Kigali is a charming city. Skyscrapers are rising by the day and most visitors will be impressed by its cleanliness, order and efficiency.

It is one the fastest growing cities in Africa, with a highly visible residential and commercial real estate boom.

The influx of international agencies and aid workers after the 1994 genocide created soaring demand for rental properties. Until recently, it was common to find a large house in Kigali rented out at $3,000-$4,000 per month.

Being the capital of Rwanda and with a population of almost one million people, one would therefore expect Kigali to raise a lot of revenue from property taxes.

Measly taxes

Kigali is believed to have one the most effective tax systems in the region, but, sadly, property taxes in Rwanda are meagre. Some neighbouring countries collect 30-40 per cent while developed countries collect 80 per cent of their revenues from property tax.

Property tax is believed to be the number one unexploited potential source of public revenue globally, leaving a largely untapped source of funding for regional governments.

The existence of untaxed property developments (often accompanied by untaxed rental incomes), creates strong informal incentives to invest in high-end property.

Many cities across the continent are booming today, with construction driving growth and international investment in property rising. For instance, there is a sense in Rwanda now of a substantial oversupply of luxury residential properties.

But this development is happening in the absence of effective property taxation. This is not only a missed opportunity but has potentially far-reaching development consequences for the continent.

Meanwhile, countries in sub-Saharan Africa face enormous challenges in raising the revenues needed to build schools, hospitals and other institutions that can propel development. There also exist African states that are highly dependent on aid and that urgently need to find new revenue streams.

It is therefore important to explore options to improve domestic resource mobilisation, and apart from VAT and income tax, property taxation seems a viable option that is full of potential.

What are property taxes?

Property tax is a tax on the market value of a privately owned property, including land, cars and business inventory. The tax is calculated on the value of the house or building.

The rate of the tax is usually determined based on the nature of the property, its location and use. For instance, property based in the city centre and used for commercial purposes will attract more tax than property used for residential purposes. This tax in most cases is also usually very low.

Keeping registers updated

Despite its viability, however, the collection of property taxes in many African countries has been hampered by huge technical challenges. In most countries, there barely exist street names and house numbers. This is often compounded by difficulties in keeping property registers updated and a lack of professional property valuers.

The large property owners are usually influential people who, in most cases, have vested interests and the power to lobby to ensure that they do not pay taxes on their property.

Exploring these issues further and thereby highlighting the drawback of not having a decent property tax regime could help to reform tax systems in many African countries to raise the much-needed revenues for public services and development projects.

Zilper Christine Audi is research uptake and communications manager at the International Centre for Tax and Development (ICTD).