Unregistered land poses challenge

In his 2012/13 budget, the Finance minister directed landlords to pay tax on their rental incomes. Some landlords used to do this as part of their “Pay As You Earn” annual returns.

But most didn’t and the country therefore continued to lose substantial revenue. Well implemented, the directive by the minister has the capacity to tremendously improve annual tax.

But there’s fear that landlords, as manufacturers ordinarily do, will pass on the extra tax burden to tenants, further aggravating costs of living. But let me restrict myself to the collection of this tax for this discussion.

About three years back, I and some colleagues undertook a study to explore lost opportunities following the inappropriate application of the Sectional Properties Act 1987. Part of our study found out that the government continued to lose substantial revenue due to its inability to draw revenue from transactions from unregistered land parcels.

In Kenya, people do not pay tax on transactions on unregistered land since such parcels are “invisible” to the tax man. They are not on the national cadastre, the register of ownership of land parcels in Kenya which provides the basis for taxation. Yet, such parcels are numerous. In most developed economies, national cadastres are used as the basis for taxation. Indeed, some countries have gone further to make cadastres the basis for their national census and provision of infrastructure.

They use registration maps to tag each land parcel on the cadastre to its corresponding attributes such as address, ownership, size, value, developments and number of people resident on the registered land parcel among others.

Such a comprehensive cadastre, where complete, becomes a boon to taxation and planning. Minister Njeru Githae’s taxation statement would hence have been quite easy to implement if Kenya’s cadastre was complete. We would have just tabulated each land parcel and the households they carry and indexed them for the necessary taxation.

But why isn’t our cadastre complete? There are many reasons.

First, all “land parcels” derived from unregistered communal land remain “invisible” to the register. And these are many in Kenya. Some of these carry rental units. Other parcels are “invisible” to the register because sale transactions have not been concluded. Yet the owners may have allowed the purchasers to develop.

There are also families that have inherited land from their parents, subdivided it among themselves, but not bothered to seek formal registration. All such parcels remain “invisible”. And in busy property zones such as the peri-urban belts of Nairobi-Kiambu and Nairobi-Kajiado, most such parcels now carry many residential rental units.

Company and co-operative farms that have found it difficult to comply with conditions of approval for their subdivision schemes have also allowed members to take up plots and develop before registration and formal transfers. All such parcels remain outside the national cadastre.

Most have subsequently been developed and some carry multi-storey residential or commercial developments. Then of course all informal developments on local authority or government land are outside the cadastre.

The efficient and long term implementation of the minister’s directive would be best served if resources were availed to update Kenya’s cadastre.

This can be expeditiously done through modern mapping methods. All the unregistered parcels could then be given a special code for the kind of taxation now required.

mwathane@landsca.co.ke