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Local property tax reform outcomes: Bo is best; Makeni, Kenema and Freetown lag behind

July 21, 2015 By Hassan Morlai Koroma

An academic paper published this May 2015 has made startling revelations on how business elites and political cronyism undermined four of our city councils’ efforts to raise funds from reforming local property tax. The Oxford University Press journal, African Affairs (114/456) was published on behalf of the Royal African Society. The article, “The political economy of property tax in Africa: explaining reform outcomes in Sierra Leone”, was authored by Samuel S. Jibao and Wilson Prichard.

As this is an academic paper, it is likely that many ordinary Sierra Leoneans will not have the opportunity to come across it. Against this backdrop, I consider it appropriate to write this commentary to highlight some of the contents and findings of the article for the public good, to benefit my fellow Sierra Leoneans.

The article provides explanations for the differences in the outcomes of the local property tax reforms implemented by Makeni, Bo, Kenema and Freetown City Councils. The councils’ reforms focused on five components: discovery, assessment, billing, sensitization, and collection. Discovery and assessment relate to the valuation of local property. Makeni City Council embarked on these reforms in late 2006 and the initial successes of those reforms propelled the Local Government Finance Department of the Ministry of Finance to introduce similar local property tax reforms in Bo, Kenema and Freetown City Councils. Following initial discussions in 2007, these councils implemented their reforms in 2008. The reforms resulted in significant increases in local revenues. Nonetheless, there were huge differences in the outcomes of these reforms in each of these city councils. For example, between 2007 and 2011 Bo City Council saw a 450% increase in real terms in its revenues. During the same period, revenue increases were 350% for Kenema City Council, 200% Makeni City Council, and Freetown City Council saw two and half times its local property revenues but this is universally viewed as “particularly disappointing, given that Freetown has a dramatically larger tax base on which to draw”.

The article postulates the following reasons for the differences in the reform outcomes. Bo City Council introduced the most robust and transparent information technology (IT) systems. This allowed the council to efficiently manage its property tax data and reduce the scope of manipulating such data. Kenema City Council introduced IT systems described as ‘permissive’ but not so robust and transparent like those in Bo City Council. Unfortunately, the article’s authors found that Makeni City Council “was most resistant to a more transparent system” while Freetown City Council simply “lagged behind in failing to fully implement the IT platform” for an efficient and transparent local property tax management system.

Another reason that accounted for the differences in property tax reform outcomes related to the efforts each council invested in sensitising their residents. Again Bo City Council was most impressive in that it heavily invested in public education, expanded transparency, highlighted for the first time the link between taxation and public expenditure (based on the notion of a ‘fiscal contract’ between the taxpayer and the local government), and set up new fora to engage with its taxpayers. Makeni and Kenema City Councils used public education and put trifling resources to their transparency and public dialogue campaigns; and the article’s authors found that Freetown City Council employed the least efforts and made the “least significant progress on all forms”. What a shame for being our nation’s capital city but cannot lead in meaningful reforms!

An aspect of our national life which exhibited itself in the study was our attitude to the use of judicial institutions and respect for the law. The collection component of the local property tax reforms involved the use of enforcement action (including taking taxpayers to court) for failing to pay local property taxes. Effects taken by Bo City Council provide for best practice and produced the best results in increased revenues. The authors’ own survey revealed that in Bo City Council, 93% of the taxpayers surveyed were able to produce a property tax receipt to show they had paid their taxes; while in Makeni this figure was 41.7% and in Kenema this was a mere 38.5%. The survey showed that in Bo City Council, 37.5% of those surveyed knew of a property owner who had been taken to court (for problems with their local property tax) but in Kenema City Council this figure was  9.4% and in Makeni City Council the figure was only 7.5%. The authors also reported that 87.5% of those surveyed in Bo City Council believed elites (including business leaders and politicians) could be successfully taken to court but in Kenema City Council only 31% and in Makeni City Council only 25% of those surveyed believed these elites could be taken to court for property tax irregularities. In comparative terms, Freetown City Council performed worse than the other city councils.

A further explanation for the differences in the reform outcomes lies primarily in divergent commitments of local political leadership. In the early years of its reforms in 2006 – 2007, Makeni City Council had a political leadership that was committed to positive reforms. The new leadership that was ushered after the local government elections in 2008 rolled back the local property tax reforms by reducing its outreach programme, showing unwilling to upgrade its IT systems, and being reluctant to take enforcement action against business and political elites for property tax dodging. In the case of Makeni, the change of leadership has been decisive in seeing the reforms falter. The problem with political leadership in Kenema City Council was that the mayor and chief administrator were “never willing to implement a fully transparent IT system and largely refused to pursue effective enforcement action targeting elites”. By 2011, Freetown City Council was only able to identify an estimated 25% of properties in its authority and had regressive valuations, extremely limited transparency, and weak enforcement mechanisms.

The authors argue that the lack of ‘political will’ is a key factor in explaining some of the successes and failures of the local property tax reforms in Sierra Leone. They explain that the lack of political commitment is a reflection of the personal ties between the business elites and the political elites (‘elite cohesion’). Powerful economic actors have strong ties to local political leaders who together posed a great risk of capturing the state / the local government by economic elites using their power and connections to prevent the effective implementation of local tax reform. The authors are not all critical or pessimistic in their findings. They suggest that where economic elites are motivated to strengthen the state / local government, increased taxation may follow by paying local property tax and supporting reforms. However, where economic elites seek to pursue their own narrower interests they are likely to use their connection to prevent enforcement action, or will finance local elections to secure a change in local government leadership.

The national government continues to provide funding to local governments. The survey found that the city councils that performed well in their local property tax reforms are those in which the political party that runs the local government is different from the political party that runs the national government. The All Peoples Congress (APC) political party governs Makeni City Council and this is the party that forms the national government of Sierra Leone. The study found that almost immediately following APC taking over the national government, support for tax reform began to decline in Makeni City Council. This contrasts with support for tax reforms in Makeni City Council during the tenure of the Sierra Leone Peoples Party (SLPP) national government. In Kenema and Bo City Councils, the opposition SLPP governs these councils. The study found that in these councils and in particular in Bo, the leadership feared that central government funding may be delayed or withheld for political reasons. The fear of this happening encouraged the council leadership in Bo to implement an efficient tax system which enables them to raise funds locally and reduce heavy dependency on central government funding.

In 2008 and 2009 central government funding to councils controlled by SLPP was reduced while funding to councils run by APC increased in those two years. These were the years following the APC forming the national government in 2007. Although the authors made reservations about the reliability and accuracy of the data they had considered in making these findings, they however suggested that the decline in central government funding to SLPP run councils across the country in 2008 and 2009 “could be consistent with politicization, and would almost certainly have fostered the ‘perception’ of politicization”. This reason makes it attractive for opposition-held councils like Kenema and Bo to have efficient local revenue collection systems and explains why the local property tax reform outcomes have been very successful in Bo and Kenema SLPP-held City Councils and not so successful in Makeni and Freetown APC-held City Councils.

A final point the authors provided to explain why local property tax outcomes in Bo are more successful that in Kenema, Freetown and Makeni is the need to have competitive local council elections. Although such elections per se do not guarantee ushering a leadership that is committed to reforms, they however have the potential of creating incentives for positive change. The 2007 city council elections in Bo were competitively contested by the SLPP, APC and the People’s Movement for Democratic Change (PMDC) and provided incentives for the victorious SLPP mayor to embark on a programme of reforms with significant success.

From the above, it is reasonable to surmise that significant gains in local property tax reforms could be achieved by a committed political leadership. This has to be an independent minded leadership that is willing to dismantle the economic and political elite cohesion where the elites seek to promote their own narrow interests or willing to capitalise on elite cohesion where the wider interests of the elites are akin to those of the local public. Other factors that could make this happens include competitive local elections; promoting a clear link between taxation and the delivering of local services (‘fiscal contract’); maintaining robust and transparent IT systems; and employing enforcement mechanisms that should include the use of the court and long arm of the law to bring to book those who flout tax obligations. Bo City Council ticks all of these boxes and it is simply the best case study to follow.

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