Property tax revenue growth under inflationary conditions. The case of Tanga Municipal Council -Tanzania

In many countries, property tax is the major source of revenues to local authorities. This is also true for Tanzania. In realization of this fact, the URT government and donor agencies have been spending considerable amount of resources to revamp property tax yield. Likewise, much of the researches have been initiated with view to explore the best practices to tap the full potential of property tax. Much of these initiatives have been focused on property tax reforms i.e. improving the fiscal cadastre, improving valuation and an emphasis on the need to improve property tax collection. As much as these efforts are critical, none of these have been directed at ensuring that the tax yield resulting from tax reforms does not decline immediately after reforms are completed. These initiatives have not attempted to ensure that prevailing economic conditions _ especially inflation, does not overtake property tax system. Consequently, despite considerable commitment of time and resources to revitalize property tax revenues, the property tax yield is fast dwarfed by economic reality, if the situation remains unfettered, the tax would become cost ineffective to administer. This study envisaged studying critical property tax administrative issues that could be reviewed in order to adapt property tax system to inflation. Based on the findings, the study aims at providing a primer on inflationary characteristics of property tax in Tanzania from which a further debate on the subject can be extended. The scale of inflationary loss on tax revenues is so pervasive even to central governments especially in developing countries. Available literatures have ample quintessential cases illustrating the ramifications that rigid tax systems have on the outlook of governments' revenues. The scale of the problem of inflationary loss is even larger to most local government taxes. Of all local governments' local taxes, property tax is the most susceptible to inflationary corrosion. The findings of this study corroborate this argument. The study findings indicate that the share contribution of property tax revenues of TMC to total locally generated revenues even in nominal terms has been falling. This is a stark reality to those who argue that property tax takes an important role in local revenues. There are two main reasons; one is lack of frequent valuations or indexing which makes the tax base (in the valuation roll) as obsolete as the last valuation. Incidentally lack of frequent valuations has far reaching repercussions that any other property administrative components. Second is due to tenacious collection lags which help in dragging down property tax real revenues. It has been found empirically that property tax rates have limited impacts on property tax real revenues growth. In fact, property tax rates failure to impact on real revenues is attributed to the existing rates that are small, token and in economic terms unrealistic. To the contrary, while property tax real revenues have been declining, available indicators have been rising. The rental price index which can be taken as a proxy for property values has been steadily rising. Likewise real per capita GDP of Tanga region which may reflects taxpayers' real income has also been on the steady rise. It is desirous to adjust property tax system to become reactive to inflation, but not before existing prohibitive legislations governing property tax administration are amended.