## How Property Taxes Can Help Low-Income Countries to Develop

_IMF Blog, November 11, 2024_

## Source details

**Canonical URL:** [How Property Taxes Can Help Low-Income Countries to Develop](https://www.imf.org/en/blogs/articles/2024/11/11/how-property-taxes-can-help-low-income-countries-to-develop)

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## Bibliographic details
- Authors: Martin Grote, Mario Mansour, Jean-Francois Wen
- Published: November 11, 2024

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### Overview and key findings
- Authors: Martin Grote, Mario Mansour, Jean-François Wen
- Publication date: November 11, 2024
- Major finding: Taxing property more efficiently can play a meaningful role in raising revenue at the local level and allow countries to invest more in their people.
- Global revenue need: Governments must raise an additional $3 trillion to achieve sustainable and inclusive economic growth goals this decade.
- Fiscal burden by country group: The cost equals 4 percent of gross domestic product for emerging markets, and 16 percent for low-income countries.
- Potential tax revenue gain (prior IMF research): up to 5 percentage points of GDP over two decades.
- Current property-tax performance:
  - more than 1 percent of GDP on average in OECD countries,
  - nearly 3 percent in some advanced economies,
  - around 0.1 percent of GDP in emerging Asia and Africa.
- Ambition with reforms and technology: recurrent property tax revenues in developing countries should be at least 10 times higher than current levels.

### Local revenue, accountability, and equity
- Benefits of well-designed property taxes:
  - reliable and progressive municipal financing,
  - enhance accountability of local governments since proceeds fund local public services,
  - tax increases in wealth from construction-intensive urbanization and public-infrastructure development.
- Political advantages:
  - locally collected and spent taxes may be politically less challenging than broad-base national taxes,
  - the tight link between local revenue and spending shields property taxes from national politics and raises accountability standards for local councils.
- Legislative and design guidance:
  - national legislation should regulate how much property taxes can differ across a country to limit divergences in local public-service levels,
  - municipalities should limit exemptions to a narrow range of public organizations,
  - forgone revenues from exemptions should be regularly reported.
- Protection for “asset-rich but cash-poor” households:
  - soften impact by deferring taxes until the property is sold, at which point full payment is due.

### Technology, implementation, and sequencing
- Recommended sequencing:
  - take a gradual approach to property-tax reform,
  - initially broaden coverage using area-based taxes (fixed rate per square meter),
  - transition to full value-based property taxes as valuation capacity and market price information improve.
- Role of modern mapping technology:
  - satellite imagery and aerial photography by drones can fast-track expansion and coverage to all parcels that ought to be included in the fiscal register,
  - increased precision enables accurate measuring of surface areas and development of fiscal-register maps that depict buildings and their alterations,
  - area-based taxes can be rolled out quickly while market-value valuation capacity matures.
- Capacity demand and implementation support:
  - demand for capacity development from the IMF indicates many countries are seeing benefits from combining policy reforms with technology enablers,
  - effective communication of objectives to the public makes property-tax reform politically appealing.

### Country examples and empirical evidence
- India:
  - officials in Delhi and the greater Bangalore metropolitan area have started using satellite imagery to map properties in a geographic information system.
- Africa:
  - several municipalities have made impressive strides.
  - Lagos increased tax collection fivefold to more than $1 billion in 2011 by broadening the base of its property tax, coupled with better enforcement.

### Policy recommendations (summary)
- Improve property-tax coverage and valuation capacity to reverse revenue underperformance.
- Use modern mapping technologies (satellites, drones) to create fiscal-register maps and measure surface areas accurately.
- Implement area-based taxes initially, migrate to market value-based property taxes over time.
- Regulate national limits on local tax divergence and require reporting of forgone revenues from exemptions.
- Provide mechanisms to defer payment for vulnerable property owners (tax deferral until sale).
- Communicate reform objectives clearly to the public to build political acceptability.

*Source: How Property Taxes Can Help Low-Income Countries to Develop (IMF, November 11, 2024).*

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## References

- [$3 trillion](https://www.elibrary.imf.org/view/journals/061/2023/005/061.2023.issue-005-en.xml?cid=541463-com-dsp-crossref)
- [new IMF analysis](https://www.imf.org/en/Publications/imf-how-to-notes/Issues/2024/09/19/How-to-Design-and-Implement-Property-Tax-Reforms-555103)
- [IMF research](https://www.elibrary.imf.org/view/journals/006/2023/006/006.2023.issue-006-en.xml?cid=535449-com-dsp-crossref)
- [political challenges](https://www.imf.org/en/Blogs/Articles/2024/09/16/political-parties-of-all-stripes-are-pushing-for-higher-government-spending)

_Source: https://www.imf.org/en/blogs/articles/2024/11/11/how-property-taxes-can-help-low-income-countries-to-develop_