Leveraging Digitalisation to Boost Equitable Property Taxation

In the face of current multiple global crises, the need for innovative solutions to improve domestic resource mobilisation (DRM) has become paramount. Developing countries face an estimated annual financing gap of $500 billion towards achieving the 2030 Sustainable Development Goals (SDGs). Effective taxation, including property taxation, can play a crucial role in closing this gap. Property taxes not only boost revenue but also enhance the fiscal contract between the state and its citizens, promoting civic culture and voluntary tax compliance. Digitalisation offers transformative opportunities for property taxation. By improving property registration, valuation, and compliance, digital tools can make tax systems more equitable and effective. However, the successful implementation of such systems requires strong political will and technical capacity.

OECD's work on digitalisation in property taxation

The Organisation for Economic Cooperation and Development (OECD) has been at the forefront of research and policy recommendations on the digitalisation of tax systems. According to the OECD, digitalisation can significantly enhance the efficiency and equity of property tax systems. Key areas where digital tools can be impactful include property registration, valuation, and taxpayer compliance. The OECD highlights the importance of moving from traditional area-based valuation systems to more sophisticated methods that consider both surface area and observable property features. Traditional systems, often reliant on rudimentary and outdated methods, can result in inaccurate valuations that unfairly distribute tax burdens, disproportionately affecting low-income property owners and undermining public trust in the tax system. By contrast, advanced valuation methods integrate a variety of data points, including property size, location, market value, and physical attributes such as building condition and amenities. This comprehensive approach ensures a more precise assessment of property value, which is crucial for establishing a fair tax base.

Digital tools can facilitate this shift by providing accurate and up-to-date property data, thereby ensuring that tax burdens are distributed more fairly.

Digital tools can facilitate this shift by providing accurate and up-to-date property data, thereby ensuring that tax burdens are distributed more fairly. For instance, Geographic Information Systems (GIS) and remote sensing technologies can map and analyse vast amounts of property-related information with high accuracy and efficiency. These technologies enable tax authorities to maintain current and comprehensive property registries, reducing discrepancies and disputes over property valuations. Moreover, digital platforms can automate the collection and processing of property data, streamlining administrative procedures and enhancing transparency. The implementation of digital solutions also allows for dynamic updating of property records, reflecting changes in property use, market conditions, and urban development. This adaptability is essential in rapidly urbanising regions where property values can fluctuate significantly over short periods. By continuously monitoring and updating property information, tax authorities can ensure that property taxes remain equitable and responsive to current economic realities.

The OECD, further, underscores the need for international cooperation in adopting digital tax solutions, as shared experiences and best practices can accelerate progress globally. Collaboration amongst countries facilitates the exchange of knowledge and expertise, helping to overcome common challenges in implementing digital property tax systems. International forums and partnerships provide platforms for countries to learn from each other’s successes and failures, adopt innovative technologies, and develop standardised practices that enhance the effectiveness of property taxation worldwide. Moreover, international cooperation can lead to the development of joint initiatives and funding mechanisms that support the deployment of digital tools in property taxation, particularly in developing countries with limited resources. By pooling resources and expertise, countries can achieve economies of scale and ensure that digital solutions are accessible and affordable for all.

In conclusion, the OECD's advocacy towards modernised valuation methods and digital solutions highlights a transformative approach to property taxation. This shift not only improves the accuracy and fairness of tax assessments but also promotes international collaboration, driving global advancements in tax administration. Embracing these innovations is crucial to build equitable and efficient tax systems that can support sustainable development.

The transformative potential of these digital valuation methods is vividly illustrated by the experience of Freetown, Sierra Leone. By adopting advanced digital tools and innovative approaches to property taxation, Freetown has successfully addressed long-standing challenges, while significantly improving the tax system's equitability and efficiency.

The Case of Freetown, Sierra Leone

Freetown, Sierra Leone, provides a compelling case study of how digitalisation can transform property tax systems. With the election of Mayor Yvonne Aki-Sawyerr in 2018, Freetown embarked on an ambitious project to overhaul its property tax regime, addressing long-standing issues of inefficiency and inequity. Upon taking office, Mayor Aki-Sawyerr identified property taxation as a crucial area of reform to enhance municipal revenues and improve public services. The city faced significant challenges, including incomplete and outdated property registries, ambiguities in property and land rights, and the absence of precise addressing systems. These issues hindered the effective collection of property taxes and contributed to a regressive tax burden distribution.

To tackle these challenges, Freetown introduced a points-based valuation system, leveraging digital tools to improve the accuracy and fairness of property assessments. The new system incorporated a mix of surface area and observable property features, providing a more nuanced and equitable basis for taxation. The city utilised Geographic Information Systems (GIS) and satellite imagery to create comprehensive and up-to-date property maps, which formed the foundation for accurate property valuations. One of the key innovations in Freetown's approach was the use of digital platforms to facilitate property registration and valuation. Property owners could register their properties online, providing essential details that were verified through digital means. This not only streamlined the registration process but also ensured the integrity and accuracy of property data. The digital platform also allowed continuous updates, reflecting changes in property ownership and characteristics in real-time.

The new system incorporated a mix of surface area and observable property features, providing a more nuanced and equitable basis for taxation.

Beyond improving the technical aspects of property taxation, Freetown's reform efforts included extensive stakeholder engagement. The city conducted public awareness campaigns to educate property owners about the new system and its benefits. These campaigns emphasised the importance of fair property taxation in enhancing public services and fostering community development. By securing the buy-in of property owners, including the wealthy and powerful, Freetown was able to mitigate resistance and promote voluntary compliance.

The impact of these reforms has been significant. Freetown has seen a substantial increase in property tax revenue, which has been reinvested in critical municipal services, such as waste management, road maintenance, and public health. The progressive nature of the reformed system has also improved equity, with higher-value properties carrying a fairer share of the tax burden. This has strengthened the social contract between the local government and citizens, fostering a sense of civic responsibility and community participation.

Freetown's experience demonstrates the transformative potential of digitalisation in property taxation. By addressing both technical and political challenges, the city has created a more effective and equitable tax system that serves as a model for other developing countries. The lessons learned from Freetown's success highlight the importance of strong political leadership, innovative digital solutions, and inclusive stakeholder engagement in achieving sustainable tax reforms.

Panel Discussion at the 2024 ATI General Assembly

The upcoming ATI General Assembly, themed Equity and sustainability: building progressive tax systems will feature a panel discussion titled Leveraging digitalisation to boost equitable property taxation. This session will shed light on the successful application of digital tools in property tax systems, with a focus on enhancing progressivity and fairness. Moderated by Colette Nyirakamana from the Local Government Revenue Initiative (LoGRI), the panel brings notable speakers and experts from the OECD, Sierra Leone, and the Philippines. Additionally, it will address the political and technical challenges involved in implementing technology-enhanced property tax systems and the essential role of political will and local authorities. Through an exchange of best practices, the panel aims to showcase the transformative potential of property taxes in fostering a robust fiscal contract and enhancing civic engagement.

Further reading:

📖 Press release of the 2024 ATI General Assembly 

📖 ATI & LoGRI workshop series on Policy design for effective property taxation

📖 Workshops 1 and 2: Strategies for cost-effective property valuation systems & Re-thinking property identification and registration for taxation purposes 

📖 Workshops 3 and 4: Effective information technology systems in property tax administration & Building taxpayer’s trust, compliance, and public support for reform

📖 2nd NTO Technical Conference on the Digitalisation of Tax Administrations