How Can Property Taxes Drive Subnational Development?

This blog was originally published by the Local Public Sector Alliance.

Cities are the engines of economic growth. Yet subnational governments, particularly in lower-income countries, continue to face severe and persistent challenges in service delivery and infrastructure. Strengthening local governments is therefore vital for improving state-building and accountability by bringing development efforts closer to citizens. However, this success fundamentally depends on the capacity of local governments to mobilize their own financial resources.

At present, most local governments remain heavily dependent on central government transfers – often inadequate, unpredictable, and limiting to fiscal autonomy. To foster innovation, build administrative capacity, and unlock access to both private and public financing, there is an urgent need to strengthen local revenue mobilization.

This is where the property tax comes in.

Why Property Tax Matters

Property tax is widely recognized as the most important potential source of subnational revenue globally. It provides stable, significant, and buoyant revenues while promoting greater equity and efficiency compared to other local government revenue instruments. Moreover, it serves as a crucial starting point for strengthening the social contract and building the administrative foundations that cities need to unlock broader financing opportunities.

Despite its enormous potential, property tax remains the most underperforming major tax across nearly all lower-income countries, typically generating less than 0.2% of GDP. The recent Local Government Revenue Initiative (LoGRI) policy brief titled “Property Taxes for Development: Building the Foundation for Accelerated Subnational Development”, examines the causes of this gap and presents a proven, practical blueprint for reform.

The Promise of Property Taxation

Property taxation is more than a revenue-raising tool; it is a multidimensional instrument that can drive long-term development across five critical areas:

1. Revenue Mobilization. In higher-income countries, property taxes often account for 1–2% or more of GDP, forming the backbone of local finance. For subnational governments, property taxes are especially attractive because of:

• Immobility: Properties cannot move across jurisdictions, ensuring a stable tax base.
• Buoyancy: Revenues remain relatively stable through economic cycles, supporting consistent service delivery.
• Unlocking finance: Strong property tax systems demonstrate fiscal commitment and provide the administrative foundations needed to leverage borrowing, public–private partnerships, and user fees for capital projects.
  
  

The current underperformance of property taxes in most low-income countries—often raising less than 0.2% of GDP – represents not only a lost fiscal opportunity but also a missed development opportunity. Well-functioning property tax systems can fund essential infrastructure such as roads, sanitation, waste management, and education, while signaling fiscal credibility that attracts both domestic and international financing.

2. Equity and Progressivity. Property taxes can be relatively progressive: wealthier households with higher-value properties should pay more. Unlike regressive levies such as business license or market fees, a well-designed property tax can promote social fairness. However, in many low-income contexts, weak administration limits this potential. Outdated or inaccurate valuation rolls, regressive property valuation methods, and inconsistent enforcement, mean that elites often avoid taxation, or pay much less than they should. Investing in stronger property tax systems can markedly increase the progressivity of local revenue systems.

3. Economic Efficiency. Economists favour property taxes for their efficiency. Since it is levied on immovable assets, it does not distort work or investment decisions to the same extent as other taxes, like business licenses and market fees, while Property taxes can also encourage more efficient land use and discourage speculation.

4. State-building. Efforts to strengthen property tax administration can act as a catalyst for broader improvements in governance and public administrations. In particular, investments in strengthening property tax administration can contribute to:

• More robust administrative processes: Property tax reform can lead to the implementation of more effective administrative processes – like meritocratic hiring, improved performance management, or digitalization – that can act as a model for other areas of administration.
• Stronger inter-institutional cooperation: Property tax reform can generate incentives to strengthen inter-institutional cooperation and data sharing across government, and encourage parallel improvements in the effectiveness of closely related activities (e.g. strengthening land mapping, payments systems or judicial processes).
• Data generation: Property tax administration produces valuable data that can support other government objectives, including land registration, urban planning, and improved service delivery. For instance, in Kampala, Uganda, a Geographic Information System (GIS) unit initially established for property tax reform was later used to manage flood prevention, pandemic contact tracing, and the monitoring of traffic and crime.

5. Strengthening the Social Contract. Property taxation can also reinforce the social contract between citizens and their governments. Expanding direct, visible taxation can stimulate “tax bargaining, as citizens demand better governance in exchange for paying taxes, while governments face pressure to meet citizen demands in order to encourage tax compliance. Such processes of tax bargaining hold particular potential at the local government level, where both tax payments and service delivery are highly visible. That visibility can lead to strong citizen resistance, but it equally holds the potential for governments to visibly demonstrate accountability in the way that they spend tax revenues and thereby build trust with taxpayers.

Five Key Elements of the New Reform Blueprint

Considering these advantages, property taxes can be a valuable revenue tool for local governments in lower-income countries. However, traditional property tax systems are often overly complex, costly, and poorly suited for low-capacity contexts. They suffer from incomplete registers, outdated valuations, inadequate IT systems, low compliance, and political resistance. The solution lies in fit-for-purpose reform models – simplified, economical approaches that reflect local realities and foster trust.

Rethinking Property Identification: The ‘Property-Tax-First’ Approach

A comprehensive property register is fundamental, yet many low-income countries record less than half of taxable properties. The traditional “cadaster-first” approach – requiring formal titles before taxation – is costly and discourages registration. A modern, pragmatic approach includes:

• GIS tools and satellite/drone imagery: Deploying Geographic Information Systems (GIS) tools to map every built property is technically straightforward and low-cost.

• Relaxing legal requirements: Shifting to a ‘property-tax-first’ approach, in which properties can be registered and taxed even if they are not yet registered in the national cadaster, allows for quick registration and comprehensive taxation even in context where cadasters remain incomplete. The data gathered for tax purposes can then support medium-term titling efforts.
• Empowering local authorities: Allowing local tax authorities more autonomy to map properties and fill data gaps, guided by national standards, accelerates the production of complete registers and improves the updating of records using local knowledge. Ideally, a ‘one map’ approach can be adopted, aligning GIS mapping processes across government so that land administrations, property tax authorities, and other agencies rely on the same base maps.

Smarter Valuation: Simplified Computer Assisted Mass Appraisal (CAMA) Systems

Property valuations are often the most striking weakness of existing property tax systems, as valuation rolls are often incomplete, out-of-date, and regressive. Traditional expert valuation is costly, time-consuming and untransparent, a challenge further compounded by the limited number of trained and certified valuers available in many countries.  recent research and experience has highlighted the potential of simplified Computer Assisted Mass Appraisal (CAMA) systems, often called ‘points-based systems’, to support improved outcomes. These systems are:

• Formula-based and transparent: They use simple, transparent formulas based on readily observable property data (size, location, construction characteristics, access to services) to estimate property values.
• Low cost and highly equitable: They dramatically reduce costs and increase transparency, as data collection is simplified and every property is subject to the same formula. Notably, in Freetown, this approach saw valuations for the most valuable properties increase more than three-fold while remaining flat for average properties, demonstrating a substantial increase in equity to improved administration. Research in Dakar, Senegal, where a similar approach was used, confirmed comparable benefits – lower costs, greater accuracy, and improved progressivity.

Digitalizing for the Future: Fit-for-Purpose IT Systems

Despite significant investments in national tax IT systems, effective digital tools for property tax administration remain rare. Local governments that adopt new systems frequently face problems such as weak functionality, poor technical support, or systems too complex for their capacity.

While digitization remains a challenge, recent years have shown promising results where governments have adopted locally appropriate, fit-for-purpose solutions. Many of these successes share common features: the use of flexible, modular, open-platform systems designed to minimize costs, maximize adaptability, and ensure sustainability. By focusing on core functionality and simple workflows, these systems remain affordable and practical in lower-capacity settings. Their modular design allows easy customization and regular updates, while open-source approaches prevent vendor lock-in. For example, the Moptax system in Freetown, Sierra Leone, was designed to be low-cost, closely aligned with local workflows, and easily configurable – successfully streamlining administration, payments, and data management across the entire property tax cycle.

Navigating the Compliance Challenge: Beyond Voluntary Payment

Compliance with property tax obligations is frequently weak due to limited voluntary compliance and inadequate enforcement. Even in Sierra Leone, widely regarded as a successful reform case, property tax compliance has remained around 20% of taxpayers, generating less than half of total revenue. In Kanifing, The Gambia, residential properties averaged only 31.8% t compliance between 2016 and 2023, while in Liberia over 60% of newly registered properties fail to pay taxes in the year following registration. Research indicates that strengthening voluntary compliance through trust-building and demonstrating public benefits is important, yet often yields modest short-term gains relative to the compliance gap.

Consequently, enforcement remains critical, yet many cities face capacity constraints, political limitations, or resistance from administrators who benefit from informal practices. Recent researching experience points toward the potential of strategies that seek to address capacity, administrative and political constraints together by leveraging technology to track payments, strategically targeting enforcement, and taking measures to build public trust in the integrity enforcement, and the constructive use of revenue.

Building Political Support and Public Trust

Political opposition is often the main barrier to effective property tax reform, particularly from wealthy and politically connected taxpayers. Reform efforts also face resistance from central governments competing with local authorities for revenue, frontline administrators benefiting from informal practices, and inter-institutional rivalries that hinder cooperation. However, recent experiences show that when reforms are perceived as fair and linked to tangible public benefits, they can gain popular support. Initiatives that emphasize transparency in valuation and enforcement, participatory budgeting, and clear communication about how tax revenues are used have helped build trust in cities like Freetown. Strengthening collaboration between central and local governments, and offering incentives to reform-minded administrators, has also proven effective in overcoming institutional resistance. These strategies highlight the importance of aligning technical reforms with political realities to ensure sustainability and public legitimacy.

Conclusion: Building the Fiscal Foundations of Local Development

Property taxation is far more than a fiscal instrument – it is a cornerstone of decentralization, good governance, and inclusive urban growth. By enabling local governments to mobilize their own resources fairly and transparently, it strengthens both financial sustainability and democratic accountability. Strong property taxes provide the foundation for cities to unlock broader subnational financing and development possibilities.

In the coming decade, the challenge for policymakers, donors, and local leaders is clear: move beyond diagnosing the problem and invest in scaling practical, context-sensitive solutions that have already proven effective on the ground. There is growing evidence of the potential of such approaches, including successful reform programs implemented in Sierra Leone and the DRC, and growing numbers of pilot programs and reform initiatives across a much wider range of countries.