2012/2013 Elections-anyone can be president as long as they implement the Land Value taxation.
Land Value Taxation in Kenya.
Land Value Tax is a tax levied annually to owners of land. On the premise that land is God-given and therefore can’t be created by man, taxing it will not punish diligent hardworking Kenyans as opposed to Income Tax and VAT.
Income Tax and VAT is levied on the most diligent hard working Kenyans. The harder they work, the more Income and VAT they pay-hence it seems like some sort of punishment for working hard.
On the contrary, Land Value tax is levied only on Land Owners who collect rent from Kenyans and utilize the land to produce goods for sale.
Land Value Tax is levied on vacant land at the same rate as land which is completely developed to its maximum output. Zones that have more value and attract higher rent will pay higher tax than zones with lower rents.
This encourages owners of vacant land to develop their land so as to obtain profits which they can use to pay off the Land Value tax.
Vacant land owners will also sell off their lands if they do not have the finances to develop, hence giving an opportunity to other people who have the capacity to develop the land.
Half of the arable land nationwide is owned by a mere 20% of the population (Syagga 2006).
Lower Land Prices.
This discourages hoarding and speculating on land . The result is that land will be in plenty of supply hence a reduction of the spiraling cost.
For example, a 1/8th acre plot in Syokimau is now in the range of KES 2m and increasing annually at a rate of 20%, notwithstanding the fact that the area has no sewer and tarmarked roads.
Lower land prices will make it easier for Kenyans who would want to acquire land to live in or produce goods and services. At the moment, goods and services in Kenya are expensive because the cost of land is added to the cost of producing the goods and services, hence higher cost of production.
The recent numerous workers strike can be attributed to this high cost of housing, food and other household goods.
When land owners develop or sell their land to developers, this creates employment in all sectors of the economy.
Ease of Tax collection.
The current method of tax collection, income tax and VAT opens channels whereby people evade payments. With Land Value taxation, it will be impossible to evade tax.
Payment of tax will also encourage citizens to participate in Governance issues.
Improved Food Production.
Land owners holding agricultural land will be forced to employ workers to produce food so as to enable them pay the Land Value tax. This will result in Kenya being a net exporter of food. Also, this will create job opportunities in the agricultural sector.
Land owners without the capital to produce will be forced to sell to Kenyans who will then utilize the land for gainful agricultural production.
Lower infrastructure costs for Government.
Government spending on roads, sewers and electricity infrastructure will reduce since vacant land in areas already served by the infrastructure will be developed. There will be less urban sparawl hence maximum utility of existing infrastructure.
Thika Road example.
The Government has spent over KES 30B to improve Thika road into a super highway. In between Nairobi CBD and Thika town, there are many vacant lands. These lands are not giving Kenyans the opportunity to utilize Thika road effectively. If they are developed into housing for example, Kenyans will enjoy advantages of living next to a superhighway and will be more productive due to ease of transportation
In HongKong, the Government raises 38% of its revenue through Land Value Taxation.
In Taiwan, the Government levies Land Value Tax at 0.2 % for owner-occupied residentials and up to 5.5% on other land usages.
This improved productivity will result into more production of goods and services hence an increase in economic growth.
Also, the KES 30 B investment in the superhighway has resulted in land values along Thika road rising.
5 Years ago, a ¼ acre plot at Kahawa Sukari costed KES 600,000. It now costs KES 5,000,000, representing an 800% increase.
All this profit goes to the land owner.
This profit has been created by the Kenya Government in laying the infrastructure as opposed to the land owner’s sweat.
Its only fair that such profit should be shared by the creators of it i.e. the Government through Thika Superhighway investment.
Through the Land Value taxation, the Government will collect higher Land Value taxes along such a road since the Land Value tax is based on the value of the land. The higher the value of the land, the higher the tax.
Difference between Land Rates and Land Value Tax.
The difference between the current system of Land Rates and the Land Value tax is in that Land rates are not pegged to the maximum potential land rent value. Land Value tax is pegged on the maximum rental income that a land can achieve. The current Land Rates along Thika road are a few thousand shillings per year. With the Land Value system, this amount will be valued as a % of the maximum rental income the land can achieve.
A house in Kahawa Sukari for example attracts a rental income of say kes 20,000 per month =240,000 per year. Assuming a Land Value tax of 10%[In other countries such as Taiwan, Land Value Tax ranges from between 0.2% to 5.5.%.], this works out to KES 24,000 per year. The Landlord will not pay any other tax such as VAT, Income Tax e.t.c which he currently pays at 16% for VAT and between 10% to 30% for Income Tax. The 24,000 a year fee will not be bad considering he will get better roads, security, schools, and hospitals in return.
With such amounts of money, the Government will be very liquid and infrastructure costs will be catered for very easily. There will be money to hire more police, doctors, build roads, schools and other developments without the expensive World bank/IMF loads.
As we move towards the 2012/2013 presidential elections, it’s my wish that any of the candidates considers this method of improving our economy.
The method is so simple that any presidential candidate with the will to help Kenyans will be able to implement this efficiently.
Architect Francis Gichuhi Kamau.