By Gordon Abiama
Tanzania is an East African country with a surface area of 94.3 million hectares (ha) of which 22 million ha (23%) is allocated to reserves which includes National Parks (4.2 million ha) Game Reserves (7.7 million ha) and Forest Reserves (10.1 million ha). Tanzania has the largest share of land resources allocated as reserves of any country in sub-Saharan Africa.
The gross area cultivated/planted annually is only about 5.1 million ha which is only about 5% of surface area Tanzania. The other arable land but not cultivated is 10 million ha, much of it used as pasture. Within the reserves, there is an additional 4 million ha suitable for cultivation.
Agriculture in Tanzania is dominated by small holder farmers (peasants) cultivating an average farm sizes of between 0.9 ha and 3.0 ha each. Taxes from these farmers contribute very little to the total annual revenue.
Tanzania’s first comprehensive tax legislation came at the start of the Second World War which defined real property income as income from dividends or interest, royalty or rent. It is nevertheless remarkable to note that prior to 1958, the Act imposed a tax rent minus any expenses incurred in the production of the income. The law has undergone several amendments concerning taxation of land rents.
Tanzania in the 1920s had a very high standard of surveying and registration thereby making statutory taxation of property rates possible. Between 1959 and 1964, records show that average land rent contributed 4.1% to Tanzania’s GDP. This gain was however reversed when Tanzania adopted Socialism in 1967 which brought the nationalization of all private property. Section 8 of the Act under which rents were brought into the concept of income was abandoned.
In 1955, site-value rates were introduced in Dares-salaam and the eleven autonomous urban councils while rating in other parts of the country was conducted by government appointed councils. Each of these autonomous councils including Dares-salaam city council was required to set up its own rate applicable to the unimproved land values only but subject to approval by the minister of the local government. The rates ranged from 2.5% to 3.5% while certified government valuers were to undertake revaluations every five years.
Tanzania has had experiences that paralled the introduction of the Hut and Poll taxes in other East African colonies from the start of the 20th century. Since Tanzania attained its political independence in 1961, it has been realised that there was a need to develop a coherent and comprehensive land policy that would secure land tenure and enable proper management and alienation of land in urban and rural areas and provide a clear position on customary land tenure in the light of profound economic and social reforms.
Thus in May 2001, the laws passed by parliament in 1999 became operational. One of the fundamental principles of those land laws is, “ to ensure that land is used productively and that any such use complies with the principles of sustainable development”.
What better and more efficient way to ensure the above goal than through the operation of a land value taxation system where a landholder who holds down land will be forced to give it up for productive use when he realises the economic waste of paying a land value tax on a land he was not willing to put into productive use.
The introduction of socialism in Tanzania which redefined land tenure and property relations only created a complicated land administration system where all land was nationalized and presumed leased at full economic rent. When the land laws were reviewed in 1974 it resulted in throwing away the baby with the bath water. This meant that taxation based on land values was stopped.
In fact, the direct taxation of land values in East Africa has a direct nexus with large scale alienation of land in the settler economy. Due to strong opposition from the settlers, the Crown Bill had the provision for land taxation deleted.
Because there was no evidence of land transaction at market rates, chronic market distortion occurred as government valuers resorted to using proxy measures that needed considerable adjustment to arrive at market rates.
In order to improve on public finance, property tax is viewed as being potentially the most lucrative source of tax revenue. However, Tanzania is hampered by issues pertaining to low valuation coverage, poor tax ratios, adverse valuation ratios and unacceptably low collection rates.
Realizing the shortfall of public finance due to the loss of revenue rating and in an attempt to replace this shortfall, Tanzania in 1974 passed the land Rent and Service Charge Act. But due to lack of reliable market values, statutory rent (legally stipulated rates) was used. The valuation of ratings is currently governed by the Urban Authorities (Rating) Act of 1983 which reintroduced property taxes based on annual rental value and permitted rating authorities to set property rate based on authorities’ financial needs. This institutional mechanism needs to be strengthened with some modifications.
In May 1995, Tanzania adopted a new land policy reversing the socialist policies of past decades. This policy came about after careful research and public inquiry into land matters initiated in 1989. The result was the reintroduction of private property rights and legalized market alienation (right to assign or transfer ownership) of land. The land policy also strongly recommended the introduction of land value rating not only as efficient source of revenue for local governments, but also as the preferred policy instrument for managing the development of urban sites and speculative land acquisition in Tanzania. The country should now move ahead with full implementation of land value capture policy.
Given the fact that Tanzania has allocated so much land (22 million ha) to reserves, depending on the use of these reserves there is potential for a significant amount of public revenue to be generated via use fees for access to these reserves for specified purposes.
In total, Tanzania has strong opportunities to implement land value capture and be well on the path to economic prosperity.
The biggest threats are the high rate of official corruption and the fact that financial accounts of local government are rarely available for scrutiny. There are also dubious foreign investors that are anxious to get hold of land under the guise of tourism development.
With the shift from the policy of land nationalization to the reintroduction of private property, Tanzania will do well to be on guard against the commercialization of land which results in land speculation thus pushing the price of land far out of the reach of the common man or woman.
With Tanzania’s introduction of private property rights, it seems to be tilting towards the other extreme of land tenure where there will be no separation between private ownership of the improvement on land and the perpetua ownership of land itself.
The government of Tanzania has been accused of using selected bureaucrats to draw up its land reform policy that will favour mostly the rich in terms of choice land allocations.
This SWOT Analysis was written by Gordon Abiama, Director, Africa Centre for Geoclassical Economics with notes taken from Land Value Taxation Around The World, an anthology compiled by Robert Andelson and published by the Robert Schalkenbach Foundation.