pay property tax or ground rent for their properties.
By Aidah Nanyonjo
IS owning a property a crime? If not why am I asked to pay tax on it? These are some of the questions many property owners ask when local government officials order them to pay property tax or ground rent for their properties.
Although the taxes are legal, local governments still face the challenge of collecting them.
Property owners are hesitant to pay them arguing that they are unjust.
But what is the difference between the two taxes and who is supposed to pay what?
According to Denis Obbo, the information officer in the ministry of lands, water and environment, ground rent is a fee payable on a non-commercial property on leased land and it is subject to review every after 10 years.
This means that whoever owns a residential property on a ground lease, pays the ground rent.
Landlords (those who own land with an ownership title) who live in their houses in urban areas are exempted from the tax.
Ground rent is levied on residential properties.
“This tax means that you own the house or property, but someone else owns the actual property that the house sits on; therefore, you must pay the owner rent on that land,†Obbo explains.
On the other hand, property tax is a fee collected on commercial buildings on an annual basis.
The local governments assess the fee basing on the income the building generates. This is reached at after deducting the maintenance expenditure from the gross income – the remainder is the actual income and it is what is taxed.
The law mandates local governments to charge a percentage that ranges between 1-12% of the net income, as property tax.
Obbo says, if paid in good time the sums involved are not big, but the problem is that many people do not want to pay the tax and as such it accumulate to big sums.
“Failure to pay the taxes is tantamount to breaking the law. The local government can sue a defaulter in courts of law, where he or she is forced to pay the dues and also pay the cost of the court proceedings,†he adds.
However, in some situations it has been made difficult for law enforcement officers to categorise some properties for the payment of the taxes as some commercial buildings are at the same time being used as residential premises.
“Many times, especially in Kampala suburbs, you will find the front side of a building being used as a shop or hair salon and the back as an area of abode. In such a scenario, the owner dodges both taxes as his or her property does fit in both categories,†Charles Mulindwa, the Lubaga division secretary for finance, says.
“We are still hesitant to enforce the payment of the property tax. Our officers have had a number of problems getting a clear-cut separation of a residential property from commercial buildings,†he says.
Mulindwa says even where the there is clear cut use of the property, owners are unwilling to provide the right information about their properties.
The public should be sensitised about their obligation as regard to this tax.
However, Obbo says both taxes can be paid if a commercial property is sitting on a leased land.
“It is the same situation if a property is used for both commercial and residential purposes. A net income derived from the part that is commercial is supposed to be subjected to the property tax and the area of abode subjected to the ground rent,†Obbo explains.
IS owning a property a crime? If not why am I asked to pay tax on it? These are some of the questions many property owners ask when local government officials order them to pay property tax or ground rent for their properties.
Although the taxes are legal, local governments still face the challenge of collecting them.
Property owners are hesitant to pay them arguing that they are unjust.
But what is the difference between the two taxes and who is supposed to pay what?
According to Denis Obbo, the information officer in the ministry of lands, water and environment, ground rent is a fee payable on a non-commercial property on leased land and it is subject to review every after 10 years.
This means that whoever owns a residential property on a ground lease, pays the ground rent.
Landlords (those who own land with an ownership title) who live in their houses in urban areas are exempted from the tax.
Ground rent is levied on residential properties.
“This tax means that you own the house or property, but someone else owns the actual property that the house sits on; therefore, you must pay the owner rent on that land,†Obbo explains.
On the other hand, property tax is a fee collected on commercial buildings on an annual basis.
The local governments assess the fee basing on the income the building generates. This is reached at after deducting the maintenance expenditure from the gross income – the remainder is the actual income and it is what is taxed.
The law mandates local governments to charge a percentage that ranges between 1-12% of the net income, as property tax.
Obbo says, if paid in good time the sums involved are not big, but the problem is that many people do not want to pay the tax and as such it accumulate to big sums.
“Failure to pay the taxes is tantamount to breaking the law. The local government can sue a defaulter in courts of law, where he or she is forced to pay the dues and also pay the cost of the court proceedings,†he adds.
However, in some situations it has been made difficult for law enforcement officers to categorise some properties for the payment of the taxes as some commercial buildings are at the same time being used as residential premises.
“Many times, especially in Kampala suburbs, you will find the front side of a building being used as a shop or hair salon and the back as an area of abode. In such a scenario, the owner dodges both taxes as his or her property does fit in both categories,†Charles Mulindwa, the Lubaga division secretary for finance, says.
“We are still hesitant to enforce the payment of the property tax. Our officers have had a number of problems getting a clear-cut separation of a residential property from commercial buildings,†he says.
Mulindwa says even where the there is clear cut use of the property, owners are unwilling to provide the right information about their properties.
The public should be sensitised about their obligation as regard to this tax.
However, Obbo says both taxes can be paid if a commercial property is sitting on a leased land.
“It is the same situation if a property is used for both commercial and residential purposes. A net income derived from the part that is commercial is supposed to be subjected to the property tax and the area of abode subjected to the ground rent,†Obbo explains.