How feasible is Green Party’s plan to scrap taxes on land?

Green Party alleges that the current law on land inconveniences citizens and has taken away their right to own land, turning them into renters of the land while the real owner remains the Government.
Green Party candidates during campaign in Kirehe early this week. Jean d’Amour Mbonyinshuti.

The president of the Democratic Green Party of Rwanda, Frank Habineza, has said that his party wants to remove taxes on land once its MPs are elected to the country’s next Lower House.

Launching his party’s campaign on Monday, the parliamentary hopeful said that the Greens, once elected to the House, would make taxes on land history.

“Green Party will push for the abolition of land taxes because it’s not clear why people pay taxes for land that doesn’t generate income,” he said.

“We will enact a law that scraps land tax so that citizens can get back their right to land,” the party’s manifesto reads in part.

The party alleges that the current law on land inconveniences citizens and has taken away their right to own land, turning them into renters of the land while the real owner remains the Government.

But how feasible is Habineza’s idea to scrap taxes on land in a country that remains predominantly agricultural?

The New Times spoke to various experts on Land issues and taxation who cast doubt on the Green Party proposal.

Annie Kairaba, the director of the Rwanda Initiative for Sustainable Development (RISD), a grassroots-based NGO whose work focuses on land issues, said that it is not a plausible idea to scrap taxes on land.

“It’s not feasible, how can the country survive? What alternatives is he suggesting in case he scraps taxes on land?” she wondered, weighing in on Habineza’s idea.

In an interview with The New Times on Tuesday, she emphasised that instead of scrapping taxes on land, the Government should maximise its tax collection efforts at land use by efficiently getting real investors to pay significant taxes.

“The future of the economy of the country is still land based. We actually need to ensure that both local and international investors increase taxes they pay on land that they productively use,” Kairaba said.

She explained that while some people are exonerated from paying taxes on land when they don’t have enough of it or don’t use it optimally, the same should not apply to those who generate wealth from land.

Kairaba indicated that efficient taxation of those who productively use the land can compensate where some people are exonerated from paying the land taxes.

“Real investors should compensate for those who have been exonerated,” she said.

As for Teddy Kaberuka, an Independent economist based in Kigali,  Green Party shouldn’t push for the abolition of land taxes but instead seek adjustments on the tax administration.

“Paying land taxes is not strange because land is an economic asset like houses, tree plantation, etc. for the owner therefore it is understandable to tax it. Nevertheless, considering the situation of Rwanda where the majority of citizens own small plots of land which generate little production for home consumption, a good land tax law should cater for the need of the small landholders and tax those people with big plots for instance, those who have four or more hectares,” he said.

He added that “not only does government need revenues from different sources of taxes, but also a well-thought tax regime stimulates production”.

On the Greens’ plan “to enact a law that scraps land tax so that citizens can get back their right to the land,” Kaberuka said that paying taxes on land does not deprive citizens of the right to their land.

“It rather reinforces their right to the land because you only pay tax foran asset which belongs to you. Of course, the land tax should take into account the economic situation of landowners in Rwanda. Small landholders who practice subsistence farming should be exempted to pay tax because their production is small and generate low income,” he said.

The economist suggested that farmers instead need more government subsidies such as agricultural inputs like fertilisers, technology, seeds, and technicians, in order to boost their production and make them economically capable of paying taxes.

Angello Musinguzi, a Senior Manager for Tax Services at KPMG Rwanda, makes a strong case for land tax.

Musinguzi says that during the fiscal year July 2017 to June 2018, Local Government taxes, including land tax, contributed almost  0.73 per cent of the total Local Government revenue (Budget Framework paper 2017/2020).

“Removing this tax may not be feasible because of its total contribution to the Gross Domestic Product (GDP) ratio. It is a key source of Government revenue,” Musinguzi said.

“However, the rates should not be high in order to avoid noncompliance with the law and to encourage investment,” he added.

A new property tax law passed by Parliament this month, officially known as the law determining the sources of revenue and property of decentralised entities, exempts land used for agricultural and livestock activities which is equal to or less than two hectares from paying taxes. Taxes are paid for agricultural land that is more than two hectares.

Parliamentary elections are slated for September 2-3, 2018, and campaigns, that will run until September 2, officially started on Monday with candidates selling their ideas to voters across the country.

Some 7.1 million Rwandans are expected to elect MPs who will take seats in the Lower House of what will be the country’s fourth democratically elected parliament since the end of the 1994 Genocide against the Tutsi.