Land is a fundamental factor of production. It provides physical space for all economic activities such as agriculture, construction, and industry, but also harbors natural resources such as minerals,
Despite land being a vital factor of production, capable of producing prosperity, a lot of land is lying idle in Uganda. In the capital Kampala, it is even deliberate.
If you move around the Kampala metropolitan area, you will witness countless signposts on idle land reading “not for sale.” Many people deliberately purchase land, not to develop it, but rather to hold onto it, anticipating a future sale at exorbitant prices.
Many experts on land matters have even said that some plots of land in Kampala have become more expensive than those in cities such as New York.
Land taxation has significant untapped potential as a revenue source in cities located in developing countries. In particular, a tax on unimproved land has been advocated for by economists for many years 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.
If idle land in Kampala alone was developed, it would generate massive revenue for the country. For instance, since Kampala is Uganda’s commercial hub, land in the Kampala metropolitan area can be developed for commercial purposes, such as constructing rental properties, shopping centres, commercial urban farming, or industrial facilities, which generate income through rent, sales, or production.
Vacant land is not subject to property tax and is therefore a source of lost revenue for the government.
A 2018 report by the International Growth Center (IGC) titled, “Taxing vacant urban land in Kampala” shows that there is an estimated loss of revenue between Sh. 245 million and Sh 1.8 billion in Kampala alone, adding that the Kampala Capital City Authority (KCCA) may want to consider requesting legislation that allows the taxation of vacant urban land. Therefore, capturing this vacant land as part of the overall tax bracket for the city would improve equity and has very substantial tax-revenue.
In rural areas where nearly the entire country’s agricultural activities take place, land can be cultivated to produce crops and other products that can be processed and sold in local or international markets.
On the contrary, a lot of idle land, not only in Kampala, but also other parts of the country is not being used for any productive activity, and therefore cannot generate revenue.
If this land lying idle was to be taxed, it would generate revenue for the country, and/or compel the owners to develop it.
The Executive Director of National Planning Authority (NPA), Dr Joseph Muvawala says one possible solution to this issue is to implement a tax on idle land.
Muvawala says that by putting idle land to productive use, Uganda could unlock its potential, driving economic growth and creating wealth.
“What is happening to our productivity? You know that our productivity is going down on the African continent? What is happening to the distortions in land? Why should a plot in Kampala be more expensive than a plot in Manhattan? Sometimes I laugh, plots in this town are more expensive than plots in New York. What is happening? The speculators have taken over. Land is no longer for production. It has become a store of value, a bad idea,” says Dr Muvawala.
Muvawala notes that if land lying idle was to be taxed, it would widen the tax base, and/or the owners would be forced to develop or sell it for development, and this would in turn spur growth.
“On this continent, the only tax I would fight for is taxing people who have idle land. I would tax you, and when I tax you for idle land, I will force you to sell that idle land. And when all of you are on the market selling land, what will happen to that price?”
“Every time we allow people to have square miles of land, they are not utilizing it, what are they doing to the market of land? They are denying that supply. So, land is now becoming very scarce. When it becomes very scarce, you have a price you can’t understand. Even our valuation standards are out of this world. How would you determine the price of land? It should be based on the inflation levels and growth? This plot is $1 million, the next plot is $2 million. What kind of mathematics is that?” Muvawala wonders.
When city authorities, like the Kampala Capital City Authority develop an infrastructure project for instance roads 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 project.
Land value appreciates commensurately and without a tax, owners realize the full value-gain.
The IGC report suggests that a fair way to channel a portion of value-gain to public budgets is through a property tax and a capital-gain tax the government can collect and invest for the growth of the city.
In addition to the lost value in terms of revenue, vacant urban land can also present major urban planning challenges to cities. For example, in Kampala, there is a substantial amount of vacant land. This is inefficient for city growth.
“Therefore, taxing vacant land is particularly important in Uganda where most land is privately held, vacant land is untaxed, and an estimated 8-10% of land remains undeveloped and therefore vacant,” the IGC report reads.
When land remains undeveloped or unutilized, it does not contribute to economic activities, and therefore, no income is derived from it. Idle land represents a lost opportunity for generating wealth, as its potential remains untapped. Without development or utilization, idle land cannot contribute to economic growth or provide financial returns to its owner.
Taxing land, however, can be an unpopular and therefore politically difficult undertaking. To be able to tax vacant land, a legislation specifically for that must be introduced, passed by Parliament, and assented to by the President.