Since you must tax land and other fixed assets, play smart and make it affordable

People always squirm when informed they must pay two and four per cent of the value of their rural and urban properties respectively as stamp duty during transfers. And now a five per cent Capital Gains Tax may soon be levied during property sales.
Annual land rates continue to pose a threat to families and businesspeople who own rateable properties in urban areas. Those in default can have their properties auctioned.

The national and county governments must, therefore, be very careful how they go about taxing land. The levels they impose must be realistic and affordable while the collection methods must be efficient and friendly. Taxation must also be seen to be legitimate by ensuring the collecting authorities enjoy the goodwill of the taxed.

Legitimacy is enhanced through benefits such as provision of service infrastructure, security and cleanliness. Poorly thought-out tax policies and levels can attract a political backlash.

The pain of increased land taxes has seen residents of some counties voice their displeasure through demonstrations. This is a signal that county governments mustn’t ignore. Some governors may even lose the 2017 elections on account of the land taxes they have imposed on residents.

A lot of land in counties held by peasant farmers is freehold – free in perpetuity. Most of these landowners aren’t used to their properties being taxed.

County governments will, therefore, need to keep such properties out of the tax bracket unless land use and services offered call for it. Even then, sensitisation to ensure that landowners understand and accept the tax should precede the levy.

Many counties are host to urban centres carrying leasehold properties. Such properties attract tax tied to land use and the initial lease conditions. Counties must carefully evaluate the taxation systems surrounding such properties to ensure they make sense within local business contexts and land use.

And in establishing taxation regimes, counties must take into account the laws governing planning, surveying and registration of property. They also must consider national legislation on valuation and rating of property and seek the inputs of legal and land professionals.

Currently, it is not easy to tax unregistered properties without attracting legal challenges associated with the misidentification of properties or their ownership.

County governments must, therefore, ensure that unregistered properties within their jurisdiction are quickly brought onto the register through the process of adjudication, planning, surveying and registration. Properties are easy to value and tax once mapped and registered.

HIGHRISE RESIDENTIAL

There is also the matter of vertical properties such as high-rise residential and office blocks standing on single land parcels but carrying multiple units. In such cases, taxation is pegged on the single parcel of land on which such vertical developments stand.

Even then, there is a limit beyond which a fair taxation system can burden such single land parcels. County governments may, therefore, wish to escalate the registration of units under the Sectional Properties Act where every individual unit within a high-rise block is issued with a separate title, with some areas being collectively owned by unit owners for common use.

Such units with individual title deeds offer flexibility for mortgage, transfer and inheritance. Moreover, the registered units become taxable, giving an opportunity for county governments to enhance revenues from land.

Counties must, however, make efforts to commit a reasonable fraction of land revenues to basic services such as security, street lighting and garbage collection.

They must provide services such as access roads, water, power, and public transport which add value to the residential and commercial use of plots.

Currently, most of our urban areas, including major ones like Nairobi, Mombasa, Eldoret, Kisumu, Kakamega and Nakuru, continue to give residents a raw deal. Interruptions of power and water are common. Many access roads are not tarmacked, and are therefore dusty during dry seasons and unusable during the wet ones.

Many residents continue paying for private security and garbage collection. Public transport is either lacking or inappropriate. This lack of basic services makes the regular increment of land taxes unjustifiable and encourages high levels of default.

Mr Mwathane is a licensed surveyor ([email protected])