Concept Note: Implementation arrangements for

Property Tax Proclamation

1. Introduction
The Uniting Local Governments in Ethiopia (ULGE) project is implemented by VNG
International and the Ethiopian Cities Association (ECA) with funding from the European Union
and will end on December 10, 2024. The project essentially has two large components, notably,
strengthening the ECA as a membership organization for Ethiopian Cities and piloting Public
Finance Management improvements in selected cities in Ethiopia, and specifically the
implementation of a property taxation pilot in Yirgalem City, Sidama region. The objective of
this pilot was to prove it was possible to implement property tax in a medium sized city in
Ethiopia with limited resources in a relatively short timeframe. This approach was based on the
approach developed in the Tree project in Ghana.

End of 2023 VNG staff met with the Director of Tax policy, Ministry of Finance, Dr. Mulay.
During this meeting the approval process of a new federal proclamation for property tax was
discussed. The focus of the ministry has been on the drafting of the new proclamation, and not
on the implementation of it on regional and municipal level. For Dr. Mulay the lessons learned of
our pilot project of property tax in Yirgalem municipality was a very good example of an
approach to implementation of the new proclamation. VNG International was asked to organize a
conference for staff members of the Ministry of Finance and representatives of the Urban
Development Departments of all the regions. This conference took place on March 13 and 14 in
Addis Ababa, with a participation of the Ministry of Finance, the Ministry of Urban
Development, and Representatives from Regional Authorities and Mayors from 8 cities, during
which the approach and the results of the pilot implementation were presented and were very
well received. Also, Professor Wilson Prichard from the University of Toronto and founder of
the Local Government Revenue Initiative (LoGRI) attended the workshop and contributed by
providing context from experiences in Sub-Sahara Africa and advice.

The conference presented a significant opportunity to discuss substantial improvements in the

effectiveness of property taxation in Ethiopia. That is reflected in the following four issues:
 1) The government is near the adoption of the new federal property tax proclamation that will
provide the legal framework for reform across the country. That proclamation is relatively
broad, but creates a solid enabling environment for broader reform.
2) There is a strong motivation at the level of political leadership and administration to move
from legal reform to practical implementation. This is further motivated by the significant
revenue stress in the country, the desire to harness revenue from rapid increase in property
values, the hope that property tax reform could help to tame property speculation and a
broader desire to strengthen decentralization.
3) The pilot program in Yirgalem offers a compelling illustration of both the potential for
reform to rapidly improve outcomes, and a model for approaches to administration that
could be successful more widely. The design of that reform program is similar to the design
of other successful reform programs across Africa, in that it has stressed, among other
things:
a) a simplified and locally led approach to property registration for tax purposes,
b) a simplified approach to property valuation,
c) a simple IT system that matches local administrative processes,
d) Empowering the local government to lead all aspects of reform, in order to reduce
Fragmentation, and a focus on engagement with taxpayers, and providing evidence that
revenues are translated into services.
4) There is a broad agreement across national, regional and local authorities on the importance
of a simplified and locally appropriate, fit for purpose, approach to administration,
consistent with the new federal proclamation. That alignment in law and implementation
offers the potential for significant and rapid progress.

2. Next Steps – recommendations from March workshop

While key components for successful reform are in place, the reform process is still at the early
stage. The key to reform will be translating the new proclamation and lessons from a successful
pilot, into a successful administrative approach that can be scaled across the country - and
mobilizing the political support necessary to advance reform. Next steps would be:

1) Agreeing Administrative Processes: The federal proclamation provides a framework for

reform, and the pilot program in Yirgalem provides a model for administration. The next key
step is for representatives from the different regions and localities to agree in more detail on
the administrative approach to be adopted more widely. That will form the basis for regional
legislation, and for organizing administration and practice. The workshop has identified some
of the critical questions where Yirgalem offers a model, but more comprehensive decisions
are needed, including:
a) Will there be a commitment to a simplified approach to property registration for tax
purposes, independent of the need for confirming formal land title and ownership, and in
which municipalities can take the lead in mapping and registering properties within their
boundaries?
b) Will there be a commitment to a simplified approach to mass valuation, though while
recognizing that the details of the mass valuation approach and formula may vary across
cities?
c) Which institutions will have responsibility for leading property registration, data
collection and evaluation? What will be the relationship between property registration for
tax purposes and existing processes for registering and valuing land? The key lesson of
international experience is the absolute importance of avoiding administrative
fragmentation - with the simplest solution being to empower local governments to lead a
simplified process, but with support from higher levels of government
d) What tools will be available to governments in enforcing property tax liabilities when
taxpayers do not pay voluntarily?
2) Strategy for Building Capacity: Alongside deciding on administrative processes, in
which institutions will have the mandate to carry out specific activities, there will be a
need to build a strategy to build capacity to deliver reform successfully. The Yirgalem
reform experience, and reform experience elsewhere, highlights the importance of
avoiding administrative fragmentation, and empowering local governments to initiate
processes of property registration and evaluation. But those local governments may lack
skills to implement GIS mapping or building a massive valuation system. There is an
opportunity for central government agencies to play a critical role in providing technical
guidance and support to municipal governments in implementing those activities. That is
cost effective in reducing the need for each municipality to build that capacity
independently, and can ensure consistency of approach across locations, but while still
 allowing initiative to come from local governments seeking to expand revenue collection
and service delivery. I read it very well.
For your information, I understand your concern regarding to capacity but we are
working.
 Our ultimate goal is implementing modernized property taxation system, in order to
achieve this goal; various works are being carried out by the MUI (Urban Revenue
Reform Project Office). Those are
 Policy formulation up to property tax proclamation.
 Possible Social Impact of Property Tax Implementation
 Capacity building is being done widely in different stream. Short term
training for five years in a row.
 In property valuation
 Urban land administration and property registration
 Urban planning
 Cadastral surveying and GIS mapping. We are providing training and
certificated them.
3) Aligning the IT System with Core Processes: The most important risk that governments
face when introducing new IT systems is that IT systems developed by external firms,
and by national governments, do not match the specific needs of front-line administrators
at the local level. Specifically, the risk is that the idealized business processes that are
embedded in the IT software do not match the real-world business processes being
implemented by front-line officials. Where there is a mismatch between IT systems and
local administrative realities reform is likely to fail. It is essential that the government
first confirm the administrative processes that they hope to pursue during reform, and
then ensure that the IT system is aligned with those processes. If the two do not match, it
will be necessary either to make changes to the system being developed at national level,
or consider an alternative system that better matches the administrative needs of
implementation.
When come to IT Solution. Presently, the business processes in cities is typically done
without guidelines, manuals. Government does not want the current business processes in
cities to continue as it is, should be done in accordance with the valuation Directive and
manuals.
4) Maintaining Momentum: Finally, although there are important questions still to be
answered, it is very important that successful reform initiatives continue to move forward rather
than waiting for all of those questions to be resolved. Municipalities can continue to make
important progress in identifying and registering properties developing better valuation
approaches, communicating with taxpayers, and strengthening compliance even before all of the
details of national legislation are finalized, and even before a national IT system is implemented.
The key to that being successful, rather than duplicating effort, is that the data that is being
collected today be compatible with the data that will be needed under the new system. Here the
reform in Yirgalem appears to offer a good model: it ensured that properties were identified by
photos, and GIS coordinates, and that enumerators asked for key identifying information
wherever possible, thus making it relatively easy in the future to migrate data into a new system
if needed, or to make connections with other government databases.

3. Outline of Proposal
Although the approval process for the new proclamation has not been finalized, the detailing of
the proclamation into agreed administrative processes at regional and local level can already
start. The output of this detailing will provide input for capacity building activities and
approaches to supporting IT- tooling. Our proposal would be to develop a strategy and an action
plan for the detailing of the new proclamation into detailed processes, supported by underlying
(by-)laws, regulation and guidelines. The proposal would include alignment with the World
Bank, who is preparing a new Urban Development project focusing on large cities (notably
Addis Ababa, Dire Dawa and the Regional Capitals).

Objective

To develop (by-) laws, regulations, guidelines and tools that support a realistic, not-to-complex,
fit-for- purpose implementation approach for the execution of the new property proclamation by
the Ministry of Finance / Tax Policy Department

Expected outcomes

1. Enhanced consultations between stakeholders at Federal, Regional and Local government

levels on administrative processes and approaches needed for implementation of the federal
 proclamation as well as commitment by these stakeholders for (simple) approaches on
property registration, mass valuation, billing, collection and enforcement.
2. Increased awareness and buy-in amongst stakeholders at Federal, Regional and Local
government levels on the implementation of the proclamation.
3. Models for by-laws, regulations and guidelines for the implementation of the new
proclamation on property tax as well as tools and best practices are available and shared
amongst stakeholders.

Approach

MoF / Tax Policy Department is in charge of policy development pertaining to property taxation.
It is their mandate to coordinate with key ministries of Urban Development and Revenue as well
as the regional departments of these ministries. As the new proclamation is the starting point for
this important reform process with significant changes, the implementation of this process with
its changes needs to be carefully accompanied and guided. VNG International has lived an
important experience in Sidama Region where it has piloted the implementation of property
taxation. Through this experience we bring a good understanding on what are key success factors
for implementation at local level, of which the “keep it simple” approach is most important. As a
result of the March 2024 workshop with MoF and all relevant stakeholders, MoF has requested
VNG International for additional support.

Our approach is to support MoF/ Tax Policy Department to further develop the implementation
of what now is a framework law. To back this development, we will set-up a one-year support
facility within the department that will assist in reaching the expected outcomes, by supporting
the preparation and organization of workshops with key-stakeholders, conduct studies and
provide technical advice. The support facility will also aim to inspire processes by lessons
learned across the African continent. The support facility will report to the Head of the Tax
Policy Department and we propose a steering committee with important stakeholders. In view of
the legal nature of the change process we have solicited the involvement of the Erasmus
University center for Tax and Development, as well as Prof. Wilson Prichard of the University of
Toronto.
Activities

Inception (mid – July / mid- August)

1. Develop work plan with MoF (22 -26 July visit VNG International team)
2. Liaise with Rajul Awasthi World Bank (rawasthi@[Link]) and align approaches,
determine scope of intervention
3. Set-up steering committee (SC) MoF, MUDI, WB, EC, Regions, cities, ECA
4. Recruit Ethiopian key consultant team Sr expert on law and tax (Key Expert KE)
 Financial manager (part-time)
 Logistics (part-time)
 Short-term expert pool

Implementation (month 2-14)

1. Inception workshop with focal points from Ministries, Regions and representatives from
local government and ECA (tentatively Sep 2024).
2. Carry out study (20 days) on current administration pertaining to land and property-based
taxes and mapping of proposed consequences of the proclamation. The study will include
formal mandates, actual practice, tooling, quality (KE + consultant – Sep 2024)
3. Carry out study (20 dagen) on relationship with land administration (KE + consultant, will be
checked availability of Kadaster International – Sep / Oct 2024)
4. Meetings Steering committes (every 3 months).
5. Organise a study-tour to visit best practices elsewhere in Sub Sahara Africa; Sierra Leone /
Ghana (with MAPLE consult) or Malawi. (tentatively Nov 2024)
6. Workshops to develop and validate models for:
i. property registration & property valuation
ii. billing and payment & accountability, transparency and citizen participation
iii. enforcement and disputes, appeals and waivers
7) Draft model by-laws, regulations and guidelines (Dec 2024 – March 2025)
8) Mid-term workshop with key stakeholders on draft outline of defined essential roles,
responsibilities and accountability mechanisms in the property taxation process (in SC
meeting)
9) Present models for IT support that matches the requirements of users at local level (April –
June 2025)
10) Mapping of available IT support in country (April 2025)
11) Study visit to the Netherlands (May 2025)
12) Develop strategy for implementation time-line (roll out) in sync with newly developed WB
programs (May – July 2025) Closing phase (month12)
13) End workshop (Aug 2025)
14) Close out of support facility (Sept 2025)

Time-line

July 2024-September 2025 (15 months

Budget

 Permanent consultant for one year in Addis Ababa

 Support staff finance, admin and logistics (part-time)
 International (190 days) and national (180 days) ST experts
 Studies, Workshops, Consultancy services, Study visits
 Translation and communication/printing costs
 In country travel (car hire etc..)
 International travel (Flights, DSA)
 Office costs

Annex 1፡ Notes on the Draft Real Property Tax Proclamation

 The old system of land rent will be phased out. The current system of urban house tax and
land rent is no longer capable of addressing urban service delivery challenges.
 Property tax consists of two taxes, one on land (use right on land, named: urban land use tax)
and one on buildings (landed property, named: building tax). These must be assessed and tax
rates determined separately, but charged jointly. (NB There is a third tax on land
improvements where land is used for something different than buildings (e.g. streets,
railways, stalls etc)
 There is inconsistency in the definition of local government that shall assess the property
tax.
 The proclamation could be appropriate but complex. Consideration could be given to less
complex, simplified options (e.g. local governments could opt to start with buildings only
and use simple, cost- effective computer assisted mass appraisal).
 Property tax rating prepared by the local government shall be made public; prototype
legislation should be developed.
 Valuation – urban land, in categories, shall be graded and enacted by regional government.
 Valuation – buildings on market value, but simpler ways to assess buildings is allowed.
 Review and appeal –
 Tax rate design – will be set locally – must consider expenditure demand divided by total
assessed value of land lease and buildings.
 Exemptions – pro-poor, possible to be determined by directive of MoF.
 Two public registers must be kept at local level: 1) valuation roll – to be updated every 5 yrs
and 2) list of exemptions – to be updated every year.
 Tax administration: bill shall be served to each liable taxpayer, tax shall be paid annually (or
installments), strong need for simple IT systems.
 It is critical to determine which role player has which power and what function.

Role players:

 Council of Ministers – determines min and max tax rates (technical advice from MoF);
normally you would expect that to be done by local councils.
 MoF – policy development, studies, prototype legislation.
 MUD& amp; I – develops model formats for contents and procedures for the two public
registers (see above), oversee regional governments.
 MoR – Ministry of Revenue – various functions.
 Regional governments -
 Urban governments – maintain the registers, billing and collecting, accounting.

Annex 2 – Notes on the draft Valuation Proclamation

 The proclamation remains vague about property tax valuation.

 The document is very much written from the perspective of the valuer. It is relevant to their
work and that of the Ministry of Urban development. It deals with a broad range of topics but
lacks details in most of them.
 The number of certified valuer’s in Ethiopia is very low. Valuers at regional level could help
municipalities in setting M2 prices for the different categories in the different kebeles. That
already would be an huge task for the coming years. Municipalities should be able to do data
collection (for mass valuation) without having any valuation knowledge. On the long run
regional Valuers could do some QA work on municipal data collection and the correct usage
of (CAMA).
Regarding to valuer’s your concern is right but we are working (we are certifying them) and
huge task for the coming years. Property Marketing and Valuation Bureau has been
established by the Ministry of Urban and Infrastructure. These Bureau responsibilities to
establish Bureau in regions and cities.
 It is quite explicit that all valuations need to be undertaken by a professional and certified
valuer and makes no reference to the potential for using mass valuation approaches.
 There in reality check on what is implementable short and midterm. Mass valuation and data
collection by non-valuer’s are critical in achieving results in the area of property tax. That
this is not addressed in the proclamation is a risk in future discussions on the actual
implementation of the proclamation.
 The decree does say explicitly that the ministry will issue a regulation related to
implementation of this decree. That regulation could, of course, and then make clear space
for the use of mass valuation approaches.
 In the current form, this legislation could make it impossible to carry out effective valuation
across the country.
I accept it.