Reforming the Property Tax in Developing Countries: A New Approach

The property tax is almost everyone’s choice for the principal local government tax revenue source in developing countries. The focus of public policy on this tax, and the interest it has drawn from public finance scholars and practitioners are evidence of its importance. Moreover, both external donors and national governments have invested significant money in strengthening its administration. Despite all of the good work that has been done in designing more efficient property tax structures and administrations however, property tax revenues account for less than one percent of GDP and less than 4 percent of all tax revenues in developing countries. In terms of revenue mobilization in developing countries, the property tax is an afterthought. But the interest continues. In this paper we propose a different paradigm for property tax reform in developing countries. The unified property tax that we outline here would bring together and restructure the traditional urban property tax, property transfer taxes and various forms of land value increment taxes, and could generate enough revenue to justify the significant administrative costs involved.