The International Monetary Fund (IMF) has identified property taxes as an untapped but vital source of revenue for Nigeria and other low-income countries striving for sustainable development.
In a recent blog post titled, “How Property Taxes Can Help Low-Income Countries to Develop,” the IMF argued that implementing effective property tax reforms, especially in urban centers like Lagos, could significantly enhance local government revenues.
The IMF’s analysis reveals that the global community needs to raise an additional $3 trillion by 2030 to meet development goals. Of this amount, emerging markets must contribute about 4% of their GDP, while low-income countries face the daunting challenge of raising 16% of their GDP.
For countries like Nigeria, where there is a heavy reliance on volatile oil revenues and a limited framework for income and wealth taxes, property taxes present a promising solution.
The IMF pointed out that while countries in Africa and Asia collect just 0.1% of GDP through property taxes, more advanced economies like those in the OECD manage to collect over 1%, with some even reaching 3%.
“Taxing property more efficiently can play a meaningful role in raising revenue at the local level,” the IMF suggested, highlighting cities such as Delhi and Lagos as examples of how property taxes could be a key source of income.
The report underscores the difficulty many countries face in raising taxes on mobile assets like income and wealth. Property, however, is largely immovable, making it easier for local governments to collect taxes.
“Large cities such as Delhi and Lagos show a way forward,” the IMF explained. “Taxing property more efficiently can help countries invest more in their people.”
In contrast to national taxes, property taxes are locally collected and spent, which makes them less politically sensitive, according to the IMF. This system allows people to see the direct benefits of their tax contributions, such as improved roads, schools, and public services.
However, the IMF also acknowledged that raising taxes can be a politically difficult process, especially in countries with a history of social unrest related to tax hikes. By focusing on property taxes, local governments may face fewer challenges than national governments when trying to implement fiscal reforms.
The IMF’s blog post emphasized the need for countries to move toward a value-based property tax system as their technological and valuation capabilities improve. It encouraged the use of technology like satellite imagery and drones to map properties accurately and expand tax coverage.
“By using modern mapping tools, property taxes can be 10 times more effective,” the IMF said. In cities like Delhi and Bangalore, these technologies are already in use to track property changes, and the IMF is encouraging similar efforts in Nigeria.
The IMF’s analysis highlights that property taxes can help address one of the major challenges facing resource-constrained countries like Nigeria: financing the infrastructure and services needed for sustainable development.
In advanced economies, property taxes already account for over 1% of GDP, with some countries reaching nearly 3%. By contrast, low-income countries like Nigeria collect only a small fraction of this amount, underscoring the potential of property taxes to boost government revenue.
“The appeal of property taxes is clear,” the IMF wrote. “In advanced economies, they are a crucial revenue source, and the same approach can be applied to developing countries with the right policy adjustments and technology.”
For Nigeria, a shift toward property taxes could mean more reliable funding for essential public services, such as healthcare, education, and transportation. The IMF believes that local governments could better capitalize on the wealth generated through urban development by capturing more revenue from property taxes.
The IMF also noted that property taxes are not only beneficial for revenue generation but also for improving governance. When taxes are collected and spent locally, it increases accountability. Citizens can more easily see the impact of their tax contributions, which may lead to greater support for such reforms.
To make property tax reforms more achievable, the IMF suggested that countries like Nigeria gradually transition from an area-based tax system to a full market-value-based system. Initially, an area-based approach can be used, supported by modern mapping tools to ensure greater accuracy and fairness.
As technology improves, cities can shift towards more precise and dynamic property valuations, making the tax system more effective and equitable. This gradual transition would help make property tax reforms practical and politically feasible.
“The area-based approach, supported by modern mapping tools, can help countries transition smoothly to a market-value-based system,” the IMF observed. “This pathway is especially effective when communicated clearly to the public.”
