The potential of taxing vacant land in Kampala’s central division

In a previous IGC-funded research project at the request of the Directorate of Revenue Collection (DRC) in the Kampala Capital City Authority (KCCA), Dr Mihaly Kopanyi analysed various ways that KCCA could potentially raise its own source revenue. One of the main recommendations was to explore the issue of taxation of vacant land.

Land tax overall is a major potential source of under revenue developing country cities. In particular, a tax on unimproved land has been advocated by economists for many centuries as it is a non-distortionary and therefore efficient form of taxation. This is due to the fact that land is in a fixed supply with its value derived primarily from its location. As city authorities, like the KCCA, invest in infrastructure and services around the land, its value appreciates commensurately. Although, this appreciation has nothing to do with any private investment, without a tax, the full value of the appreciation will accrue to the owner rather than the government who have undertaken the investment. The private incentive, therefore, is to hold the unimproved land in anticipation of its rise in value.

In addition to the lost value, vacant urban land also presents a major urban planning challenge to cities. For example, in Kampala, there is a substantial amount of vacant land in the city centre as this is also where its value is high. This is inefficient for city growth, from a connectivity and a density perspective, as well as the fact that since land is a scarce resource, it should be put to its most efficient use. Further to this, there are tangential challenges, such as insecurity or even public health concerns, if land in the city is left unbuilt and unattended.

Taxing land, however, can be an unpopular and therefore politically difficult undertaking. To be able to tax vacant land, national legislation will have to change and for KCCA to advocate for this, they will have to assess its necessity and feasibility in the context of Kampala. Furthermore, even if it is deemed to have potential, this does not answer the question of the how the tax could be introduced and at what level.

Therefore, this project, at the direct request of the KCCA, will conduct a review of other countries that have introduced taxes on vacant land, and more specifically how it was done. The research, which will be conducted in close conjunction with the KCCA, will then use the example of the central business district (CBD) to evaluate potential options that KCCA may have for introducing such a tax. It will use an innovative approach by using the recently collected data from the property valuation for the central division and produce three different models.

Outputs