By Dr. Fred Msemwa
The construction sector is an important contributor of the economies of most nations, Tanzania included. This sector also plays the role of the barometer that tells at any particular point in time, how the economy is fairing.
The booming of the construction sector signals that all is well with the economy while its sluggishness would suggest the opposite. By its nature, the construction sector is wide and includes activities happening in the real estate, infrastructure projects such as roads, ports etc.
For the sake of today’s discussion, we will focus on activities happening in the real estate sector as well as exploring some insights on how the sector could benefit as the government recent pronouncements requiring it to contribute more in the government coffers through enhanced collections of property tax.
Across the globe, the property tax forms an important source of government or rather local government revenues. In the context of Tanzania, this tax is now positioning itself as an important mainstream source of government revenue to finance the national budget that trickles down to the local government as well.
While this could be something that makes property owners think they will have to dig further into their pockets to settle their tax dues, I would say this is good news to the sector.
Homeowners and developers should now sit down and relax as the government’s decision to elevate the property tax as part of reliable revenue sources to finance the national budget means it will now do all what it takes to develop the sector.
In the end, the biggest beneficiaries of this decision by the government to levy property tax on all commercial and residential building will be existing and prospective developers and homeowners.
Despite the fact that at this stage it may not be easy to establish the precise number of commercial and residential buildings in the country, the last National Census (2012) sheds light on this as it reported that there are over nine million homes in the country. Out of these, not all houses will fall in the property tax net as some are located in rural area where such tax may not apply.
In addition, for sure three million homes may be exempt too due to the fact that they have been built of mud and thatched by grass. Despite these mixed details on eligibility of houses for property tax purposes, property tax is a strong and sustainable tax base that needs to be developed to ensure it is well developed and contributes towards national development.
There are various budgetary and non-budgetary initiatives that can be employed to ensure a thriving real estate sector both in rural and urban areas. Non-budgetary measures include expediting the establishing a fully fledged institution to be charged with developing the real estate sector while budgetary measures will set aside enough resources for land development including putting the necessary roads, electricity and water infrastructure.
As housing forms a key part of the real estate sector, budgetary measures to be taken should go further to support home buyers through various fiscal incentives to enhance housing affordability.
Looking at the size of real estate sector in the country, one may think that the issue of having a fully fledged institution that deals with promoting the development of the sector is long overdue.
While I commend Government's on-going initiatives to enact the law to that effect, I would suggest that the law being enacted should take the direction of enabling the proposed institution to be a promoter of the sector that will speed up its growth rather than regulating it by imposing additional regulatory measures on the sector.
The sector is already having a number of indirect regulators influencing its activities and therefore harmonising existing and proposed regulatory measures may help to reduce both the compliance as well as the regulatory burden to sector.
Buildings built on unsurveyed land not only deny the owners the opportunity to use their properties for more economic advancement but also reduces the value of properties. This also reduces the earning potential of the government as low value properties provide a narrower tax base.
Budgetary initiatives that seek to expand on-going measures to formalize informal settlements and surveying land in urban areas and villages will work to the advantage of both citizens and the government.
It is encouraging that the Ministry of Lands, Housing and Human Settlements Development is committed to ensuring that this happens and has actually started this noble task. The ministerial initiative announced during the FY 2017/2018 Budget Proposal to reduce the premium paid on surveyed land is a clear testimony that there is light at the end of the tunnel indicating the cost of owning surveyed land will ultimately go down.
This initiative went hand in hand with a the Presidential directive that developers should not shoulder costs of developing roads, water and electricity infrastructure as experience shows that when they incur these costs the same are recovered from sale of houses, a fact that makes prices of such houses too expensive for a common man. While we commend this initiative, it is high time that funds are set aside both at national and municipal or district council level to develop roads, electricity and water infrastructure to support Greenfield development.
It goes without saying that the surveying of plots alone without putting the needed infrastructure not only reduces the value of new development but also makes life difficult for the people living in these areas and ultimately erodes on the future government tax base.
In connection with this, it is important that the budget is also used as a tool for expansionary fiscal measures that ultimately make the housing sector reasonably vibrant. This argument is based on the importance of this sector both as a provider of homes for the people but also considering its multiple linkages with other sectors of the economy including its linkage with related industries such as the steel, cement and construction materials.
Stimulating the housing sector can take different forms including providing tax incentives to people who buy homes under mortgage arrangement by exempting income tax on the amount paid as installment to service the mortgage loans.
This can be done in the same manner that is done where tax relief is provided to the amount deducted for contribution to approved pension funds by not subjecting this amount to employment income tax.
In the short run, this measure will have the effect of enhancing the affordability of housing loans hence making more people able to buy homes. Consequently, this can broaden the market for housing products hence creating a vibrant housing market.
The vibrancy in the housing market will increase the supply of houses and hence play an instrumental role in broadening the property tax base from where the government can get more revenue to finance its various budgetary obligations.
In conclusion, as the government takes more steps to broaden its tax base, it is poised to get more in tax revenue from property taxes. Going forward, fiscal measures to enhance the affordability of housing products and efforts to establish an institution to spearhead the development of the sector need to be expedited to spur more growth of the sector and to sustain property tax as a revenue source.
Dr. Fred Msemwa is the CEO of Watumishi Housing Company Real Estate Investment Trust (WHC-REIT) responsible for management of collective investment schemes and provision of affordable homes in Tanzania. Email: fredmsemwa@yahoo.com
No comments:
Post a Comment