Property tax, as collected by the Kampala Capital City Authority (KCCA), is a tax on the rental income of property in the city of Kampala, Uganda that can be applied to commercial, institutional and rented residential properties across the five urban divisions of the city. Property taxes are a key source of revenues for the Kampala Capital City Authority (KCCA), accounting for over 35% of own source revenues in FY 2018/19.
However, there is significant room for improvement in property tax revenue collection; only 30% of properties complied with the tax in FY 2018/19. Ongoing discussions with the Kampala Capital City Authority as well as preliminary administrative data analysis highlight that limited tax compliance is a key constraint to enhancing revenues in the city and may reflect low citizen satisfaction and tax morale. This is not a problem unique to Kampala - in many developing cities, property tax compliance is low despite city officials being able to identify tax liabilities of citizens, while at the same time the threat of legal action is hindered by overburdened courts. In order to raise revenue for urban public services in the medium term, policies are needed to encourage tax compliance without relying on judicial procedures.
To provide insights into policy options in this context, we are working closely with the KCCA’s Directorate of Revenue Collection in designing an experiment based on public reporting of individual tax compliance. Public reporting of compliance to other taxpayers offers a potential alternative to conventional information experiments and may lead to a meaningful shift in tax behaviour, while also improving transparency and perceived fairness of revenue collection. We consider the impact of publicly listing high property worth individuals; not only can these taxpayers offer the greatest potential in revenue gains (the top 5% of properties in Kampala represent the same potential revenue as the bottom 95%) – but by increasing compliance of high-property-worth individuals, there may be significant knock-on effects to tax morale more generally. Based on the results of this project, the KCCA will design policies to enhance voluntary compliance with property rates.