40% of urban council revenue is generated from property tax

Government is counting on the expansion of urban councils such as Gulu City to increase property tax collections. Photo / File 

What you need to know:

  • Government is working on measures to increase property tax revenues from urban councils from Shs50b to Shs300b by 2026

At least 40 percent of urban council revenue is generated from Property Tax, signifying its importance to local governments, Ministry of Local Government says. 

Details indicate that property tax, which is also known as property rates, is the biggest source of urban council revenue, ahead of local service and local hotel tax, business charges, royalties, advertising fee, solid waste charges and water tariff, among others. 

Mr Yasin Sendaula Kasumba, the Ministry of Local Government assistant commissioner for urban inspection, told Monitor on Thursday that 40 percent of urban council revenue is generated from property rates. 

“Currently, property tax is the biggest source of revenue contributing an average of 40 percent of urban council revenues,” he said in email responses to inquiries about the performance of local government revenues.  

Government, under the Domestic Revenue Mobilisation for Development Strategy is working towards increasing urban councils revenues, which, according to the Local Government Finance Commission, is expected to increase to Shs1 trillion by 2026.

The Commission expects revenues from royalties to rise to Shs50b, while property rates are expected to increase to Shs300b, from under Shs50b 

Others such as trading licenses are projected to rise to Shs80b, market dues (Shs100b), parking fees (Shs100b) and Shs320b from other sources.

Mr Kasumba indicated that Kira Municipality leads urban councils in terms of property tax collections with notable growth among new cities, led by Mbarara and Gulu, respectively. 

Property tax is collected by urban councils and is levied based on the rental value of a commercial property as determined by the chief government valuer. 

At least 80 percent of proceeds are invested in local government services, among which include road construction and maintenance, street lighting, anti-malaria drain (drainage channels), garbage collection and physical planning, among other required.

Decentralisation has been weakened as a result of local governments’ inability to mobilise enough revenues to improve service delivery. 

However, government under the Domestic Revenue Mobilisation for Development Strategy is devising ways to improve local revenue collection with emphasis on property rates as the driver of the initiative. 

Last year government embarked on a mapping and valuation exercise of properties in the new cities, in which it returned a large increase in commercial properties, thus raising the prospect of increased collection. 

For instance, in Gulu City about 3,200 properties were mapped, from which authorities, at a rate of 12 percent, expect to collect at least Shs3.7b, while in Hoima, 7,220 properties, from which Shs1.5b is expected to be raised at a rate of 8 percent, were mapped. 

However, local governments have previously indicated that government’s policy, through which mobilised revenues are collected into a single centralised account has hampered service delivery and budget prioritization. 

How it is levied   
Property tax is levied on immovable property including buildings or structures of any kind excluding vacant sites.The Local Government Act provides an annual percentage charge not exceeding 12 percent of the taxable value of the property, with a minimum of Shs2,000. 

The property’s annual revenue is used to calculate its taxable value, which is then subject to the property tax rate specified in the Act. 

This means that property owners will pay taxes based on either the calculated percentage of their property’s taxable value or the minimum tax amount, whichever is higher.