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Law Thesis and Dissertations

2018-09-25

Analysis of the Ethiopian Real Property

Tax Laws and the Reforming Process

Tilahun, Dires

http://hdl.handle.net/123456789/8971
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ANALYSIS OF THE ETHIOPIAN REAL PROPERTY
TAX LAWS AND THE REFORMING PROCESS

TILAHUN DIRES AZMERAW

Institute of Land Administration,

Bahir Dar University

June, 2018
ANALYSIS OF THE ETHIOPIAN REAL PROPERTY TAX
LAWS AND THE REFORMING PROCESS
Thesis

Submitted in Partial Fulfilment of the Requirements for Master of

Science (Msc.) Degree in Land Administration and Management
(Specialization Real Property Law) to Institute of Land
Administration, Bahir Dar University.

By

Tilahun Dires Azmeraw

Advisor

Melkamu Belachew Moges(PhD)

Institute of Land Administration,

Bahir Dar University

June, 2018

i
 Thesis approval page

The thesis titled “Analysis of the Ethiopian Real Property Tax Laws and the Reforming
process” by Mr. Tilahun Dires Azmeraw is approved for the degree of Master of
Science(Msc.) in Land Administration and Management (Specialization Real Property Law).

Board of Examiners

Name Signature

Advisor ----------------------------------------- --------------------------

Internal Examiner ----------------------------------------- --------------------------

External Examiner ----------------------------------------- ---------------------------

Date: -------------------------

ii
 Declaration

This thesis is my original work and has not been presented for a Degree in any other
University. I have duly recognized and referenced all materials used in this work. I knew that
non-adherence to the principles of academic honesty and integrity, misrepresentation of any
source will constitute sufficient ground for disciplinary action by the University and can also
evoke criminal sanction from the State and civil action from the sources which have not been
properly cited or acknowledged.

Name: Tilahun Dires Azmeraw

University ID.: BDU0903135PR
Signature………………………………. Date…………………………..

iii
 Acknowledgments

Foremost, my deepest gratitude goes to Almighty God, for giving me the strength and
endurance to accomplish this Thesis work.

Secondly, I would like to thank my advisor Melkamu Belachew Moges(PhD), who devoted
his time in formulating the title and giving constructive advices, valuable comments, and
suggestions throughout the journey of my work.

Thirdly, I owe special thank for my lovely former Lecturer Misganaw Gashaw Beza (Ass.
Professor of Laws) for his special and approachable support he has been providing not only
for the Thesis work but for the whole journey that I went in my academic life. Indeed, he is
my special one!

Fourth, it is very unreasonable if I left the Addis Ababa University School of Law Library
staffs without acknowledgment. They indebted me because they were very kind and
supportive during my stay there to study the ‘Historical Background of Real Property Tax
Law in Ethiopia’ part of my Thesis. Thus, I would like to thank them all.

Finally, my Family and my friends, whom I cannot list your Names here, your love, and
courage can never be measured. Just CONGRATULATIONS!

iv
 Abbreviations and Acronyms
E.C Ethiopian Calendar

ERCA: Ethiopian Revenue and Customs Authority

ETB: Ethiopian Birr

FDRE: Federal Democratic Republic of Ethiopia

ff.: and the following

GDP: Gross Domestic Product

GIZ: Gesellschaft für Internationale Zusammenarbeit

GTP: Growth and Transformation Plan

i.e.: that is
Art.: Article
MOFEC: Ethiopian Ministry of Finance and Economic Cooperation

MoUDH: Ethiopian Ministry of Urban Development and Housing

MoUDHC: Ethiopian Ministry of Urban Development, Housing and Construction

No.: Number
P.: Page
Pp. Pages
Sq.: square
TOT: Turnover Tax
TVT: Technic and Vocational Training

VAT: Value Added Tax

Vol. Volume

v
 Table of Contents

Contents Pages
Declaration ............................................................................................................................... iii
Acknowledgments..................................................................................................................... iv
Abbreviations and Acronyms .................................................................................................... v
Table of Contents ..................................................................................................................... vi
Abstract ..................................................................................................................................... ix
CHAPTER ONE: INTRODUCTION ........................................................................................ 1
1.1. Background ................................................................................................................. 1

1.2. Statement of the problem ............................................................................................ 4

1.3. Objectives of the study ................................................................................................ 5

1.3.1. General objectives ................................................................................................ 5

1.3.2. Specific Objectives .............................................................................................. 5

1.4. Research Questions ..................................................................................................... 6

1.4.1. Main Research Question ...................................................................................... 6

1.4.2. Specific Research Questions ................................................................................ 6

1.5. Significance of the Study ............................................................................................ 6

1.6. The Scope of the Study ............................................................................................... 6

1.7. Limitations of the Study .............................................................................................. 7

1.8. Organization of the Study ........................................................................................... 7

1.9. Research Methodology................................................................................................ 8

1.9.1. Legal Research Methods ...................................................................................... 8

1.9.2. Data Sources and Collection Instruments ............................................................ 8

1.9.3. Data Analysis and Interpretation Techniques .................................................... 10

CHAPTER TWO: REVIEW LITERATURE .......................................................................... 12

2.1. Introduction ............................................................................................................... 12

2.2. Theories on Real Property Tax.................................................................................. 12

2.2.1. The Benefit View Theory .................................................................................. 12

vi
 2.2.2. The New View Theory....................................................................................... 14

2.3. General Overview of Real Property Tax ................................................................... 14

2.3.1. What Real Property Tax Constitute? ................................................................. 14

2.3.2. Tax Base, Tax Rate and Exemption of Real Property Taxation ........................ 16

2.3.2.1. Tax Bases .................................................................................................... 16

2.3.2.2. Real property Tax Assessment ................................................................... 19
2.3.2.3. Real Property Tax Rate............................................................................... 20
2.3.2.4. Exemption................................................................................................... 21
2.3.3. Unique Characteristics of Real Property Tax .................................................... 23

2.3.4. Principle of Real Property Tax .......................................................................... 25

2.3.5. Purposes of Real Property Tax .......................................................................... 26

2.3.5.1. It Finances Local Government ................................................................... 26

2.3.5.2. It Defines the Public Claim on Property Value .......................................... 27
2.3.5.3. It Uses as a Tool for Land Management..................................................... 28
2.4. Summery ................................................................................................................... 31

CHAPTER THREE: REAL PROPERTY TAXATION IN ETHIOPIA ................................. 33

3.1. Introduction ............................................................................................................... 33

3.2. Legislative History of Real Property Tax in Ethiopia ............................................... 33

3.2.1. Real Property Tax Laws during the Imperial Era .............................................. 34

3.2.1.1. Real Property Tax Laws Applicable in the Country in General ................. 34
3.2.1.2. Real property Tax Laws of Addis Ababa ................................................... 39
3.2.2. Real Property Tax Laws during the Dergue Era ................................................ 44

3.2.2.1. Real Property Tax Laws Applicable in the Country in General ................. 44
3.2.2.2. The 1976 Addis Ababa Land Rent and Houses Tax Regulation ................ 48
3.3. Real Property Tax in Contemporary Ethiopia ........................................................... 49

3.3.1. The Ethiopian Federal Structure and Taxation Power in General ..................... 49

3.3.2. Real Property Tax under the FDRE Constitution .............................................. 51

3.3.3. Real Property Tax under Other Legislations ..................................................... 55

3.4. Summery ................................................................................................................... 61

vii
CHAPTER FOUR: THE ON-GOING REAL PROPERTY TAX REFORM IN ETHIOPIA 63
4.1. Introduction ............................................................................................................... 63

4.2. Why Real Property Tax Reform is Needed in Ethiopia? .......................................... 63

4.2.1. To Capture Real Property Increments and Generate Revenue: ......................... 64

4.2.2. To Use as a Tool for Real Property Management: ............................................ 66

4.3. The Endeavors to Reform Real Property Tax ........................................................... 67

4.3.1. Preconditions for Real Property Tax Reform .................................................... 68

4.3.2. Which Government Organ Should Draft Real Property Tax Laws? ................. 69

4.3.3. The powers of the Federal, Regional and Urban (Local) Governments ............ 73

4.3.3.1. Powers and Responsibilities of the Federal Government ........................... 73

4.3.3.2. Powers and Responsibilities of the Regional Governments in General ..... 75
4.3.3.3. Powers and Responsibilities of the Urban Government in General ........... 75
4.3.4. The proposed Tax Bases, Rates and Exemption of Real Property Tax ............. 78

4.3.4.1. Tax Bases .................................................................................................... 78

4.3.4.2. Tax Rates .................................................................................................... 80
4.3.4.3. Tax Exemptions .......................................................................................... 81
4.3.5. Institutional Framework for Real Property Tax Administration........................ 82

4.3.5.1. Urban Real Property Registration Institution ............................................. 83

4.3.5.2. Real Property Valuation for Taxation ........................................................ 88
4.3.5.3. Other Institutions for Real Property Taxation ............................................ 90
4.4. Challenges to Finalize the Reforming Process .......................................................... 92

4.5. Summery ................................................................................................................... 93

CHAPTER FIVE: CONCLUSION AND RECOMMENDATIONS ...................................... 94

5.1. Conclusion................................................................................................................. 94

5.2. Recommendations ..................................................................................................... 95

5.3. Further Investigations ................................................................................................ 97

Bibliography ............................................................................................................................ 98
Appendix ................................................................................................................................ 108

viii
 Abstract

The purpose of this Thesis was to analysis the Ethiopian real property tax laws and the reforming
process. In doing so the researcher explored and analyzed both the historical and contemporary real
property tax laws and the inquiry for real property tax reform from both primary and secondary
sources and analysis through qualitative data analysis techniques such as legal reasoning and content
analysis. Real property tax development was very promising in the Imperial Era, but, due to the shift
of land tenure system from privately owned to government ownership, the real property tax
development was wrapped out. In the contemporary Ethiopia, it is hardly possible to say annual real
property tax has a room in the country. The FDRE constitution has no clear provision about the real
property tax. However, there are laws, which contain some provisions, and can be classified as roof
tax and urban land rent, real property transfer tax and rental income tax. The first one is very
outdated and an unfit to the current situation and the second and three taxes are “incidental property
tax” i.e. these are not pure real property tax rather real property related tax and fees collected
incidentally not annually planed by the local government. The Ethiopian Government has been
reforming real property tax for the last eight years, but very dilatory. The justifications for the reform
are because of the out-dated nature of the existing real property laws and the insignificant
contribution of real property tax to the national GDP and to generate revenue for Urban Local
Governments. It is proposed without having expressed objective for real property management,
indeed it is very importance to include as one objective. The intended reform has been considering the
federal structure however, Urban Local Governments must be the main actor of the real property tax,
save the frameworks. The proposed real property tax is two in-kind: Land Use Tax and Building Tax.
The challenges like lack of valuation, cadastre and urban real property registration systems, lack of
finance, lack of experts in the field and the land tenure systems are hindering the reforming process.
Modernizing the land administration system, clear identification and classification of real properties,
plan where, when and how real property tax could be implemented, enact real property law with
comprehensive purposes, and revising the leasehold proclamation can be taken as road map for the
unfinished real property tax reform.

Key Words: Real Property, Real Property Tax, and Reform Process

ix
 CHAPTER ONE: INTRODUCTION

1.1. Background
All the ancient and present governments in the world cannot discharge their responsibilities
and exercise their powers without raising public revenues.1 Public revenues are generally
divided into tax revenues and non-tax revenues.2 Taxation is the earliest and most prevalent
means of government interference with the economic life of an individual and enterprises.
The author called Hugo Dalton, an economist defined tax as, “a compulsory contribution
imposed by a public authority, irrespective of the exact amount of service rendered to the tax
payer in return, and not imposed as a penalty for any legal offence.” He also emphasizes the
compulsory element in tax, when he stated, “a tax, by definition, is a payment, in return for
which no direct and specific quid pro quo (give and take) is rendered to the payer.”3 Other
authors Piracha & Moore stated that “taxation is the process of extracting money from people
and organizations with no promise of any specific reciprocity.”

Taxation has existed in various forms since the earliest civilization began. In the ancient time,
the source of wealth was land and its proceeds. Before the existence of a monetary system,
taxes were paid by a percentage of crops raised.4 Generally, tax constitutes a significant part
of public revenue in modern public finance system. Taxation has macro-economic effects. It
can affect the size and mode of consumption, pattern of production and distribution of

1
The income of the government through all sources is called public income or public revenue.
According to Dalton, however, the term “Public Income” has two senses — wide and narrow. In its
wider sense it includes all the incomes or receipts which a public authority may secure during any
period. In its narrow sense, however, it includes only those sources of income of the public authority
which are ordinarily known as “revenue resources.” To avoid ambiguity, thus, the former is termed
“public receipts” and the latter “public revenue.” See, Hugh Dalton, Principles of public finance,
Routledge Library Edition, London, 2009, [Here in after Hugh Dalton, Principle of Public Finance]
available at http://www.yourarticlelibrary.com/finance/public-revenue-meaning-tax-revenue-non-tax-
revenue-with-classification-of-public-revenue/26277 ( last Visited on December 2, 2017).
2
Non-tax revenues are prices, fees, fines borrowing, special assessment or public income received
through the administration, commercial enterprises, gifts, and grants are the source of non-tax revenues
of the government others forms of funds.
3
Hugh Dalton, Principles of public finance, P.54.
4
Richard, Henry Carlson, a Brief History of Property Tax, IAAO Conference on Assessment
Administration in Boston, Massachusetts, 2004, p.36. [here in after Richard Henry Carlson, a Brief
History of Property Tax].
1
income and wealth.5 From this general overview of taxation, we can say that income,
consumption and property are the base to levy tax.

Urbanization is widely accepted an inevitable phenomenon.6 In the developed countries,

urbanization has been a consequence of industrialization and has been associated with
economic development. In the contrary, in developing countries including Ethiopia,
urbanization has occurred because of high natural urban population increase and massive
rural-to-urban migration.7 Whatever, the means of urbanization is, peoples all over the world
accumulate their wealth in the form of real property. The accumulation of wealth in the form
of land and buildings is clearly correlated with economic growth. The governments of the
nations have installed different social services and infrastructures following the ‘horizontal’8
expansion of urbanization, which in return increased the value of the real property.
Subsequently, urban local governments use (real property tax)9 to capture the value

5
Smriti Chand, Public Revenue: Meaning, Tax Revenue, Non-Tax Revenue with Classification of
Public Revenue, the Next Generation Library, available
http://www.yourarticlelibrary.com/finance/public-revenue-meaning-tax-revenue-non-tax-revenue-with-
classification-of-public-revenue/2627 ( last Visited on December 2, 2017).
6
William G., Rhoads and Richard M., Bird, ‘Financing Urbanization in Developing Countries by
Benefit Taxation: Case Study of Colombia’, 1967, Land Economics, Vol. 43, No. 4.
7
Dejene Nigusie, Rapid Urban Expansion and Its Implication on Livelihood of Farming Communities
on Peri-Urban Area: The Case of Sebeta Twon, Addis Ababa University MA Thesis, 2011, Pp.23-
26., see also, Alaci, D. S. A., Regulating Urbanization in Sub-Saharan Africa Through Cluster
Settlements: Lessons for Urban Mangers in Ethiopia, Department of Urban and Regional Planning,
Federal Polytechnic Idah, Idah, Kogi State, Nigeria,2010, P. 27.
8
In developing countries Urban growth is horizontal, unlike the developed countries which is
Vertical.
9
The English jurist Sir William Blackstone defined property under the Common Law, as “the free
use, enjoyment, and disposal of all his acquisition, without any control or diminution, save only by the
laws of the land.” Available at https://legal-
dictionary.thefreedictionary.com/Sir+William+Blackstone ( last Visited on December 2, 2017).
Property divided in to personal and real property. Real property concerns itself with rights in rem or
relating to land. Private property concerns itself with rights in persona or relating to chattels. In the
civil law system, there is a division between movable and immovable property. Movable property
roughly corresponds to private property, while immovable property corresponds to real estate or real
property, and the associated rights and obligations thereon. The Ethiopian case, as per article 1126 of
the 1960 civil code of the Empire, ‘all the goods are moveable or immovable. Article 1130 of the
same code stipulated that immovable properties are land and buildings. See also, Arts.1126 & 1130 of
the Civil Code of the Empire of Ethiopia Proclamation No. 165, Negarit Gazeta, Extraordinary Issue,
No.2, 1960, (hereinafter 'CC'), Available on
http://www.wipo.int/edocs/lexdocs/laws/en/et/et020en.pdf ( last Visited on December 2, 2017).

2
increment. Real property tax is an important source of revenue for local budgets. For
countries with developing economies, it is important to establish an effective system of real
property taxation to create a basis for decentralization of public governance.10 Real property
tax is one means11 to captures property value for local governments, some of the increases in
property values that are partially created by public expenditures or even by private
investors.12 It is especially when compared with other potential sources of local tax revenue.
The reasons are that real property tax is visible and a clear indicator of one form of wealth.13
Studies conducted on these types of tax over developing countries by prominent economist
and others pointed the reality that it is a potentially attractive means of financing municipal
government in developing countries.14 In some developed countries, property tax revenue
covers up to 80% of the municipality expenditures and in developing countries up to 56%.15
Since the main objectives of real property taxation are alleviating poverty and sharing,
societal benefits with low-income and disadvantaged groups, it got global attention, i.e. the
developed and developing countries have been reforming and modernizing.16 In Ethiopia,
urban property tax was introduced on urban real property before 70 years. 17 There were laws,

10
Olga, Buzu, ‘Development of Ad Valorem Real Property Taxation System in Moldova’, Eurasian
Journal of Economics and Finance, 2014, Vol. 2 N. 3, Pp.79-88, P. 79, [here in after Olga Buzu,
Development of Ad Valorem Real Property Taxation System in Moldova].
11
The mechanisms of land value capturing are two in kind. The first is development based and the
second is taxation-based mechanism. See also, Julian Ware, Land Value Capture, final Report, 2017,
availableat
https://www.london.gov.uk/sites/default/files/land_value_capture_report_transport_for_london.p
df ( last Visited on December 2, 2017) , See also, ......, Value capturing and Property Taxation.
12
Ibid.
13
Olga Buzu, Development of Ad Valorem Real Property Taxation System in Moldova, P. 80
14
Muna Negash Adem and Osei, Amanfo Kwateng, Review of Real Property Tax Administration in
Ghana, Msc. Thesis, Building and Real Estate Economics, Royal Institute of Technology, Stockholm,
Sweden, 2007. See also, Sietchiping, Innovative Land and Property Taxation, United Nations Human
Settlements Programme (UN-HABITA).
15
MoUDH, Final Report on the Study and Identification of Property Valuation in Bahir Dar City,
2015.
16
Tom, Goodfellow, Property Taxation and Economic Development: Lessons from Rwanda and
Ethiopia, SPERI Global Political Economy Brief, No. 4, 2016, P. 24.
17
Tadesse Lencho, ‘Towards Legislative History of Modern Taxes in Ethiopia (1941 -2008), 2012,
Journal of Ethiopian Law, Vol. 25, No. 2, Pp.104-158.
3
which have been enacted for property taxation in both the Imperial and Dergue regime.18
Some laws are even have been applicable still to today.19

1.2. Statement of the problem

Urbanization is increasing with the high rate in Ethiopia.20 Following the urbanization
process the construction industry has been alarmingly expanding,21 provided that the urban
dwellers accumulate their wealth in the form of real property. These phenomena in return
pave for the high demand of urban lands and infrastructures. Once again, the high demand of
urban lands and infrastructures require sustainable source of revenue and tools for urban real
property management. For these problems real property tax is one of the best mechanisms
that many countries in the word have been using.22 However, even though, it is agreed that
real property tax is the best mechanism to generate finance and to have effective real property
management, it is outdated and unstructured under the Ethiopian tax policy.23 And even, the
unstructured nature of the real property tax paves for the unpopularity and sometimes the
existence of it is debatable. On the other end, in the current tax system of almost all nations of
the world24, ‘principle of legality’25 is needed, i.e. ‘no law, no tax’ principle. Real property
tax reform has been and is still being undertaken in different developing countries, which

18
See for Example, Health Tax Administration, Order No. 22, Negarit Gazeta, 19the Year, No.
1947.
19
See for example, Urban lands Rent and urban houses taxes proclamation No. 80, 1976.
20
Dejene Nigusie, Rapid Urban Expansion and Its Implication on Livelihood of Farming
Communities on Peri-Urban Area: The Case of Sebeta Twon, Addis Ababa University MA Thesis,
2011, P. 14.
21
Wagaye Tefera, Building Construction Productivity of Labour Improvement Model Designing for
Defense Construction Enterprise, Msc. Thesis, Addis Ababa University, 2014, P. 32.
22
Olga Buzu, Development of Ad Valorem Real Property Taxation System in Moldova, P. 79.
23
Interview with Ato Abebe Zeluel, General Manager, Real property tax reform office, MoUDH, on
the issue, what are the justification for real property tax modernization, 28 March 2018[Here in after,
Ato Abebe Zeluel].
24
Alekaw Dargie, Legality Principle of Taxation in Ethiopia: At the State of Porosity or Its Non-
existent from Inception?, 2016, available at
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2733017 ( last Visited on December 3, 2017) .
25
Legality principle of taxation at its minimum protection is attached to the slogan “no taxation without
legislation” and at its maximum or extreme linked to “no delegation of taxation powers whatsoever”.
Therefore, the legality principle of taxation is not only confined to the maxim no taxation without
legislation but also about delegation of power of tax law making. The FDRE constitution contains no
legal provision, which deals about legality principle of tax. Even though legality principle of taxation is
denied constitutional status by the constitution, the financial administration Proclamation of the country
stipulated, “no public money shall be collected except when authorized by law”.
4
have similar level of economic and social development with Ethiopia.26 However, the current
Ethiopian government failed to finalize the real property tax reform, which started in 2012.
Due to this fact, there is no modern real property tax system in the country and the
government is unable to use real property tax to capture the value increment of the real
property by the social services and infrastructure. That means, it faced difficulty to reap the
benefits of real property tax in urban centers of Ethiopia. The urban centers prefer to use the
lease system to generate revenue than real property tax.27 Most cities in the country depend
on aids from the international funding organizations and the central governments i.e. Federal
and Regional Governments.28 Moreover, the country in general and the urban centers, fail to
use real property tax for good real property management. That is why, urban land
speculation, urban densities, mixing of land uses and the likes are the problems anyone can
observe in all Ethiopia city centers. Therefore, this study had evaluated the historical and
contemporary legal frameworks of Ethiopian real property tax laws. After acquiring
knowledge about the real property tax laws in Ethiopia, the researcher critically analyzed the
dilatory endeavors of real property tax reforming process to identify the challenges and to
show road map for the reform.

1.3. Objectives of the study

1.3.1. General objectives

The main objective of this study was to analyse Ethiopian real property tax laws and the
reforming process.

1.3.2. Specific Objectives

More specifically, the research had the following objectives:

➢ To explore legislation history of real property taxation in Ethiopia

➢ To analyse the existing real property tax laws
➢ To critically analyse the ongoing real property tax reforming process

26
Richard M. Bird and Enid Slack, International Handbook of Land and Property Taxation,
Edward Elgar Publishing Limited, Northampton, Massachusetts, USA, 2003. p.57.
27
የከተማ ልማትና ኮንስትራክሽን ሚኒስቴር, በኢትዮጵያ ከተሞች ዘመናዊ የንብረት ግብር ስርዓት
ትግበራ ፕሮጀከት መነሻ የፖሊሲ ማዕቀፍ, አዲስ አበባ, 2005 ዓ.ም.
28
ንጋት፣ በአማራ ክልል ነጋዴ ሴቶች ማህበር (አክነሴማ) እየተዘጋጀ በየወሩ በነፃ የሚሰራጭ የማህበሩ ልሳን
እትም፣ አንደኛ ዓመት ቁጥር.2፣ መጋቢት 2008 ዓ.ም.
5
 ➢ To identify the main challenges that the reforming process has been facing

1.4. Research Questions

1.4.1. Main Research Question

What is the status of real property tax law in Ethiopia and how reforming process of it is
going?

1.4.2. Specific Research Questions

➢ What were the laws, which governed real property tax in the past?

➢ What are laws, which have been governing real property tax in contemporary
Ethiopia?

➢ How the activities of the real property tax reforming process are going on?

➢ What are the challenges, which hindered the real property tax reform process?

1.5. Significance of the Study

There is no enough study on real property tax in Ethiopia focusing on the legal aspects.29 The
study will have many contributions in enhancing scientific and comprehensive knowledge on
the area of urban real property tax in Ethiopia and can be used as an academic material for the
institutions, training students in land administration and taxation in general. More than this,
the research can be used by the MoFEC and MoUDH to know the road map of real property
tax reform and to finalized the dilatory reforming process in simple, feasible, and affordable
way, and to expect what will be the challenges in the future. Furthermore, it will be a good
benchmark for future-researchers and academicians to study the area more.

1.6. The Scope of the Study

The scope of this study was limited only on the legal aspects of urban real property tax in the
Ethiopian tax system (Federal level). Rural real properties are not subject of this research
because, for one thing in the current Ethiopia context most people accumulated their wealth
in the form of real property in urban area than the rural one. The other reason is that Ethiopia
has separate urban and rural land policies, and the researcher went to focus on how real

29
Even though there is one brief by Sheffield Political Economy Research Institution, see, Tom
Goodfellow, Property Taxation and Economic Development: Lessons from Rwanda and Ethiopia,
SPERI Global Political Economy Brief, No. 4, 2016, P. 43.
6
property tax is important as source of revenue and tool for urban lands management.
Moreover, the time and finance considerations limited the researcher to undertake the
research on both urban and rural real properties. In addition, the perception of the taxpayers
towards real property tax is not the subject of this research even though it has considerable
effect on real property taxation.

1.7. Limitations of the Study

This research faced limitations, in the absence of which the research would have been much
happier. Absence of previous domestic works on the real property tax, as well as lack of
awareness on the subject matter even among major stakeholders including the government
officials, during literature writing, interviews or discussions were challenges for the
researcher. The other limitation that the researcher faced was the shortage of time to
undertake this research. Three months was not enough to complete a thesis; especially, this
area needs more time to understand the overall theoretical and conceptual framework of the
area, let alone gathering sources. If these limitations were not, the researcher would explore
‘all’ the aspects of real property tax laws in the country and the scope of the study would also
include the rural real property tax. However, the researcher tried to minimize the impact of
constraints especially by updating himself about the issues after reading literatures and
practices abroad.

1.8. Organization of the Study

This study, which attempted to investigate the legislative framework of real property tax and
the reforming process through the global-wide experience for lessons to Ethiopia, was
divided into five chapters. As an introduction, Chapter One is on the background, problem
statement, objectives, research questions, scope, methodology, significance and limitations of
the study. Relevant literatures on the theoretical and conceptual account of real property
taxation were addressed in the second chapter. Under Chapter Three, an assessment of
taxation made on the legal framework of real property tax in both historical and current
account of Ethiopia. Chapter Four brought the critical analysis of real property tax reforming
process considering international experiences. Finally, Chapter Five of the thesis presented
the conclusion and recommendation.

7
1.9. Research Methodology

1.9.1. Legal Research Methods

A legal research may be either doctrinal or non-doctrinal. Doctrinal research can be defined
in simple terms as research, which asks what the law is in a particular area. This is a research
into legal doctrines through analysis of statutory provisions and cases by the application of
power of reasoning or it is all about researching the existing written or conventions i.e. rules,
principles, doctrines, case law and explanations in the literature.30 On the other hand, Daniel
(2013) on his doctoral thesis, defined non-doctrinal legal research as follow,

Non-doctrinal legal research includes those researches which are based on problem,
policy or law reform. Problem, policy and law reform research often includes a
consideration of the social factors involved and/or the social impact of current law and
practice. In this regard, the type of research done is descriptive or evaluative and its main
task is to provide a recommendation for legal, policy reform, or an amendment of the
existing laws and procedures. The type of research done might include surveys and
interviews with various individuals and groups affected. Such research is often referred to
as socio-legal research.31

Doctrinal legal research is, ‘research in law’ while non-doctrinal legal research is ‘research
about law.’ However, it is hardly possible to separate the two legal research methods rather
they overlap each other. The researchers may begin his/her research by determining the
existing law and then may proceed to the factors, which affect the existing laws. The
researcher after exploring the law and the perception of the subject of the law may suggest for
the amendment or reform of laws. Thus, the author of this research has used mix of both
doctrinal and non-doctrinal methods. That means the researcher has assessed the historical
and existing laws of urban real property tax and then critically evaluates the reforming
process with some selected international experience for the road map to finalize the on-going
reform.

1.9.2. Data Sources and Collection Instruments

This study used both primary and secondary sources of data. From primary sources of data,
the researcher used both existing and outgoings national legislations (proclamations and

30
Daniel W. Ambaye, Land Rights and Expropriation in Ethiopia, Doctoral thesis on Land Law, Royal
Institute of Technology (KTH), Stockholm, Sweden, 2013, p.20.
31
Id., p.21.
8
regulations, directives and standards), public policy documents and interviews. Secondary
sources, which were used for this research, were books, journal articles, government reports
and newspapers.

To elaborate historical background of real property tax laws of Ethiopia, the researcher used
the out-dated legislations of both the Imperial and the Dergue eras. For this purpose, the
researcher explored both the then central government and Addis Ababa City Administration’s
real property tax laws. Addis Ababa city administration was empowered to enact laws during
the Imperia and Dergue Eras and that is why the researcher tried to access its real property
tax laws. Books, journal articles and other secondary sources available on the legislative
history of real property tax were also consulted to review.

On the other hand, existing laws on the real property tax laws were investigated from
different provisions of scattered legislations. Since it is not possible to find one and structured
law in this area, the researcher tried to gather provisions from separate proclamations and
regulations. The FDRE constitution contributed significant roles to analyse the constitutional
statues of real property tax and the fiscal decentralization for this tax purpose.

To know about the on-going real property tax reform in Ethiopia, so that to analgised
critically, the researcher used the draft real property tax policy and the concept note prepared
by MoUDH for the reform. Semi-structured interviews with relevant government organs such
as MoUDH and MoFEC were also a tool for this purpose. These government organs were
selected because of that the Ministry of Urban Development and Housing is responsible to
support the urban centers to eradicate poverty through sustainable means of revenue.32 In
addition, the Ministry of Urban Development and Housing has duty to manage the urban
development in general and urban land. Real property tax can act as a tool for real property
management, i.e.to manage urban density, expansion, speculations, and real property
transactions.33 Moreover, the Ministry of Finance and Economic Cooperative is empowered
to draft tax proclamations on the basis proclamation No.916/2015. The MoFEC shall have the
powers and duties to initiate economic cooperation policies and fiscal policies that

32
See, http://www.mwud.gov.et/web/guest/duties-and-responsibilities [last visited on February,
3,2018].
33
Richard M. Bird and Enid Slack, International Handbook of Land and Property Taxation,
Edward Elgar Publishing Limited, Northampton, Massachusetts, USA, 2003.
9
particularly serve as a basis for tax, and duties; and follow up the proper implementation of
the same.34

The semi-structured interviews were based on an interview guide that allowed flexibility in
the order of the questions, while still ensuring that all relevant topics were covered with all
interviewees. All questions were asked as open questions, avoiding any suggestion of
possible answers to explore the participant’s knowledge about the issue. Broad questions
were usually followed by related.

From MoFEC, interview was made with two officials such as the legal expert of Legal
Services Directorate and with the Director of newly formed Tax Policy Directorate at the
Ministry. The same tasks as did on MoFEC, were undertook at MoUDH. Four officials such
as General Manager of Urban Revenue Project Office, chairperson of the real property tax
reform technical committee, the coordinator of Real Property Tax Reform Unit, and the
communication coordinator of Real Property Tax Reform Unit were the participant for the
research. The numbers of participant of the research was determined based on the exposure
that the officials had on the real property tax and the reforming process in Ethiopia, and
unfortunately, the MoUDH took the first incentive and that is why the number of participants
are more than those in MoFEC.

The study justified why real property tax reform is needed and what types of legal and
institutional frameworks have been proposing. To do this, the researcher preferred to take
experiences from different countries to criticized the reform process, rather than specifying
them. The reasons are that some countries have a better experience than the others do in
specific component of real property tax. For many reasons, the area of interest on real
property tax reform might be different for different countries. Therefore, the researcher
assumed that taking one or two countries for the lesson makes the research to be narrow.

1.9.3. Data Analysis and Interpretation Techniques

Qualitative data analysis approach was employed to analyze the raw data collected from
primary and secondary sources due to qualitative nature of the data. Laws, books, journals,
government reports and newspapers were divided into distinct categories based on their
content. Thus, a content analysis technique was made depending on the research objectives

34
See Art.18(1)(a) of FDRE Proclamation Which Defines the Powers of the Executive Organs
Proclamation No. of FDRE, No. 916, 2015, Federal Negarit Gazeta, 22th Year, No. 12.

10
and questions. Moreover, the legal issues of the study interpreted by way of power of
reasoning (legal reasoning) and the collected data via semi-structured interviews were
organized into the contents based on the shape of opinions of participants. By doing so, the
researcher came with some generalizable aspects on the status of real property tax, the
reforming process, and the challenges thereof. Based on the analysis made the researcher
tried to show road maps for the real property tax reform.

The researcher tried to validate the data collected from the respondents by asking the same
questions to more than one person within the same institution, and across institutions i.e.
MoUDH and MoFEC.

11
CHAPTER TWO: REVIEW LITERATURE

2.1. Introduction
In this chapter the theories and general overview of real property tax were identified and
discussed. Under theories, the benefit and the new views are the major theories with respect
to the real property tax. These theories are worthy discussed in the first section of this
chapter. Following the theoretical foundations, the conceptual account of the real property tax
is discussed. In this category, general overview of and definitions, tax bases, rates,
exemptions, and real property tax assessments are elaborated. The characteristics, principles
and purpose of real property are also the areas that the researcher tried to elaborate in this
chapter.

2.2. Theories on Real Property Tax

Like the other legal issues, it is important to notice the theoretical base for real property tax
laws because it is the view in theory of the property tax, which points to the best
administrative directions. Opinion differs in theory as to the basis for the organization and
administration of property tax. Economists have expressed diverse views to determine the
type of authority, jurisdiction under which property tax should be managed.1 The dominant
theories regarding real property tax are the benefit view and the new view theories or
sometimes called as the benefit approach and the ability-to-pay approach respectively.2

2.2.1. The Benefit View Theory

This view articulated that real property tax is rooted largely in the benefits principle of
taxation. Under this view, the real property tax essentially functions as a user-charge on
residents for the benefits they receive from the local policies funded by real property taxes.
These policies benefit residents directly in the form of better schools and fire protection, and

1
Muna Negash Adem and Osei Amanfo Kwateng, Review of Real Property Tax Administration in
Ghana, Msc. Thesis, Building and Real Estate Economics, Royal Institute of Technology, Stockholm,
Sweden, 2007, p. 25.
2
John, Douglas Wilson, ‘Property and Land Taxation’, Richard J. Arnott, Daniel P. McMillen (ed), A
Companion to Urban Economics, Blackwell Publishing, 2006, P.2-4. See also. Robert W., Wassmer,
‘Property Taxation, Property Base, and Property Value: An Empirical Test of the “New View”’,
National Tax Journal, 1993, Vol. 46, no 2, Pp.135-159
12
indirectly in the form of increased housing values.3 The view is that an individual is expected
to pay real property tax for the services he received from the local government i.e. the state
should levy real property tax on individuals for the benefit provided to them. The one, who
benefit more from the activities of the state, must pay more real property tax to the
government. To identify which individual benefit more from the states activities, zoning of
the urban areas is very important according to this view.4 The zone, which is expected that
expensive buildings are there, could tax more and the low-cost houses are zoned under the
categories of low real property tax. The services provided by the state are depend on the
amount of tax paid. This view of tax in general and real property tax in particular has been
challenged or criticized by other scholars based on different justifications. The first
justification for the criticism is, if the states uphold a certain connection between the benefits
provided and the benefits derived, it will be against the basic principle of the tax i.e., as we
know, tax is obligatory contribution made to the public authorities to meet the expenses of the
government and the provisions of general benefit. There is no direct quid pro quo (give and
take) in the case of a tax in general and real property tax, they said. The second justification is
that, most of the expenditures incurred by the state are for the general benefit of its citizens, it
is difficult to estimate the benefit gained by a single individual in each year from the public
goods and infrastructures. The last but equally important for the scholars to criticize the
benefit view of real property tax is that, if the states apply this view in practice, then the poor
should pay the highest real property taxes, because they benefit more from the services of the
state. However, the researcher supports this theory because the tax must be paid for the
benefit that the property owner gained. Unless and otherwise, real property missed the very
purpose of it. As discussed here bellow, the main characteristics of real property tax is its
local nature i.e. the tax is collected from the property owner and discharged to the same
locality which in return increase the value of the property. This is what the benefit is to mean.

3
Institute on Taxation and Economic Policy, Informing the Debate over the Tax Policy Nationwide,
How Property Taxes Work, Washington, D.C., 2011, p. 57. [Here in after, Institute on Taxation and
Economic Policy, The Debate over the Tax Policy Nationwide, How Property Taxes Work].
4
Michigan State Tax Commission, Property Classification,2013, PP.8-12.

13
 2.2.2. The New View Theory

The new view of the property tax is the outcome of criticism from the benefit view and
generally examines real property tax in a standard capital taxation framework. This method
ignores the benefits received by those who pay taxes, because benefits are assumed to have
little relationship to the amount of taxes paid. The new view also has implications for the
income redistribution effects of the property tax. The property tax finances local public
expenditures by reducing the rate of return of capital in all sectors of the economy. This
means that, for a uniform national real property tax, real property owners bear the full burden
of the tax. Because real property tends to be concentrated in the hands of relatively wealthy
individuals, the capital portion of the real property tax is progressive. This result directly
conflicts with other scholars’ findings that no redistribution occurs through the real property
tax. The property tax, of course, is not uniform throughout the nation. According to this
view, real property tax must be bestowing to the ‘ability to pay principle’, not based on the
benefit provided for the taxpayer.5

2.3. General Overview of Real Property Tax

2.3.1. What Real Property Tax Constitute?

Traditionally, ‘land and property tax’ commonly termed to as ‘property tax’ or ‘real property
tax’ is based on the combined assessed value of land, buildings, and improvements.6 Property
tax is a tax that is based on a property’s value. It is sometimes called an “ad valorem” tax,
which means “according to value”.7 It is very usual to saw the term ‘real estate tax” in
different literatures. However, what did all the terminologies have their own origin and go
parallel to the rights that the owner had on them. Land is the Earth’s surface to the center of
the earth and the airspace above the land, including the trees and water. Real estate, on the
other hand, is the land plus permanent human made additions. The real property is real estate
Plus bundle of legal rights. Therefore, whatever the terminology is, it is to mean that, tax

5
Janel, Denette Gomez, Vertical Equity in Property Taxation: A Spatial Analysis of Proposition 13 in
San Diego County, California, MA Thesis, University of Illinois at Urbana‐Champaign, 2011, P.11.
6
Richard M. Bird and Enid Slack, International Handbook of Land and Property Taxation, Edward
Elgar Publishing Limited, Northampton, Massachusetts, USA, 2003.
7
Olga Buzu, ‘Development of Ad Valorem Real Property Taxation System in Moldova’, Eurasian
Journal of Economics and Finance, 2014, Vol. 2 N. 3, PP.79-88, see also, Nevada Taxpayers
Association, Understanding Nevada’s Property Tax System, Carson City, 2012, P. 5.

14
have been levying on the real property i.e. on the land and real estate plus bundles of rights-
not on the bare land and real estates.8 When the literatures said land or real estate tax, it
implied the thing with the right because without the right holder, no taxpayer.

Taxes on land and property exist all over the world. As many researchers’ analysis, in both
principle and practice, these taxes have fiscal and non-fiscal effects.9 Real Property tax is the
oldest and the major source of revenue for state and local governments.10 This justified that at
the beginning of the 20th century almost 80% of the national tax revenue was covered by the
property tax even if this share has been diminishing from time to time due to the introduction
of other types of taxes like income taxes.11 This indicated that how old the real property tax.

As noticed before, the property tax is a local tax imposed by local government taxing districts
and administered by local officials, collected, and spent at the local level.12 The revenue such
taxes produce is often an important source of finance for local governments. In turn, the
extent to which local governments have control over property taxes is often an important
determinant of the extent to which they can make autonomous expenditure decisions. The
level, strategy and control of real property taxation are thus critical elements in effective
decentralization policy in many countries. From a more general policy perspective, real
property tax may be viewed as either equitable and efficient ways of raising revenue or
regressive and undesirable forms of public finance, depending upon one’s assumptions, the
environment and how exactly the taxes are designed and applied.13 The non-fiscal importance
of real property tax is exemplified as a tool to land administration and here under.

8
However, it has to critically understand the counter argument that some scholars argued with. There
are some scholars that concerning the real property tax, it is the ‘in rem’ taxed not the ‘in personam’.
According to this argument, the tax liability did not go to the person rather only on the real property.
On the other hand, the argument that the real property tax has to be goes with the right holder (of
which I support also) is arguing that since the right and liability thereof are two sides of one coin, it is
the ‘in personam’ should taxed. Which right i.e. ownership or possession/holding, is going to be
valued is another arguable issue.
9
Janel, Denette Gomez, Vertical Equity in Property Taxation: P.48.
10
Institute on Taxation and Economic Policy, Informing the Debate over the Tax Policy Nationwide,
How Property Taxes Work, P. 201, See also, The ITEP Guide to Fair State and Local Taxes, 2010.
11
Ibid.
12
Illinois Department of Revenue, the Illinois Property Tax System: A general guide to the local
property tax cycle, authority of the State of Illinois.
13
Richard M., Bird and Enid Slack, International, Handbook of Land and Property Taxation, Edward
Elgar Publishing Limited, Northampton, Massachusetts, USA, 2003.
15
 2.3.2. Tax Base, Tax Rate and Exemption of Real Property Taxation

2.3.2.1. Tax Bases

Before proceeding to tax base for real property tax, it is important to show that real property
tax classified in to two broad classes.14 The first is that the tax levied annually based on the
annual market value of the real property. The second one is incidental, which levied
depending on a specific transaction: real property transaction taxes. Some scholars argue that
incidental taxes as “other real property tax”-not considered as main part of real property tax
or pure real property tax that levied annually.

In most countries, the real property tax is levied on land and improvements. The term
improvements include structures, buildings, irrigation systems, and other manmade structures
on the land.15 In some countries however, only the land portion of the property is taxed for
example in Kenya and some others only buildings are taxed for example Tanzania. However,
most of the countries in the world taxed both land and buildings (improvements).16 Those
countries, which levied tax on both the land the buildings or improvements, also have
difference. Some of the countries valued both the land and buildings together and other
countries valued land and improvements separately. In countries where both land and
improvements are taxed, the land portion is sometimes taxed more heavily than
improvements.17 Very few countries such as, South Africa, also have been levying tax on
location or site tax or some scholars argue that the taxation of land only sometimes called
‘site value taxation’.18 In principle, a tax on land value only taxes location rents the returns
from a particular location regardless distributed, such a tax should be more progressive than a

14
Jack Harvey and Ernie Sowsey, Urban Land Economics, 6th edition, 2000, P.88, See also, Volkan,
Cagdas, et al, Property Taxation and Land Management, FIG Regional Conference, Marrakech,
Morocco, 2003, P.2.
15
Maricopa, County Department of Finance, Overview of Arizona State Property Tax System in
Maricopa County, 2013, P. 7.
16
Richard M., Bird and Enid Slack, Land and Property Taxation in 25 Countries: A Comparative
Review, Cesifo Dice Report 3/2005, 2005, Pp.2-9.
17
Hidaya M., Kayuza, Real Property Taxation in Tanzania: An investigation on implementation and
taxpayer perceptions, PhD Dissertation, Building and Real Estate Economics, Royal Institute of
Technology, Stockholm, Sweden, 2006.
18
Ibid, See also, Harry, Kitchen, Property Taxation: Issues in Implementation, The Consortium for
Economic Policy Research and Advice, Association of Universities and Colleges of Canada, 2005, P.
10.
16
tax on land and improvements.19 The assessment of land only is not easy, on the other hand,
because most urban real estate unit sales the value of land and improvements. The value of
improvements, therefore, needs to be subtracted to get an assessed value for the land. While
some consider such taxation inappropriately, others argue that valuation of land
unaccompanied is most likely simpler than valuation of property. Land that was worthless
one day was worth in the future time, owing largely to the rapid influx of population and
infrastructures. Valuing land separately may be less of a problem in developing countries in
which urban areas are growing rapidly. In many such countries, land and improvements are in
practice assessed separately in any case, with land value being estimated based on a land
value map and building value in accordance with the cost of construction.20 The other
problem with respect to using land as the only tax base, is that, since the tax base is
considerably smaller than the value of land and improvements combined, a higher and more
distortionary rate is needed to generate comparable revenues.21

There are six main bases of real property tax that countries in general used, as summarised
from different scholars.22 These are: -

a) Land and Buildings as Single Taxable Objects.

Those countries which levied land and buildings as a separate object have been considering
the functions of their effective real property market with significant sale transactions that can
be objectively observed. The sale transaction is the base to determine the taxable amount of
the objects.

b) Land and Buildings as Separate Taxable Objects.

The same as those which taxed these objects as single objects, however, the cost of credible
values for the land and building components may be an issue. The rate may be different or

19
Id., P. 11.
20
William J. McCluskey and Riël C.D. Franzsen, Property Tax Reform in Africa: Challenges and
Potential, Paper prepared for presentation at the “2016 World Bank Conference on Land and Poverty”
The World Bank - Washington DC, 2016, p. 9.
21
Ibid.
22
Id., Pp.10&11. See also, Victor, Thuronyi, ‘Tax on Land and Buildings’, International Monetary
Fund: 1996, vol. 1, P. 39.

17
may be same for land and buildings. The rate value may be different based on the priority
they had in hand. The country which needs to encourage real estate investments might levy
less tax on buildings.

c) Annual Rental Value

Where the property market is dominated by rental transactions, this basis can be applied.
Arm’s length rental transactions are better than transactions affected by rent controls or
brokers. Generally, commercial and industrial properties tend to be traded within a rental
market offering a larger body of evidence because there is conflict of interests.

d) Land Value Only

This approach can be used if there are sufficient lands sales on the open market upon which
valuation estimates can be based. It obviates the need to value improvements.

e) Area based (non-value)

This approach can be applied where no formalized real property market exists or where the
market is immature with the absence of comparative sales data on which to base estimated
market values. It accommodates challenged tax administrations due to its inherent simplicity
and provides a good initial.

f) Value of buildings only

Where land is deemed to be state owned, what can be assessed is the infrastructure built on
the land. Buildings do provide a visible asset. Lack of sales would lead to the use of cost-
based assessment approaches.

One necessity understands that, there may be a question that which of the real property tax
bases are best. The answer for this question is not simple and has no simple answer. There is
certainly disagreement even among the policy makers. However, if the test for “best” were
the most widespread practice in developing countries, then the preference would seem to be
for a capital value system where both land and improvements are taxed.23 Some others argues
that in making the choice of a base, most developing and particularly for low-income areas
within developing countries, the area-based approach might be suggested. Standing against
this, however, is the unfairness of the area-based system and the possibility that it will not
generate adequate revenue growth. One might justify living with these disadvantages by

23
Roy, Bahl, Property Tax Reform in Developing and Transition Countries, USAID, 2009.
18
noting that a crude area-based approach is a transition measure that can be abandoned once a
complete tax roll and some capacity to do basic valuation are in place. Based on the
disagreements, what is important during the choice of the real property tax bases especially
for developing countries is to rely on the administrative capacities of the Government. That
means they have to choose the tax base, which would be administrated effectively by the
technology and work force, each low-income country has on hand. This all leads us to the
conclusion that the best system for a given country probably depends on the present state of
property markets, housing tenure, and on what that country most wants to accomplish with its
property tax.

2.3.2.2. Real property Tax Assessment

After determining the tax base of real property tax, the next and equally importance step is to
determine the value to which the tax rate applied.24 For this purpose mostly, two assessment
methodologies are used.25 These are area-based assessment and value-based assessment.

The area-based assessment system is simple, that is tax rate levied on each parcel of land and
improvements or on the combination of the two. When measures of area are used for land and
buildings, the assessment of the real property is the sum of an assessment rate per square
meter multiplied by the size of the land parcel and an assessment rate per square meter
multiplied by the size of the building. The benefit of the area-based system is that it does not
require parcel-by-parcel valuation, or it may not require valuation at all. A strict per unit
assessment results in a tax liability that is directly related to the size of the land and buildings.
With unit value assessment, the assessment rate per square meter is adjusted to reflect
location, quality of the structure, or other factors.

The value-based assessment as said here above is classifieds as market and rental values
assessments. The market value is price between a willing buyer and a willing seller in an
arm’s length transaction using the sales comparison approach or the cost approach, or the
income approach whereas the rental value is determined according to estimated rental value
based on the prevailing market rents.

24
Ibid.
25
Enid, Slack, Why Value-Based Property Taxation? Institute on Municipal Finance and Governance,
Munk School of Global Affairs, University of Toronto, 2013, p.46.
19
Coming to the rental value approach, real property is assessed according to estimated rental
value or net rent. One rationale for using net rental value is that taxes are paid from income
rather than from wealth. When a property is put to its highest and best use and is expected to
continue to do so, rental value will bear a predictable relationship to market value the
discounted net stream of net rental payments will be approximately equal to market value.

2.3.2.3. Real Property Tax Rate

The amount of tax paid is the outcome of the calculation of the assessed value multiplied by
the tax rate sited. They are three questions must be answered when we took about real
property tax rate. Who determine the rate, can rate be different and the last is how high tax
rate is, are the main questions.

Law may fix the tax rate charged on property value. Alternatively, rate can determine based
on the budgetary needs of the taxing authority. The central governments or local governments
might determine these tax rates. Even there is a considerable difference among the countries
in the world on the issue, which local government determines tax rates. For example, in the
countries such as Japan, Ukraine, Chile, Thailand and Tunisia, real property tax rates have
been essentially setting by the central government and in the countries such as Hungary,
Colombia, Philippines, local governments are empowered to fix tax rate with the rage sit by
the central government.26 In the countries like Canada, Argentina and Kenya the local
government have full right to determine the tax rate.27 Here the central government is to mean
that both the Federal and Regional governments where the government structure is federal. In
countries where property taxes are levied by national and state governments, the property tax
prescribes the tax rates to charge on property value.

Where local governments set tax rates, the expenditure or budgetary requirements are first
determined. Revenues from non-property tax such as intergovernmental transfers, user fees
and others are subtracted from the jurisdiction expenditure requirements to determine the
amount to be raised from property tax revenue. Then after, the amount of revenue required

26
Richard M., Bird and Enid, Slack, Land and Property Taxation: A Review, 2002, p.21. [herein after
Richard M. Bird and Enid Slack, Land and Property Taxation], See also, Richard, Almy, A survey of
property Tax System in Europe, department of Taxes and customs, Ministry of Finance, Republic of
Slovania, 2001, P. 13.
27
Id. P. 22.
20
from property tax is then divided by the total taxable value of property to determine the tax
rate.28

Various local governments taxing authorities levy different tax rates on different classes of
property such as residential, commercial, and industrial. In most countries, non-residential
properties are subjected to higher tax rates than residential.29 The other reason is that the local
governments wanted to distribute the tax burden equally based on the ability to pay and the
services received, example in Tunisia.30

The last issue in the real property tax rate is how much rate is imposed. The literatures about
this shows that the feature of real property tax rate is very low in developing countries due to
the low assessment value, lack of effective enforcement mechanism and the lags in
reassessment and the inadequacy of adjustment for value changes.31

2.3.2.4. Exemption

In the world of tax in general and real property tax in particular, legislative bodies should be
advisable to enact the exemption laws because a key principle of real property tax systems is
that all real properties are taxable unless otherwise provided.32 Real Property tax exemptions
are subsidies to certain owners or uses of property to inspire publicly desired objectives.33

28
Id., p. 24.
29
Richard M., Bird and Enid, Slack, Land and Property Taxation in 25 Countries: A Comparative
Review, Cesifo Dice Report 3/2005, 2005 p.35.
30
Richard M. Bird and Enid Slack, Land and Property Taxation. P. 22.
31
Id., P. 24, But Exemptions have been criticized on several grounds. First, to the extent that people
working in exempt institutions use municipal services, they should be taxed. Second, the differential
treatment between taxed and exempt properties has implications for economic competition among
businesses and between businesses and government. Third, differential tax treatment affects location
decisions, choices about what activities to undertake, and other economic decisions. Fourth, exemptions
narrow the tax base and thereby increase taxes on the remaining taxpayers, reduce the level of local
services that can be offered, or both. Finally, since the proportion of tax-exempt properties varies by
municipality, disproportionate tax burdens are created across communities. This result is especially
troublesome when higher-level governments determine what is exempt from local taxation.
32
David L., Sjoquist, A Brief History of the Property Tax in Georgia, Fiscal Research Center, Andrew
Young School of Policy Studies, Georgia State University, Atlanta, No. 182, 2008, P.18
33
International Association of Assessing Officers, Standard on Property Tax Policy, Kansas City, 2010.
P. 17.
21
Real properties can be classified in to four classes for tax exemption.34 The first are those
properties that are tax free by international convention like foreign embassies, or by a merit
use of land such as colleges and universities, churches and cemeteries, and many charitable
organizations.35 Nearly all courtiers all countries exempted these types of property from real
property tax. However, here the best practice recommended is placing a qualifier on such
exemptions, in which properties not used for the main purpose of the organization are taxed.
That means the real properties of the said excepted organizations, which are used for business
activities and for rent are subject of taxation. The second exemption is that to protect low-
income people from property tax. The most common one is the forgiveness of property tax
for those who live in properties valued below some threshold level. Since the poor usually
live in areas that are not well serviced and therefore have low assessed values, there is
adequate justification to exempt. Countries choose different exemption levels based on the
value of property. One more justification for exempting low valued properties is that the cost
of collection in such areas could be as much as the revenue takes.

Third, there are social engineering exemptions and those given for political reasons.36 The top
most one is the owner-occupier exemption, which is used in nearly all countries. It may be
politically popular, but it is regressive in its impact and imposes a significant tax expenditure
on local budgets. More over the owner-occupier exemption increase administrative costs
because it requires classification of every parcel in terms of tenure, and it usually requires the
application of differential nominal tax rates or differential assessment rates. Whether the
owner-occupancy exemption achieves the social purpose of encouraging homeownership is
debatable.37

A fourth class is the exemption from property taxation of Government–owned properties, and
properties occupied by nonprofit enterprises. This exemption deprives local Government of
the right to charge for some of the land use within their boundaries and it imposes a revenue

34
Richard M., Bird and Enid Slack, Land and Property Taxation, Pp. 13 & 14.
35
Harry, Kitchen and Enid, Slack, Municipal Property Taxation in Nova Scotia, Property Valuation
Services Corporation Union of Nova Scotia Municipalities, Association of Municipal Administrators,
2014.
36
------------------, The Taxation of Land and Property, Tax by Design, Pp.369-405, P.370.
37
Jackson E., Sullivan, Jr., Land Use Planning and the Property Tax, Msc. Thesis, Georgia Institution
of Technology, 1976, PP.6-8, See also, Larry, Ozanne, Taxation of Owner-Occupied and Rental
Housing, Working Paper Series Congressional Budget Office, Washington, D.C., 2010.
22
cost. Therefore, user does not compensate the considerable services provided to those
properties.

As to how the best practice is defined with respect to exemption, the following three steps
might be taken.38

Firstly, institution a periodic review of property tax exemption policy with the goal of
determining whether exemptions continue to serve their intended purpose. Place a
moratorium on any new preferential treatments and introduce a time for review of all existing
preferential treatments.

Secondly, adopt the practice of valuing all property, including that which is exempted, on an
annual basis. Use this information to prepare an annual tax expenditure budget for the
property tax, identifying all property tax revenues foregone by exemptions and reliefs.

Third, and based on this valuation determined by the tax expenditure budget, charge a
payment in lieu of priority tax for Government properties and for most not for profit uses of
property. Such a practice is followed in many counties, including for example, Kenya. In
Mumbai, the payment in lieu is set 80 percent of the tax that would have been paid if the
property were privately owned.39

2.3.3. Unique Characteristics of Real Property Tax

Even thought, real property tax has similar characteristics with other form of taxes, it has
typical features, which distinguished from the others. Generally, scholars identified the
following characteristics of real property tax.40

The first one is that real property tax is visible. The immovable nature of the objects that are
subject of the real property tax makes real property tax to be visible for both the taxpayers
and collectors because it is impossible to hide real properties.41 The visibility is because of it
is a visible tax financing visible services in the jurisdiction of a city.42 It is difficult to evade

38
Harry, Kitchen, Property Taxation: Issues in Implementation, The Consortium for Economic Policy
Research and Advice, Association of Universities and Colleges of Canada, 2005, P. 29.
39
Roy, Kelly, property tax in Kenya, Duke University, 2011, Pp.12-21.
40
Simanti Bandyopadhyay, Property Tax Reforms in India: A Comparison of Delhi and Bangalore,
Andrew Young School of Policy Studies, Georgia State University, USA, 2013
41
Ibid.
42
Simanti, Bandyopadhyay, Property Tax Reforms in India: A Comparison of Delhi and Bangalore,
Andrew Young School of Policy Studies, Georgia State University, USA, 2013, P.3.
23
and can promote accountability. Some argues that the visibility is not depending only the
immovability nature of the tax base rather, it has to be visible since the financing is on the
visible services like roads, light etc. This visibility nature of real property tax enables the tax
collectors and administration to be transparent and accountable in the tax administration
system. From this perspective, the local Government likes it and some taxpayers otherwise
because it is difficult to evade it.

Coming to the second unique characteristics of real property tax, it is inelastic. Dissimilar to
other taxes, real property tax has an inelasticity nature. The supply of land would not have
increased or diminished, or tax cannot affect the available quantity of land.43 Even in case of
buildings, there is a very slow annual change in value distinct incomes do.44 Property value
increases very slowly every year in every country and specially in emerging economy
countries. This leads to increase the tax rate title when jurisdictions want to maintain property
tax revenue, which in return has a greater taxpayer resistance. Real property tax is not an
income-elastic tax.45 Reassessments usually do not take place every year a late reassessment
leads to tax payers complain due to the shock (immediate tax burden).46

The third characteristic of real property taxes is its inherent arbitrary characteristics. Every
tax administration system is based on incomes or sales.47 In this case, the tax bases are
subject to dispute between the tax authorities and taxpayers, because for example in case of
self-assessment, taxpayers are usually tax evaders.48 However, usually, these arguments are
to be solved based on assessable economic activities on which the tax is levied. However, the
case is different in land and property tax situation. Real property tax is usually based on
property values. Unless the property in which the tax is to be based is sold during the tax
period, it is difficult to know the value of it. Currently property, valuation becomes necessary.

43
Ibid.
44
R. Bahl and J. Martinez-Vazquez, the Property Tax in Developing Countries: Current practice and
prospects.
45
Ibid.
46
Ibid.
47
Ibid.
48
Ibid.
24
Again, it is the most difficult, time tacking and disputable part of property tax.49 If one leaves,
the valuation works for the taxpayer.

The last but not least characteristic of real property tax is vested to Regional or local
Governments. The power of taxation may rest on the central Government, Regional or local
Government or both. Generally, a countries’ constitution would have established basic power
of taxation. Power of taxation by its nature is three. Those are the power of levy, the power of
collect and the power to use the collected amount.50 Moreover, in most of the countries in the
world, the power of levy tax on real property is provided for central Governments. However,
at least in some countries local Governments levy it.

2.3.4. Principle of Real Property Tax

Like other types of taxation, real property tax to be good, it shall be guided by principles. The
principles shall consider the specific features of the taxation system. The objective of real
property tax is to generate enough revenue to cover the cost of infrastructure and municipal
services and for real property management. Thus, the guiding principles that should include
the following:51

Substantial: - the real property tax revenue would necessarily be substantial to cover costs of
municipal infrastructures and services.

Economic Efficiency: - the real property taxation system should be reasonable to be

conductive for investors regarding their choice of investment within the cities.

Equitable, Progressive: - as much as possible the tax burden should rest more on riches who
have better opportunities for using municipal infrastructures and services than lower income
groups who must taxed participation purpose only.

49
Kitay, M.G., Land Acquisition in Developing Countries: Policies and Procedures of the Public
Sector,1985, p. 27.
50
Tadesse Lencho, Towards Legislative History of Modern Taxes in Ethiopia. P. 111
51
MoUDHC, Real Property Taxation Policy Memo, 2015, See also... Maryam, Salihu Muhammad et
al, An assessment of the prospects of property tax administration in Nigeria: a case study of Bauchi
state board of internal revenue, Estate Management Department, Faculty of Environmental
Technology, Abubakar Tafawa Balewa University, Bauchi, 2013, P. 84.

25
Buoyancy: - it should be confirmed that real property tax revenue is sustainably increasing
more than proportionately in response to a rise in the economy growth and its sustainability
must be endorsed.

Consistent: - the real property tax system must not be subject of changes year to year rather
it must enable to provide services persistently and be consistent base on the sources of
revenue.

Affordable: - the real property tax must be in line with ability to pay principle of the general
tax principle and must have room for exemption to the poor.

Administratively efficient: - the administrative cost of real property tax must be as low as
possible either to taxpayer or to the government

Transparent and simple: - the structure of real property tax must be clear and simple as its
base encompasses wider population.

2.3.5. Purposes of Real Property Tax

A very important concept of real property taxation worthy discussed here in the paper is to
answer the question why real property tax has natural advantages that suggested it for use in
financing Regional or local Government services. These advantages are elaborated in the case
of many developed countries where the tax is relied on greatly as a sub national Government
revenue source.52 As Victor Thuronyi (1996) worthy discusses it, real property tax would
accomplish the following objectives in the community.53

2.3.5.1. It Finances Local Government

One must understand that the primary purpose of the property tax is to generate revenue for
local governments. Even some scholars argued that real property tax is a poor tool for non-
revenue objectives such as attracting investment, achieving social goals like combating
property speculation and achieving land reform.54

52
Roy, Bahl, Property Tax Reform in Developing and Transition Countries, USAID, 2009, p.12.
53
Victor, Thuronyi, ‘Tax on Land and Buildings’, International Monetary Fund: 1996, vol. 1[here in
after Victor, Thuronyi, Tax on Land and Buildings, International Monetary Fund].
54
William J., McCluskey and Riël C.D., Franzsen, Property Tax Reform in Africa: Challenges and
Potential, Paper prepared for presentation at the “2016 World Bank Conference on Land and Poverty”
The World Bank - Washington DC, 2016[here in after William J. McCluskey and Riël C.D. Franzsen,
Property Tax Reform in Africa: Challenges and Potential] But the otherwise argument is equally
considerable that the non-financial importance of real property tax is paramount. The importance of it
26
Real property tax is often designed to provide an independent source of local Government
finance, whether collected and administered locally. A tax on land and buildings offers a
revenue base that, unlike sales, payroll, or income, cannot readily shift to adjacent
jurisdiction. This is one reason that real property is apt for a special form of taxation that does
not extend to movable property, such as inventory, equipment, and household goods.55

Land and building values are also frequently associated with services provided by local
Governments, such as fire and police protection and road maintenance. However, this benefit
justification has important limitations. Often, the properties that place the highest burdens on
local services and pose the greatest fire and safety risks are poorly maintained structures of
low value. Buildings that are more expensive may be better maintained; built more recently
and more exacting safety standards, and even protected by private security arrangements.

An equally limited but politically significant justification rests on ability to pay, demonstrated
in part by ownership of valuable property. The weaknesses of this rationale are clear because
the tax reaches only one form of property and even that generally in a gross rather than in a
net form, with no offset for mortgage indebtedness.56

These objections argue against excessive reliance on a property tax but not against the tax
itself. Particularly considering the ascendancy of consumption-based taxes, there is a
prominent place for a tax upon a significant segment of wealth, especially when that segment
is often subject to favorable income and inheritance tax treatment.57

2.3.5.2. It Defines the Public Claim on Property Value

The role of a property tax in defining property rights may be among its most significant
contributions to economies in transition, one often overlooked when the levy is considered
solely as a fiscal instrument. A period of privatization and restitution presents critical choices
as to the division of public and private rights in property. The economic advantages of a
system of private ownership, together with intense political reaction against the abuses of
state control, frequently conflict with deeply held beliefs in the need for a continuing public

as tool for real property management in general and tool for land administration and management have
been raising as a counter argument for this argument, see, Jay K., Rosengard, The Tax Everyone Loves
to Hate: Principles of Property Tax Reform, Harvard Kennedy School ,2012, P. 7.
55
Victor, Thuronyi, Tax on Land and Buildings, International Monetary Fund: 78., PP.2-13.
56
Ibid.
57
Ibid.
27
interest in the permanent and irreplaceable heritage of immovable property. This conflict can
arise most strongly in the case of land, whose supply cannot be expanded and whose
existence is not the result of individual effort, but similar issues arise with regard to the
privatization of buildings. Clarification of a continuing public claim upon a portion of land
value in the form of an annual tax can help reconcile these competing positions.

Conversely, the argument for land-value taxation can be most powerful when a system of
property rights is in the process of development. At this point, establishment of a continuing
public claim to some portion of that value can be taken into consideration by investors
formulating their bids for the property. Problems of notice and reliance arise only when a new
tax is introduced after these purchases are completed. They grow more acute if the tax is
capitalized into property value and so falls entirely on the owner at the time of its
introduction.58

What we can conclude is that some of this conventional wisdom on the advantages of the
property tax can be made to fit the developing and transition country setting, but some of it
cannot, at least for the present. The setting is in fact very different. Property markets are not
well developed in most low income and transition countries, there is a paucity of reliable
evidence on transaction values, and administrative capacity is much more limited. Moreover,
the tax base usually is narrowed by legal exemptions, perhaps even more so than in
industrialized countries. The result is that taxes are paid on a base that often bears little
resemblance to the true level of property values. These constraints to good practice need not
be permanent, however, and they can be removed or eased over time. The caution we
continue to return to in this paper is that analysts and policy makers need to structure the
property tax to fit the circumstances of a particular country, rather than trying to emulate the
practice in industrialized countries. If a proper development plan for the property tax is put in
place, it can evolve over time to realize many of its potential advantages.

2.3.5.3. It Uses as a Tool for Land Management

Land management defined in The Bathurst Declaration on Land Administration for

Sustainable Development (1999) as; “the activities associated with the management of land
as a resource from both an environmental and an economic perspective towards sustainable
development”. According to this definition, land management is the process that put the all

58
Ibid.
28
land resources in to beneficial effect. It is also an integrated system solving land related
problems. It covers all activities concerned with the management of the land as a resource
from both an environmental and an economic perspective.59

Land management system, to be effective, it needs an integrated and clear land policy. Land
policy is the philosophy of land management, or we can say that, land management is the
means of implementing of the land policy. According to the Bogor Declaration, arising from
the United Nations Inter-Regional Meeting of the Experts on The Cadaster (1996), land
policy is:

“…a part of the national policy of countries. Such policies are generally related to
economic development, social justice and equity, and political stability. The land policy
may for instance include or promote the provision of security of tenure, improve access to
credit, land reform, land titling and the resolution of issues relating to traditional or
customary tenures, facilitate special attention to provision of land for the poor, ethnic
minorities and women, facilitate land use and physical planning, real property taxation,
measures to prevent land speculation and land disputes. The meeting emphasized the need
to establish a coherent national land policy to guide policies within different sectors”

Obviously, land policy is classified in to urban and rural land policy. However, since this
research paper is on the urban real property, what the researcher wants to focus is using real
property tax for urban land management. To this end, the general purpose of the urban land
policy is to harmonize the individual ownership and the public interests on the land and
prevent using land against to public interest. The purpose of urban land policy is detailed as
to, facilitate of urban development plans applications, increase urban parcel supply, prevent
inflation in property price and gain the value increment that is a result of planning decisions
to public.60

59
The Bathurst Declaration on Land Administration for Sustainable Development, Federation
International of Geometres (FIG) and United Nations (UN), Publication No:21, Copenhagen, Denmark,
1999.
60
Volkan, Cagdas, et al, Property Taxation and Land Management, FIG Regional Conference,
Marrakech, Morocco, 2003, P. 2-4. see also, The Bogor Declaration, United Nations Inter Regional
Meeting of Experts on the Cadastre, United Nations (UN) and International Federation of Geometric
(FIG), Bogor, Indonesia, 1996.
29
Land is scarce resource and one of the factors of production and a tool for investment.61 In
developing countries, especially, land is a very fertile tool of investment without the addition
of labor and sometime without the addition of entrepreneurship.62 Therefore, there must be a
need to differentiate investments that accepted land as a production factor, from investments
that make without of production aim or gain profits without labor.63 The investment, which
did not need labor on the land, is called as speculative investment. Speculative investments
have intention to gain profit from real properties without any labor is oriented by economic,
social, and cultural factors. This means that the land nearby to the other economic, social, and
cultural developments. For instance, the plot of land, which is near to the new highway, can
provide a good profit. Social statute and assurance are caused from being a property owner,
can be regarded as social and cultural factors of the speculative investments.64 The
speculative investment by its nature do not provide contribution to nation economic
development rather they have delaying and preventive effects on the national economy and
these types of investment as many scholars’ notice is termed as dead investments. Speculative
investments, in contrary to land management, disregarded the resources not be used in
optimum conditions and productive way. Because of this, landowners become richer, people
who gain with their labor become poorer and injustices in distribution of income have been
increasing.65

61
There are four main factors of production such as labour, capital, land and entrepreneurship under the
guess of Economics.
62
Institute on Taxation and Economic Policy, The Debate over the Tax Policy Nationwide, How
Property Taxes Work p. 76.
63
Ibid.
64
Ibid.
65
Ibid.
30
Coming to the solution to these problems, real property tax can play a key role. Real property
tax is not only the source of local revenue rather it also uses as a tool for the implementation
of urban real property management. Real property tax has a power to change the urban form
as town planning does. Those countries which levy highly taxes on land only encourages the
construction of more buildings and the better development of a land that results to a more
densely areas. On the contrary, countries levied high real property tax system on the buildings
only discourages the land development, construction there by discourages real estate
investment, and bare land would be seen in many parts of the cities.66 Therefore, the countries
have to choose the best method, which fit for the purpose of their focus.

2.4. Summery
Real property tax according to the benefit view is a tax levied based on the benefit that the tax
payer received from the government. The infrastructures and social services are provided in
consideration of reciprocity principle. For this purpose, the bases of real property tax i.e. land
and improvements can be categorised, clustered and zoned. Then according to the zoning, the
tax authority can identify at which zone the people consumed more public services and levied
the tax However, according to the new view of real property tax, it is impossible and unfair to
levy real property tax based on the benefit consumed by the tax payer because benefits are
assumed to have little relationship to the amount of taxes paid. The new view also has
implications for the income redistribution effects of the property tax. The scholars who
propagated the philosophy of new view argued that the poor tax payers are expected to pay
more real property tax since they consumed more public service from the government.
Therefore, according to them, benefit view criticized as it is a cause for inequality.

Coming to the conceptual framework of real property tax, it is a tax levied on the annual
increment of the real properties such as land, buildings, and improvements. There are
countries, which levied real tax on building only, land only, or both. There is also different on
the assessment of real property tax on those countries, which levied tax on both land and
buildings. Some of them applied the same rate on the sum of the value increment or others
rated the value of land and buildings differently. On improvements such as bridges, roads,
irrigations dams and the like are not taxable in most of the developing countries. This tax,
unlike other taxes, has unique characteristics. It is visible, inelastic, and vested to local

66
M. Bird and Slak, Taxing Land and Property in Emerging Economies: Raising Revenue…and More,
p.4.
31
governments. Like other types of taxation, real property tax to be good, it has principles that
shall consider the specific features of this tax. Real property tax has two main objectives such
as, as source of revenue for the local governments and a tool for real property management. It
can be used to share costs of the expenditures that the local governments spent to introduce
new infrastructures and to maintain of the faded. It is also very important narrow down the
gap between the rich and the poor by taxing the accumulated wealth and financing in the
urban infrastructures’ expenditure. It is in return increase the value of the real property
because of the built environment.67

Real property tax is equally important for real property management. It is a tool to reduce the
tricky of speculations where land is a very fertile tool of investment without the addition of
labor and sometime without the addition of entrepreneurship. If the country taxes bare land
heavily, it absolutely discourages speculation and encourages investment.

67
Wallace E., Oates, ‘The Effects of Property Taxes and Local Public Spending on Property Values:
An Empirical Study of Tax Capitalization and the Tiebout Hypothesis’, The Journal of Political
Economy, 2007, Vol. 77, No. 6, PP.957-971, P.971.

32
CHAPTER THREE: REAL PROPERTY TAXATION IN ETHIOPIA

3.1. Introduction

In this chapter the researcher tried to explore and analysis the Ethiopian real property tax
laws. The historical background of real property tax in the Imperial and the Dergue Eras
(1942-1983) were worthy discussed. Just to be informative, the assessment of the historical
background of the real property tax is mainly rested on the urban real property tax; however,
there are some laws, which are not identified whether they are urban or rural. Therefore, in
the discussion there are some legislation, which included the rural land taxes and fees.

Discussion on the current legal framework of the real property tax is also another issue
inculcated in this chapter. The FDRE constitution about the real property tax has interpreted
and analyzed. The other legislations such as the income tax proclamation, the stump duty
proclamation, the turnover tax proclamation, and others, which are presumed to be important
for this chapter, are discussed.

3.2. Legislative History of Real Property Tax in Ethiopia

Taxation in general, which was characterised as traditional system, has elongated

history in Ethiopia. However, the modern system of taxation which transformed
the face of Ethiopian taxation forever began after the eradication of the Italian in
1941.1 Proclamations on various aspects of tax bases including tax on immovable
properties were enacted following the restoration2 of Emperor Haile Selassie I to his
Majesty. The manifestation of the modern tax system which were proposed during the
Imperial Era were, firstly, the laws has begun published under the official gazette of legal
publications.3 Secondly, the means of payment was changed from ‘in kind mode of

1
Tadesse Lencho, ‘Towards Legislative History of Modern Taxes in Ethiopia (1941 -2008)’, Journal of
Ethiopian Law, 2012, Vol. 25, No. 2, PP.104-158., P. 106, [Here in after Tadesse Lencho, ‘Towards
Legislative History of Modern Taxes in Ethiopia]. See also, Tesfaye Alemayehu Daba, Determinants of
Tax Revenue in Ethiopia, MA. Thesis, Addis Ababa University, 2015, P.8. (Unpublished and available
at Addis Ababa University, Law School Library).
2
Emperor Haile Selassie were moved to England to apply compliant against the Italian aggression. This
phenomenon is considered as overthrow of the Emperor and that is why we called ‘restoration’ after
His Majesty return to Ethiopia.
3
Establishment of Official Negarit Gazeta, Proclamation No. 1 of 1942. [Here in after, Establishment
of Official Negarit Gazeta].
33
 payment”4 to monetary value. The third one is that the institutions, even though not well
organised, were introduced for real property taxation for the first time. To elaborate more,
let me discuss the legislative history of ‘real property’5 tax in Ethiopia by dividing it as
Imperial and Dergue Era.

3.2.1. Real Property Tax Laws during the Imperial Era

The concept of real property tax was introduced back to 76 years in Ethiopia. The first real
property tax proclamation was introduced in 1942.6 What is surprising here is, the first real
property tax proclamation was not pioneer in real property tax only rather it was one of the
first modern tax proclamations in Ethiopia. These laws can be classified as laws applicable in
the country and applicable to the specific cities such as Addis Ababa.

3.2.1.1. Real Property Tax Laws Applicable in the Country in General

A. The 1942 and 1944 Land Tax proclamation

From historical point of view, land revenue has been an important source of income to
Government of Ethiopia, especially in the Imperial era.7 It can be said that it is one of the
oldest taxes. It was the tax on the agriculturalists for holding land for agricultural purposes. It
was compulsory payment and no agriculturalist exempted from it, of course, since we had
different land tenure system, the land revenue system varied.8

Proclamation No. 8/1942 was the first in kind, not only regarding to the real property tax but
also in the Ethiopian modern tax history. The proclamation was enacted based on the Articles

4
‘In-kind payments’ were the mode of tax payment in the traditional taxation system in
Ethiopia before the introduction of modern taxation system in 1941.
5
The term ‘real property’ is to mean ‘immovable property’ in Ethiopian legal system, See, Article 1130
Civil Code of the Empire of Ethiopia proclamation No. 165, 1960, Negarit Gazette, 19th Year No.2.
[Here in after CC].
6
Wogene Yirko, History of the Post-War Ethiopian Fiscal System…, P. 24.
7
Tadesse Lencho, Towards Legislative History of Modern Taxes in Ethiopia, P. 115
8
For Example, During the Dergue regime we had proclamation No 77/1976 which was designed to
govern issues of rural land use fee. According to this article, every farmer who was a member of an
agricultural producers’ cooperative shall pay 5 Birr. Every farmer who was not a member of an
agricultural producer’s cooperative shall pay 10 Birr and every government agricultural organization
shall pay a land use fee of 2 Birr per hectare and the fee was collected annually between Decembers to
April., See…. Article 8 of Rural Land Use fee and Agricultural Activities Income Tax Proclamation,
Proc. No. 77, 1977, Negarit Gazeta.

34
9-11 of the first Ethiopian written constitution and the main objective of this tax proclamation
was to raise the standard of living of Ethiopian people equally.

According to the proclamation, land tax was levied and collected from the land owners per
‘gasha’9 Birr 15, 10, and 5 for fertile, semi fertile, and non-fertile land respectively provided
that in provinces where the land was not classified in two gashas, the tax payable half of the
rate in force in 1935.10 However, here what is important provision is that, the then Ministry of
Interior was empowered to enact rules and regulations for measurement and classifications of
lands.11

The tax was due on 10 December in each year.12 Failing to pay on the said date, the
landowners have been sued for and recover the tax with the full costs of courts.13
Nevertheless, appeal was a right on the grievance or disagreement on the classification and
measurement of the land to the governor if the decision of the governor was final.14

After two years’ existence, proclamation No.8/1942 was amended and replaced by other
proclamation called ‘Land Tax Proclamation No. 70/1944’. The main justifications of the
amendment were, firstly, the then government wanted to further modernizing based on the
taxpayers’ interest, secondly it was to reduce the problems of estimating the land and finally
to reduce the cost of collection and administration of the tax.15 The other new thing this
proclamation brought was that all services and fees payable before were repealed and
replaced by the land tax.16 That means all types of the payments payable to the government
were substituted by the land tax. The connection between the private individual who own
land and the government with respect to payment was through the land tax only. In the main
time, interpretation was needed for the repealed service and fees, and Land Tax
(interpretation) Proclamation No. 93 of 1947 was enacted. According to article 4 of
proclamation No. 70/1944, this stated that ‘…any other taxes, services and fees heretofore

9
It was land measurement tool then.
10
See Art. 3 of land tax proclamation No. 8, 1942.
11
Id., Art. 7(1).
12
Id.,3(2).
13
Id., Art. 4.
14
Id., Art.7(2).
15
See the preamble of Land Tax Proclamation No. 70, 1944.
16
Id., Art. 4.
35
payable are repealed and substituted by specific tax’. It was to mean that the previously
mentioned provision applied only for obligatory taxes payable in respect of Land Tax and did
not to mean for contribution for spiritual education and church contributions by the will of
the people.17

B. The 1947 Education Tax Law

Different tax that seemed other types of tax from the scratch were levied based on the rural
and urban land holding rights. One of the best examples of this type was Education tax. In
1947, the Imperial Government of Ethiopia enacted Education tax upon the landholders for
raising revenue for the provision of education as a public service.18 As understood from the
preamble of the proclamation, the purpose of this tax was only to expand the coverage of
education throughout the country. The tax was collected with the land and agricultural
income tax of 1944.19 That means the tax payer is expected to pay the tax with the land and
agricultural income tax together. For this tax land was classified as ‘fertile’, ‘semi fertile’ and
‘non-fertile’. For the then provinces Harar, Shewa, Wollo and Arsusi (now Arsi) Education
tax paid Birr 15, 12 and 4.50 for fertile, semi fertile and non-fertile lands respectively and 6
Birr for unmeasured lands there.20 In the same token, for the provinces of Wellega, Sidamo
(now sidama), Illubabur (now Iluababora), Gemugofa (now Gamogofa) and Kefa, the amount
of tax paid Birr 13.50,12, and 4.50 for fertile, semi fertile and non-fertile lands respectively
and 6 Birr for unmeasured lands.21 To the rist holder in Shewa Amhara, the land was graded
as first land, second land and third land and education tax was paid Birr 6, 4.50 and 1.50
respectively. Coming to the other then provinces, mainly Gojjam, Begemidir and Tigrai, land
was unmeasured for Education Tax. However, it does not to mean that, they were exempted
from the paying tax, rather the way they paid was different from the other then provinces.
The other issue has to be raised here is, the Education tax did not conspire urban lands as the
base of tax originally. However, in the 1970s, the urban lands were part of the land holdings
subject of the Education tax.22 Since the replacement of these taxes by the Dergue

17
See Art. 2 of Land Tax Interpretation Proclamation No. 93, 1947.
18
Education Tax Proclamation, Proclamation No. 94, 1947, Negarit Gazeta, 7the year, No. 3.
19
See Arts.3 of Establishment of Official Negarit Gazeta.
20
Ibid.
21
Ibid.
22
Tadesse Lencho, Towards Legislative History of Modern Taxes, P.115.
36
Government in 1978, Education tax was paid unforgettable benefit to the community of the
countries. The tax was of local nature that means the community benefit directly from the tax
they paid through the services provided to them. The level of accountability was good
compared with the other types of tax because the fund was spent for the said purpose only.

The revenue collected through this tax was wholly discharged for the Education expenditures
unlike other types of taxes.23 The revenue was not only had the objective to be discharged for
Education rather it was only for the provinces where the tax was collected. Because Article 8
of the Education Expenditure proclamation stated that, ‘the Local Education Tax collected
pursuant to the Land Tax proclamation of 1944 and the amendment thereto shall be expended
only for the purpose of Elementary Education in the province from which the said tax was
collected’.24 Local Education Board was established having the main duty to follow up all
the tax collected and the expenditures and report to the then Ministry of finance.25 The then
Ministry of Education with the approval of the Local Education Board had to classify the
schools in the country as elementary, secondary and higher education.26 All expenses in
connection with schools classified as elementary schools with the exception of schools in
Addis Ababa were borne by the Educational Tax collected on the provinces where the
schools situated.27 The elementary schools situated in Addis Ababa were excluded because
the city of Addis Ababa had empowered to collect its own revenue. All the money collected
was used for school infrastructure. This philosophy of tax resembled the advocate of the
benefit view of the real property tax.

23
Educational Expenditure Proclamation, Proclamation. No. 95,1947, Negarit Gazeta, 7the
year, No. 3.
24
Id., Art. 8(1).
25
Id., Arts.2-7.
26
Id., Art.9(1) & (2).
27
Id., Art. 10(1).

37
 C. The 1959 Health Tax Law

The other tax law, which stated about levying tax based on the ownership of land, was health
tax law, which enacted in the year 1959.28 As clearly understood from the preamble of the
health tax law, the purpose of introducing this type of tax was because of the need for
additional finance for health services. The then Ministry of Finance was ordered to set aside
the fund only for the purpose of expanding and improving public health facilities and
Health service only, like that of Education tax.29 The amount of tax paid was based on the
classifications of land fertilities.30 The then proclamation stipulated that the then provinces of
Harar, Shewa, Wollo and Arsusi (now Arsi) Health tax paid Birr 15, 12 and 4.50 for fertile,
semi fertile, and non-fertile lands respectively. In the same token, for the provinces of
Wellega, Sidamo (now sidama), Illubabur (now Iluababora), Gemugofa (now Gamogofa) and
Kefa, the amount of tax paid Birr 15, 12, and 4.50 for fertile, semi fertile, and non-fertile
lands respectively. To the ‘rist’ holder in Shewa Amhara, the land was graded as first land,
second land and third to 8th land and Health tax was paid Birr 6, for first land and Birr 0.60
for the 8th land annually for example. Coming to the other then provinces, mainly Gojjam,
Begemidir and Tigrai, land was unmeasured for Health Tax. However, it does not to mean
that, they were exempted from the paying tax, rather the way they paid was different from the
other then provinces. Taxpayers in these provinces paid 30% additional of the taxes he is
expected to pay for the Government in the given fiscal year.

The other issue need to be raised here is, the health tax on urban lands was one of the bases
unlike the education tax did in the beginning stage. The taxpayer paid 30% additional of the
municipal tax in the fiscal year. For example, if the urban landholder is expected to pay Birr
100 municipal tax for the town, then with the Health tax, the taxpayer is obligated to pay Birr
130.

Since the replacement of these taxes by the Dergue Government in 1978, both Education and
Health tax were paid unforgettable benefit to the community of the countries. The taxes were
of local nature that means the community benefit directly from the tax they paid through the

28
The Health Tax, Decree No. 37, 1959, Negarit Gazeta, 18th year, No. 14. [Here in after, The Heal
Tax Decree].
29
Health Tax Administration, Order No. 22, 1960, Negarit Gazeta, 19the year, No. 11.
30
See Arts. 3 of The Health Tax Decree.

38
services provided to them. The level of accountability was good compared with the other
types of tax because the fund was spent for the said purpose only.

3.2.1.2. Real property Tax Laws of Addis Ababa

There was municipal proclamation No. 74/1945 which enabled the Municipal councils to fix
Municipal taxes, to define what municipal taxes mean and to make provisions of summons of
municipal councils.31

As per the proclamation, the towns such as Addis Ababa, Harar, Gondar, Jimma, Dessie and
Dire Dawa were declared as Municipalities where as other towns in the country were classified
as Townships.32 Then the municipality councils were empowered to considered and decide on
different matters save the implementation of the decision come to force after approved by the
then Ministry of interior.33 The Municipality councils had power to decide among others, over
the matters such as to propose town budget and assessment and collection of taxes as well as
administration of Municipal revenue of any kind. Based on municipal proclamation, Addis
Ababa city administration enacted many regulations or the then Orders and legal notices. Even
though, the above-mentioned cities got the same status as of Addis Ababa, there is no evidence
whether they enacted laws on this regard or not.

A. Municipalities General Rate Assessment Rules

Addis Ababa Municipality rule for the assessment and levying of the General Rate on
immovable property, ‘Legal Notice’34 86/1945 was the first law enacted following the
municipal proclamation. According to this law, the general tax rate for land and buildings
located in Addis Ababa was assessed based on the grade of the land and the income or profit
that an owner or a user who has the right to occupy the government land generated.35 The
general rate was determined by tax officers and then approved by the Mayor subject to the
examination and review of the Municipal Council.36 The assessment of the general rate was

31
See the preamble of Municipalities Proclamation No. 74,1945.
32
Id., Schedule ‘A’.
33
Id., Art.4.
34
“Legal Notice”, was used mainly for the publication of Rules and Regulations, and Municipal Law,
authority for which has been delegated to various government officials. It can best be labelled as
subordinate legislation.
35
See Art. 4 of Legal Notice No. 86, 1945.
36
Id., Art. 7.
39
conducted based on the revenue needed to finance the annual budget of the city and this was
done through a general rate list developed, endorsed and published by public notice issued by
regulations every fiscal year.37 The rating lists shall be opened for the public at large for
inspection during the beginning of the year i.e. September. Special notice was communicated
for the owners of immovable properties in writing if the property was assessed for the first time
and if the assessed value was 5% more than the previous years.38 Any tax payer who had a
protest to pay the tax could present his protest in writing with pertinent reasons to municipality
council within 25 days after the notification. Having the objection, the municipality council
shall hold hearing within 30 days from date it received the written protest and might decide for
reassessment or appropriate modification of assessment made. Another important lesson here is
the tax payer can have a counsel.39 All these procedures indicated that how and how much the
then Government tried to be trusted by the Government.

Coming to the exemption, government buildings, religious and charitable buildings or premises
were not included in the tax assessment lists. Here the word ‘religious’ did not to meant that all
types of religions rather it is to mean only the Orthodox church buildings and premises as
understood from the Amharic version of Article 5 of the Legal Notice.40

B. Municipalities General Rate Order

In conformity with the above-mentioned proclamation and legal notice, the Addis Ababa
Municipal General Rate Order, Legal Notice 87/1945 came in place. This order classified
Addis Ababa in to three class areas and each class areas in to two categories for the purpose of
taxation. These are the first-class areas mainly in the areas of what we are calling Piazza,
Merkato, some part of Kollife, Arat Killo, Sidist killo and generally the then centre of Addis
Ababa and had access of main roads in the centres were considered as first class urban
properties.41

The first categories of the first-class area are mainly in the above mention parts of Addis Ababa
and nearby the main roads. The amounts payable was;42,for plots of 50 square metres or less,

37
Id., Art.11.
38
Id., Arts. 9 & 10.
39
Id., Art. 6.
40
See the Amharic version of Article 4 of the Legal Notice No. 86,1945.
41
Addis Ababa Municipal General Rate Order, Legal Notice No.87,1945.
42
Id., Schedule.
40
Birr 2 annually, for plots more than 50 square metres up to 100 square meters, Birr 4 annually
and for plots more than 100 square metres the rate payable on the excess over 100 square
metres was calculated at the rate of Birr 4 per 100 square meters.

The second categories were those immovable properties situated at the distance of 150 metres
from the main roads or from the limits of the first category. Just like the first category, the
Legal Notice stipulated the amount payable for the immovable property situated under the
second category were payable, for plots of 500 square metres or less, Birr 3 annually, for plots
more than 500 square metres up to 1000 square meters, Birr 5 annually and for plots more than
1000 square metres the rate payable on the excess over 1000 square metres was calculated at
the rate of Birr 5 per 1000 sq.

The third categories were those immovable properties situated at the distance of 150 metres
from the second categories up to the second-class area. Just like the first and the second
category, the Legal Notice stipulated the amount payable for the immovable property situated
under the second category were on the other hand, Birr 3 annually for plots of 500 square
metres or less, Birr 5 annually for plots more than 500 square metres up to 1000 square meters,
and for plots more than 1000 square metres the rate payable on the excess over 1000 square
metres was calculated at the rate of Birr 5 per 1000 sq.

The second-class areas were mainly next to the first-class areas. Like the first-class area the
Legal Notice categorized in three.

The first category comprised all immovable properties in the second-class area and within
150 meters from the main roads. The immovable property owner was liable to pay for plots of
500 square metres or less, Birr 2 annually. For plots more than 500 square metres and up to
1000 square meters, Birr 3 annually. For plots more than 1000 square metres the rate payable
on the excess over 1000 square metres was calculated at the rate of Birr 3 per 1000 sq.

The second category comprised immovable properties in the second-class area are not
included in the first category. The immovable property owner was liable to pay for plots of
500 square metres or less, 1 Birr, for more than 500 square metres up to 1000 square meters,
Birr 2 were paid annually. In addition, for plots more than 1000 square metres the rate payable
on the excess over 1000 square metres was calculated at the rate of Birr 2 per 1000 sq.

The third-class area comprised all the land within the limit of Addis Ababa municipality,
which was not included in the two class areas mentioned above.

41
The third-class area all-immovable properties, which were 150 meters from the main road,
were first category. The immovable property owner was liable to pay for plots of 500 square
metres or less they paid Birr 1 annually. For plots more than 500 square metres up to 1000
square meters, Birr 2 annually; and for plots more than 1000 square metres the rate payable on
the excess over 1000 square metres was calculated at the rate of Birr 2 per 1000 sq.

In same token, second categories of the third-class area were not included in the first category
rates payable were; for plots of 500 square metres or less, Birr 1/4 annually; for plots, more
than 500 square metres up to 1000 square meters, Birr 1/2 annually; and for plots, more than
1000 square metres the rate payable on the excess over 1000 square metres was calculated at
the rate of Birr 1/2 per 1000 sq.

C. The Amendment Legal Notice 118 of 1948

Some of the contents on General Rate Rules Legal Notice 86/1945 were later repealed, and
the general tax rate was replaced by percentage rate.43 According to this Legal Notice, 2
percent of the rental value of building leased for rent or utilized for business purposes for a
monthly price above Birr 10 was payable by the owner as per the determination of the Addis
Ababa Municipal Taxes Assessment Committee.44

Here one had to notice that, when reading this Legal Notice, the original Legal Notice No.
86/1945 could be read together because the only thing deleted and added is schedule ‘B’.

D. The 1964 Land and Building Tax Regulation

The Municipal Amendment Legal Notice No. 118/1948 was later replaced by the Addis
Ababa Land and Building Tax Regulation.45 The new regulation comes with no change of the
percentage rate. While the land tax was based on the grade of the land, the building tax was
on the rental value of property rented to tenants or used by owners for business purposes.46

As clearly understood from the schedule attached with the regulation, land was graded for
three grade zones and the first grades sub graded into three and the other two in to two sub
grades. The land taxed was as follow;

43
Amendment Legal Notice No. 87, 1948.
44
Id., Art. 2(2).
45
Art. 3(3) of Addis Ababa Land and Building Tax Regulation, Legal Notice No. 301, 1964.
46
Id., Arts. 6 & 8.
42
 Grade 1 Grade 2

Plots in Sub-Grade Sub-Grade Sub-Grade Sub-Grade Sub-Grade 1(Rates

Sq. 1 1(Rates in 1(Rates in 1(Rates in in Birr)

in Birr) Birr) Birr)

(Rates
Birr)

Up to 50 5 4 3 1.50 1

Above 0.10 0.08 0.06 0.03 0.02

50

Source: Author’s compilation from the Regulation

Grade three is different from the above two and the payment for section one was Birr 2 and 4
for land below or up to 500 sq. and land above 500 sq. respectively. In addition, for the
second section it was Birr .075 and for land below or up to 1000 sq., the land above 1000 was
Birr 0.75 per each additional sq.

Like other regulations, in this regulation there were lands and buildings exempted from tax.47
Those are classified as ‘for both land and buildings’ and for building alone. For both land and
buildings, buildings and their compounds owned by the then Government, schools, public
hospitals, churches, and mosques were exempted from tax.48 Here what good news, were
buildings and compounds owned by mosques were included unlike the previous one.

E. The 1968 Land Tax Classification Law

The Addis Ababa land tax classification regulations were promulgated by the Kantiba49 of the
city of Addis Ababa in accordance with article 6 of the 1964 regulation, Legal Notice No.
301/1964. The 1964 regulation, which was the base for this regulation, was called the
principal regulation.50 The main purpose of the regulation was to announce the classified land
located within city of Addis Ababa by the then Land and Building Assessment Department of

47
Id., Art. 12.
48
Ibid.
49
Kantiba is the Amharic meaning of the English word Mayor.
50
See Art. 1 of Addis Ababa Land Tax (classification) Regulations, Legal Notice No. 341, 1968,
Negarit Gazeta, 27th Year, No. 21.
43
the city, according to the principal regulation.51 The regulation empowered the Land and
Building Tax Assessment department of the city to reclassify the Land and Buildings from
time to time.52

3.2.2. Real Property Tax Laws during the Dergue Era

3.2.2.1. Real Property Tax Laws Applicable in the Country in General

A. The 1976 Urban Land Rent and Urban Houses Tax Law

In 1975 all urban lands and ‘extra houses’53 were nationalized by the Dergue Government
which changed the tenure and tax system.54 Then the Dergue Government enacted
Proclamation No. 80/1976 following the declaration of the above-mentioned proclamation.
The preamble of this proclamation stated about the necessary of the proclamation. It was due
to the increment of the number of urban dwellers and change in the standard of living. These
changes in other words demanded more services and infrastructures in the towns. The then
Ministry of interiors with consultation of Ministry of public work and housing had power to
enact regulations for the better implementations of this regulation.55Addis Ababa city was
given a special power to issue regulation for the better utilization of this proclamation.56

Previously i.e. during Emperor Haile Selassie, as discussed before, taxes were urban land tax
and Building Taxes but since Urban Lands were nationalized, what was paid in lieu of urban
land tax was Urban Land Rent in Dergue Era.

Like other old land rent and urban houses taxes, this proclamation classified urban in to three
grades.57 And according to Article 5 of the Proclamation, a legal possessor of urban land is

51
Id., Art. 3, See also, Art. 6 of Addis Ababa Land and Building Tax Regulation, Legal Notice No.
301, 1964.
52
Id., Art.4.
53
Extra house meant an urban house whether rented or used otherwise owned, other than a single house
required or occupied as a dwelling place by person or family, urban houses required or occupied by an
organization as a dwelling place for its employees or persons under its responsibility and urban houses
required for running business of a person, family, or an organization. See also, Art. 2(3) of Government
Ownership of Urban Lands and Extra Houses Proclamation No. 47,1975.
54
See Arts. 3 & 13 of Urban Land and Urban Houses Tax, Proclamation No. 80, 1976, Negarit Gazeta,
35th Year, No. 25.
55
Id., Art. 19(1).
56
Id., Art. 19(2).
57
Id., Article 4.
44
required to pay annual land rent that is to be assessed on the basis of the size of the plot and
location of the plot in the concerned city, to be categorized as Grade 1, 2, or 3.58 The
Proclamation clearly indicated that the plot used for the construction of residential or
commercial purposes would be treated differently.59 Look the following two tables to
understand more.

Urban land rents for urban land used dwelling house construction were paid based on the
following rates. For instance, a possessor who had a plot of land whose square meter was
1000 Sq. m paid Birr 80,60 and 40 for grade 1,2 and 3 annually until Yekatit 30,
respectively.60

Schedule 1

Area of urban land For grade 1 For grade 2 For grade 3

(Square meter) Birr/ sq. m Birr/ sq. m Birr/ sq. m

Up to 500 0.06 0.04 0.02

501-1000 0.08 0.06 0.04

1001-1500 0.11 0.08 0.05

1501-2000 0.13 0.10 0.07

2000 0.16 0.14 0.12

Sources: Proclamation No. 80/1976

On the other hand, urban land rents for urban land used commercial house construction were
paid based on the following rates. For instance, a possessor who had a plot of land whose

58
Id., Art. 5.
59
See the Schedules attached with the proclamation.
60
Id., Art. 8.

45
square meter was 1000 Sq. m paid Birr 60, 40 and 20 for grade 1, 2 and 3 annually
respectively.

Schedule 2

Area of land Rate of Rent on land Rate of Rent on land Rate of Rent on land
in grade 1(in dollar) in grade 1(in dollar in grade 1(in dollar)

Per square meter Up to 0.06 Up to 0.04 Up to 0.02

Sources: Proclamation No. 80/1976

With respect to the real property tax payable on urban houses, the Proclamation stipulates
that the percentage of the annual rental value of the concerned house was used as a basis for
determination as follow.

Schedule 3

Annual Rental value of houses (in Birr) Tax Rate

Up to 600 1%

600-1200 1.5%

1200-1800 2%

1800-2400 2.5%

2400-3600 3%

3600-4800 3.5%

4800-6000 4%

Above 6000 4.5%

Sources: Proclamation No. 80/1976

As we can see above for annual rental value of up to Birr 600, 1% tax rate applies, and the
maximum rate defined was 4.5% and the rate was progressive with the increase in the annual
rental value and recognizes rate for values that exceed Birr 6,000

The assessed value of houses which is more than Birr 100 shall be made by the then Ministry
of public works and housing or by person or organization delegated by him. And if the
assessment value of houses which is less than Birr 100 shall be made by the then Ministry of

46
public works and housing or by person or organization delegated by him in co-operation with
appropriate cooperative society of urban dwellers.61
After an assessment made, the body that assessed have to submit to the Municipalities or in
absence of it to the town administration.62 The Municipalities or town administration then
shall notify the taxpayers the assessed property tax through registered mail or in person.63

The other importance lesson from this proclamation is the appealing procedures. Appealing
committee had to be organized for this purpose only.64 Then if the taxpayer dissatisfied by the
assessment he/she appealed within 30 days after notification to appeal committee established.
The question is what if the taxpayer dissatisfied by the decision of appeal committee? He/she
granted a full right to appeal to Awraja court after paying the tax or rent within 30 days after
decision rendered,65 Municipalities or Town administration can also apply against the
decision of appeal committee to the Awraja courts.66 Here the right of the taxpayers to
appeal to court is also a good lesson, unlike the current tax system do.

Ministry of Public Work and Housing had an obligation to pay 5% of the rent and tax
collected to the Municipalities or in absence to town administration.67 This provision
indicates that the fund raised through real property tax was not discharged on the urban
centers where it collected. This is against the very characteristics of real property tax, which
is local by nature.

Finally, the proclamation under article 14 listed the real properties, which were exempted
from the urban land rent and urban houses taxes. Accordingly, Public roads, squares,
recreation and sports centers and cemeteries; Places of worship and their compounds,
nonprofit making private schools, hospitals, charitable institutions; government institutions
drawing their budgets from the central Treasury; and welling houses whose annual rental
value is less than Birr 300, were exempt.

61
Id., Art.6.
62
Id., Art. 7.
63
Id., Art. 7.
64
Id., Art. 10.
65
Id., Art. 11(1).
66
Id., Art. 11(2).
67
Id., Art. 13.

47
 B. The 1979 Urban Land Rent and Urban Houses Tax Regulation

The then Ministry of urban development and housing pursuant to the authority vested in him
by Art. 19(1) of urban land rent and urban houses tax proclamation No. 80/1976, it enacted
Legal Notice No. 64 of 1979. The land classification was the same as the proclamation did
with the additional of sub classifications. The urban land classified in to sub classes such as
plot for agriculture and plot business and services.

The new issue added was congress or council or policy committee is empowered to classify
the urban land.68 Place of payment is on the Municipality or center of urban administration is
also new thing added.69 The other provisions are the same as of the proclamation has and
even, the Proclamation seems more detail than the regulation.

C. The 1979 Provincial Urban Land Rent and Urban Houses Tax Regulation

The assessment of urban land rent since 1975 has been conducted by applying a fixed rate per
square meter of land to different land categories according to size or use, as indicated by
Schedules 1 and 2 of Proclamation No. 80/1976 (as amended by Proclamation No. 161/1979).
A different Schedule II of Proclamation No. 161/1979 have replaced Schedule II of
Proclamation No. 80/1976.

Three factors were considered in the determination of the actual land rent. The first factor
was the grading of the urban areas, which was divided into three categories for both
residential and business zones. Each grade of urban area was further subdivided in two sub
grades, namely, urban land for service and industry and agriculture (Proclamation 161/1979
Article 2[3]). The second factor was the use of the land plot for either dwelling or business
and the third factor is size. A fixed annual rental rate is assigned to each category of the size
of the land based on its grading and use.70 The third factor was the size of the urban land.

3.2.2.2. The 1976 Addis Ababa Land Rent and Houses Tax Regulation

Addis Ababa city pursuant to the power of given by Article 19(2) of proclamation No. 80/76,
it enacted its own Land Rent and Houses Tax Regulation, Legal Notice No.36/1976. The
Regulation was intended to repeal the former applicable laws such as mainly Land and

68
Id., Art. 5(1).
69
Id., Art. 8.
70
The rental rate for commercial land, however, varies only based on the grading of the urban area,
because a single rate is applied to each grade irrespective of differences in size.
48
Building Tax Regulation, Legal Notice No.301 of 1964 and Land Tax Classification
Regulation Legal notice 341 of 1968 and others71 too.

To sum up the historical background of real property tax and its contributions, the imperial
Era was good when we compared with the Dergue Era. This is because the change of tenure
system from the private ownership to the Public. The Dergue regime nationalized all types of
lands and many buildings in 1975 by proclamation.72 Due to this, the amount of real property
tax and land rent became diminishing from year to year. The contribution of real property tax
to the national treasury was decreasing from the year 1961-1989. In the years 1961-1965
property tax covered 11.6% of the revenue and 10.6% for the years 1966-1970. The years
1971-1975, 1976-1980, 1981-1985-1985 and 1986-1989, real property tax accounted 9.5%,
8.3%, 7.2% and 6.3% respectively.73

3.3. Real Property Tax in Contemporary Ethiopia

3.3.1. The Ethiopian Federal Structure and Taxation Power in General

The power of taxation for different layers of the Government in the Federal Democratic
Republic of Ethiopia is sprung from the very provisions of the 1995 FDRE constitution. On
this regard, the constitution is said to be more detailed when compared with the expression of
other policies. It assigned taxation power on sources of the revenue for the state and Federal
Governments. The power of taxation as can be understood from the reading of different
provisions of the constitution, it has to be the power of levying, collecting and using the
money collected. The power of levying tax is all about the power of enacting tax law. The
power of levying and collecting are most of the time given together. However, the right to use
the money collected can be shared by the states and Federal Governments according to on
Art.95 of the constitution.74 Coming to the power of taxation given to each level of the
Federal structure, the Ethiopian Constitution goes to allocating taxation powers between the

71
For example, Municipal water rate, License and fees Regulation, Legal Notice No. 112 of 1967 was
one among laws amended by Legal Notice No. 64, 1979.
72
Government Ownership of Urban Lands and Extra Houses Proclamation No. 47, 1975, Negarit
Gazeta.
73
Alemayehu Geda and Abebe Shimeles, Taxes and Tax Reform in Ethiopia, 1990-2003, Research
Paper No. 2005/65, UNU-WIDER, 2005, P. 5.
74
See Arts. 95-99 of FDRE Constitution Proclamation No. 1, 1995, Federal Negarit Gazette, 1st Year
No.1. [Here in after, FDRE Constitution].
49
Federal Government and the Regional States.75 The Constitution classifies taxation powers as
‘taxes exclusive to the Federal Government’76, ‘taxes exclusive to the Regional States’77,
‘taxes concurrent to both the Federal Government and the Regional States’78 and ‘taxes
undesignated’.79 The exclusive power of Federal Government to levy and collect tax are
specified as custom duties, taxes and other charges on imports and exports, income tax on
employees of the Federal Government and international organizations. It also levies and
collect taxes from income, profit, sales and excise taxes on enterprises owned by the Federal
Government, the income and winnings of national lotteries and other games of chance, the
income of air, rail and sea transport services. It shall levy and collect taxes on income of
houses and properties owned by the Federal Government; it shall fix rents. Generally, the
Federal Government has the power of taxation on the incomes, which have been under the
Federal Government jurisdiction. In the same token, the Regional States are empowered to
levy and collect tax from the Regional employees, enterprises and income from private
houses and other properties inside the Regional jurisdiction. The concurrent power of
taxation and collect from profit, sales, excise and personal income taxes on enterprises they
jointly establish. They shall jointly levy and collect taxes on the profits of companies and on
dividends due to shareholders. They shall jointly levy and collect taxes on incomes derived
from large-scale mining and all petroleum and gas operations, and royalties on such
operations. Conversely, to all these power classifications under the constitution, one can
simply understand that the Regional States tax laws are verbatim copy of the Federal tax
laws.80 Almost all Regional States that have issued their own tax laws have been using
Federal tax laws as exemplary with the result that there is almost no difference in substance
between the tax laws of the two Governments.81 The difference is the title give for the
legislations and sometimes the language difference.

75
Ibid.
76
Id, Art. 96.
77
Id, Art. 97.
78
Id, Art. 98.
79
Id, Art. 99.
Tadesse Lencho, ‘Income tax assignment under the Ethiopian Constitution: issues to worry about’,
80

Mizan Law Review, 2010, Vol.4, No.1, PP.38-45.

81
Id., PP.44 ff, see also, ‘አስቻለው አሻግሬ, ‘የታክስ ከፋዮች ቅሬታ አፈታት በኢትዮጵያ (Tax Appeal
Procedures in Ethiopia)’, 2014, Mizan Law Review, Vol. 8, No.1, P.194.
50
The other important provision82 is that the house of the federation and the house of peoples'
representatives shall, in a joint session, determine by a two thirds majority vote on the
exercise of powers of taxation which have not been specifically provided for in the
Constitution.

3.3.2. Real Property Tax under the FDRE Constitution

Both urban and rural lands in Ethiopia are owned by the state and public. That means the
right to ownership of rural and urban land, as well as of all-natural resources, is exclusively
vested in the State and in the peoples of Ethiopia. Land is a common property of the Nations,
Nationalities and Peoples of Ethiopia and shall not be subject to sale or to other means of
exchange.83 However, in the same constitution, every Ethiopian have full right to alienate,
bequeath, and, where the right of use expires, to remove, transfer his title, or claim
compensation for the real property he/she built and to the permanent improvements he/she
brings about on the land by his labour or capital. Thus, buildings can be privately owned and
however, there are many publicly owned buildings mostly, those nationalized during the pro-
socialist governance period.

Approaching to the real property tax in the constitution, as clearly discussed in the up next
section herein, the FDRE constitution assigned the power of taxation for the Federal and
State Governments. The Constitution classifies taxation powers as ‘taxes exclusive to the
Federal Government’, ‘taxes exclusive to the Regional States’, ‘taxes concurrent to both the
Federal Government and the Regional States’ and ‘taxes undesignated’, as discussed here
above. However, the constitution has clear provision about the power of taxation on the real
property. Thus, the power of taxation on real property is opened for argument. The Ministry
of Urban Development and Housing in its proposed real property tax stated that the
constitutional back of real property tax is article 99 of the constitution. The Ministry
considered this tax as a new source of revenue so that; the House of Federation and the House
of Peoples Representatives are expected to jointly decide by the two-third majority vote to
become one type of tax. Even the tax is expected to be given to the urban local governments
without compromising the Federal structure.84

82
See Art 96 of FDRE Constitution.
83
Id., Art. 40.
84
Interview with Ato Abebe Zeluel, General Manager, Real Property Tax Reform Office, MoUDH, 28
March 2018.
51
However, as Tadesse Lencho (2010), argued that under the constitution, the difference
between ‘related’ taxes and ‘undesignated’ taxes are not well defined, and it seems confusion
full between the Federal and State Governments. Due to this reason, both the Federal and
Regional Governments have continued to levy and collect taxes, which are not expressly
stated in the Constitution as theirs.85 Regional Governments have been levying and collecting
real property taxes although these taxes are nowhere mentioned clearly in the Constitution.
For example, the Addis Ababa city administration can fix and collet urban land rent and levy
urban houses tax in the city.86 This is because both levels of governments prefer to abide one
another in the levying and collecting of some taxes. That means the Federal Government has
no confronted the levying and collecting of real taxes and the same is true for the State
Governments to the Federal one. Based on this argument the constitutional back of real
property tax is not a new tax rather the municipalities are practicing this tax. The problem is
just not recognising and assigning it for the appropriate level of government.

The constitution’s provisions can lead for the appropriate level of government which will
levy, collect and used the real property tax.

The power of taxation on real property tax in Ethiopia can be contested by both the State and
the Federal Governments. The powers i.e. levying, collecting and utilizing the revenue can be
the point of arguments.

Levying power of taxation is all about legislation power on the issue of tax. Thus, the power
of levying real property tax can be given for the Federal Government primarily. The
justifications for this assertion are emanated from the points of view that, what the real
property tax is importance. For financial institutions whose focused is to increase the
revenue, may argue that the power of levying real property tax exclusively given for the State
Government and even for the Urban Local Governments. But for the land law lawyers and
land management professionals, real property tax as a tool for real property management is
equally important with the importance of it as a source of revenue and their argument may be
different.

The Constitution of Ethiopia is honestly clear about land management. The Constitution
entrusts the Federal Parliament with the power to enact specific laws on the utilization of land

85
Ibid.
86
See Article 52(6) of Addis Ababa City Government Revised Charter Proclamation, No. 361, 2003,
Federal Negarit Gazette, 9th year, No. 86.
52
and other natural resources.87’ On the other hand, clearly stipulates the role of the states in
relation to the management of land.88 States shall have the powers and functions to administer
land and other natural resources in accordance with the federal laws. Therefore, constitutional
land administration including the power to acquire, develop and transfer land to the ultimate
users is the power of the states and even to the Urban Local Governments. Based on this
constructional doctrine, real property tax, as it is one tool of real property management in
general and urban land management, the Federal Government can enact the framework and
the State Governments act accordingly.

Other supportive argument for the Federal Government to legislate framework law for real
property tax is that, the Federal Government has a responsibility to enact laws to establish
and sustain one political economic community in the country as a whole.89 Leaving this for
the State Governments may Cause for ‘horizontal fiscal imbalance’90 among the states in the
country.91 Applying this tax in one region and leaving the others will discourage investment
and the investors may be amassed in the regions where real property tax is not applicable.

Real property by its nature has many public and national interests unto it. For instance,
exemption has to be decided based on the economic, legal, and political factors of the
property in hand, as discussed under chapter two of this paper. If one takes the political
factor, and assume that if the Federal Government agreed with the other country to exempt
the diplomatic properties such as Embassy buildings from real property tax, how can it do, if
the real property tax power is vested to the Regional Governments? The answer for this
question is probably given from the very beginning. The power of real property tax shall be
given to the Federal Government to enact standards or frameworks. The same is true for other
exemptions, treating individuals in one country differently is not fair.

87
See Art. 55(2)(a) FDRE Constitution.
88
Id., Art. 52(2)(d).
89
Id., Art. 55(6).
90
Horizontal fiscal imbalance is occurred when there are significant financial differences among the
states in the Federation. The problem is more worst when there is legal and technical addition or
subtractions for the state in the federation.
91
Alefe Abeje Belay, ‘System of Division of Revenue in Ethiopia’, European Scientific Journal,
2014, /SPECIAL/ edition Vol.2.PP-95-98.
53
Moreover, the constitution provides the power of promulgating standards for health,
education and science and technology for the Federal Government.92 Real property tax by its
nature has scientific and technology nature because valuation, and cadastral systems are the
very tools to employee effective real property tax nationally. It is hardly to run this tax
without the implementation of these standards.

The other issues worthy discussed here for the purpose of identifying and knowing which
level of governments has to be empower for the real property tax are the power of tax
collection and use. With the support of concrete and constitutional provisions, the researcher
argues that the power of collecting and even to determine the amount of the tax have to be
given for the State Governments. It is because, firstly, as discussed under chapter two of this
thesis, one of the typical characteristics of real property tax is its local nature. The local
nature of this tax is because of the value which would be taxed depends on the local market
where the real property situated. The very purpose of this tax is also to finance the local
governments even bellow the regional level i.e. local government of the urban centers.
Secondly, the State Governments, by FDRE constitution granted the power of administering
land and natural resources according to the Federal laws.93 The laws of real property tax can
be one of the Federal laws used as a tool for land management. Thirdly, the power of
collection has to be given for state and even for municipalities because the constitution under
Art.97 (2) state that States shall determine and collect fees for land usufractuary rights. Here
the word ‘determine’ did not to mean levy rather it is just to regulate or limit the amount of
the fees based on the Federal laws and local factors. One may argue that fees and taxes are
different, however, it is to show that anything which is attached with the land have to
managed and administered by the Regional Governments.

The other issue to be notice is that, the Federal Government has the power of collection and
using real property tax from the Federal domain, i.e. Addis Ababa and Dire Dawa. Even in
doing so, the question may raise because both of the cities have equal status as of states.94
They have their own official parliament and enact their own laws and other policies.

92
See Art. 51(3) of FDRE constitution.
93
Id., Art. 52(1.d).
94
Id., Art. 49. But for the Dire Dawa, this article shall be interpreted for the same application like Addis
Ababa. The city of Dire Dawa has its parliament like Addis Ababa city administration.
54
Thus, as far as, real property tax concerned, the two houses must decide jointly to empower
Federal Government to enact the framework laws and the states act accordingly and then the
urban local governments too. The power of collection and use would be exclusively give for
the State Governments and the states must empower to the Local Urban Governments
according to the constitution.95

3.3.3. Real Property Tax under Other Legislations

There is no new structured law, which governs the real property tax in Ethiopia. What the
Municipalities have been using regarding annual real property taxes are the old laws enacted
during the Dergue Era. The Urban Land Rent and Urban Houses Tax Proclamation No. 80,
and its amendment Urban Land Rent and Urban Houses Tax (Amendment) Proclamation No.
161, which addressed in detail here above, are not expressly repealed. However, there were
laws, which govern the incidental real property tax such as rental income tax and real
property, transfer tax.96

I. Roof Tax and Urban Land Rent Laws

As discussed under chapter two of this paper, the Ethiopian city administrations have been
using the old Urban Land Rent and Urban Houses Tax Proclamation No. 80/76 with its
amendments. This real property tax is known as "roof tax” levied proportionate to the size
and scale of a building, which is in effect a tax on the number and density of houses. The
word "roof tax” is similar to the Amharic "taria gibir". Almost all Urban in Ethiopia has a real
property tax known Municipal tax i.e. urban land rent and urban house tax. Roof tax is levied
on buildings with no reference to land. Land is not subject of what we called roof tax because
land was nationalized when these laws enacted and now is owned by Nation, Nationalities
and People of Ethiopia and has been subject of the so called Urban Lands Rent. Urban land
rent is similar to the Amharic "afer gibir" or "meret gibir".97 Here, the Ethiopian law
recognized that only property owners not lessees, public or private, are required to pay roof
tax.98 Thus, the tax base considers the size of the plot under possession.99

95
See Art. 50(4) of FDRE Constitution.
96
MoUDH, Final report on the property identification and valuation of Mekelle City, 2015.
97
Id., Art.40, see also, Noah Safari, Reform on land and property tax in municipalities, 2009, available
at http://www.aigaforum.com/articles/Reform_on_tax.htm [Last visited on 19 April 2018].
98
Through interpretation of Art. 2915 of The Civil Code of the Empire of Ethiopia Proclamation, Proc.
No. 165/1960, Negarit Gazeta, Extraordinary Issue, No. 2, 1960.
55
The valuation and rates of the so-called roof tax is not clear. Even the place and time of
payment is not known. The very insignificant amount of the roof tax lead the Municipalities
not go door to door to collect the tax. For example, according to proclamation No. 80/76
schedules, the one who has house under 500 secure matters and its annual rental value was
600 ETB he is expected to pay 6 ETB for house tax and 30 ETB for urban land rent, total 36
ETB annually, if the land is categorised under grade one. If the grade increases up to three,
100
the amount is decreasing. Due to these unreasonable administrative and compliance costs,
there are situations where the roof tax was not paid for 5-10 years.101The only way of
payment is when the owner wants any services from the Municipalities.

II. Rental Income Tax Laws

The income tax proclamation stipulated that income from rental of buildings is subject of tax
under the schedule ‘B’ of the proclamation.102 This tax is considered as real property tax and
levied on persons who rented building or buildings.103

The tax rate of rental income for body i.e. other than physical person is 30%.104 The tax
payable on rented buildings shall be charged, levied and collected at the following rates for
individual.105

99
Urban Land and Urban Houses Tax, Proclamation No. 80, 1976, Negarit Gazeta, 35th Year, No. 25.
100
Id., Art. 5, and the Schedules thereof.
101
Final report on the property identification and valuation of Bahir Dar City. P. 38.
102
See Art. 13 Federal Income Tax Proclamation No.979, 2016, Federal Negarit Gazette, Year.22nd,
No.104. [Here in after Income Tax Proclamation].
103
Ibid.
104
Id., Art. 14(1).
105
Ibid.

56
Taxable Rental Income (Per Year) in Birr Rental Income Tax Rate

0-7200 0%

7201-19,800 10%

19,801-38 400 15%

38,401-63,000 20%

63001-93,600 25%

93,601-130,800 30%

Over 130,800 35%

Source: The FDRE Income Tax Proclamation No. 916/2016

The taxable rental income of a taxpayer is the annual gross amount of the income derived
from rental of buildings for the year reduced by the total amount of deduction allowed to the
taxpayer in the given year.106 Accordingly, the taxable rental income is all the amounts
gained by the taxpayer under the lease agreement. This includes any lease premium or similar
amount, all payments payable based on the lease agreement, payments in any means for the
damages of the buildings that has not been used for the repairing the damage to the buildings
and the value of the renovation or improvement made to the buildings if it has been born by
the lessee.107

If the tax payer leased furnished quarters the amounts received attributable to the lease of
furniture and equipment shall be included in income and the gross annual rental income from
the lease of building is not subject of exemption.108

From the amount of rental income tax, what are deducted for taxpayers who had not book of
accounts are any fees or charges, but not tax, levied by a state or city administration in
relation to the buildings or land leased and paid by tax payer in fiscal year and 50% of the

106
Id., Art. 15(1).
107
Id., See Art. 15(2)(a)-15(2)(d).
108
Id., See Arts. 15(3) & (4).
57
gross rental income derived by the taxpayer for the repair, maintenance and depreciation of
the buildings, furniture and equipment.109

For those taxpayers who maintained books of account deduction is allowed to the extent of
expenditures paid to drive rental incomes and paid in the given year. The cost of the lease of
land on which the building is situated, cost of repair and maintenance, depreciation of the
building, furniture of equipment, interest and insurance premium and any fees or charges, but
not tax, levied by a state or city administration in relation to the buildings or land leased and
paid by the tax payer in the tax year.110

Sub-leases are obligated to pay rental income tax for the excess amount received. However,
the owner of the building shall be liable for the rental income tax payable by the lessee fails
to pay the tax.111

When the new construction is finished and available for rent, or when the new building is
rented, the owner of the building and the builder shall notify for the kebele administration
with the TIN112 of the person liable for rental income tax with respect to the building and the
kebele administration in response has to notify for the tax authority.113

The rental income tax is not only for regular lease rather, the gross annual rental income from
casual rental of real property is also taxable at rate of 15%.114

However, the valuation system for rental income taxation is not modern and is subject for the
possibility to be hidden. There is no standard for valuation, each local office has its own and
no formal valuation education.

The book of accounts and the lease contracts, most of the time, presented to the tax authority
are not original rather fake. There are also many buildings which are new and rented but not
notified for the taxing authority. These are either deliberately or due to lack of manpower
who will follow up the said tax.

109
Id., Art. 15(5).
110
Id., Art.15(7).
111
See Art.16 of the Income Tax Proclamation.
112
TIN is an abbreviation stands for “Tax Identification Number” which is unique for the individual
taxpayer.
113
See Art.17 of the Income Tax Proclamation.
114
Id., Art. 58.
58
 III. Real Property Transfer Taxes and Fees

Real property transfer taxes (Capital Gain Tax)115 are categorized under the incidental
property taxes. That means these taxes and fees cannot be planned by the urban centres
rather conditional. They applied on real estate property. The transfer may be a sale,
inheritance or gratuitous. In the case of real property transfer acquired through the lease
system, to prevent transaction of vacant land and perhaps speculative tendencies the
surveyor will check if 50% of the construction is built to qualify for transaction process.116
However, regarding the speculation issue, Article 24 of the urban land lease holding
proclamations seemed paradoxical because it allowed the transfer of even the vacant land.117

The real property transfer tax is levied and collected from the sale value of properties. In
case of properties, value assessment of the engineer from the public office is used as a
reference for the determination of the base for the transfer tax. One idea behind a public
officer valuing property transaction is to discourage the transfer of vacant plots of land and
undervaluing during the sale process.

Real property transfer taxes are a stamp duty, TOT and income tax from the sale of
investment capitals. The respective government organ can determine fees, which are
collected with the real property tax, and they may different from place to place.

The Stamp Duty Proclamation No. 110/1998 specifies that the buyer of an immovable
property shall pay stamp duty at the rate of 2% of the sales amount.118 TOT for this purpose
is 2% as stipulated under Art. 2 of the Proclamation,119and the income tax from the sale of
investment capitals is 15%.120

115
Milwida, Guevara, Real Property Taxation in the Philippines, Ford Foundation, Manila, p. 1-5
116
See Art. 24(3) of Urban Lands Lease Holding Proclamation No. 721, 2011, Federal Negarit Gazeta
18th Year No. 4.
117
Ibid., If a lessee, except for inheritance, wishes to transfer his leasehold right prior to
commencement or half-completion of construction, he shall be required to follow transparent
procedures of sale to be supervised by the appropriate body. In the event of transfer of leasehold right
in the effected lease payment including that interest thereon calculated at bank deposit rate; value of
the already executed construction; and 5% of the transfer lease value; shall be retained by the lessee,
and the remaining balance shall be paid to the appropriate body (Government organ)
118
See Art. 3(12) and the Schedule attached Stump duty proclamation No. 110, 1998, Federal Negarit
Gazette, 4th Year No. 36.
119
See Arts. 2 of Turnover Tax Proclamation No.308, Federal Negarit Gazeta, 9th Year No. 21, 2002.
[Here in After TOT].
120
See Art. 59(2)(a) of Income Proclamation.
59
Real property transfer fees are varied from town to town. For example, at Bahir Dar,
residential buildings, property transfer tax and fees calculated as sum of 2% of stamp duty,
3% Municipal service fee i.e. 5% of the sale value and paid according to the agreement of
the buyer and the sale but principally payable by the buyer. However, if the house doesn’t
serve for residential purpose for two years, a 2% of TOT must added,121 so that the summed
rate is going to be 7% of the sale value. For the commercial buildings, it calculated by
adding the above 5%, turnover tax 2% and 15% tax for the income obtained from the
transfer of investment asset or buildings held for business, factory, and office, not private
buildings held two years and used wholly for residential for two years before and equal to
21%.122 The other example is Addis Ababa city administration. In Addis Ababa, residential
buildings, property transfer tax and fees calculated as sum of 2% of stamp duty and 4%
document insurance fee (service fee) i.e. 6% of the sale value and paid according to the
agreement of the buyer and the sale but principally payable by the buyer. However, if the
residential house did not serve for two years it is treating like the commercial buildings. For
the commercial buildings, it calculated adding the above 6%, turnover tax 2% and 15% tax
for the income obtained from the transfer of investment asset or buildings held for business,
factory, and office, not private buildings held two years and used wholly for residential for
two years before and equal to 22%.123

Title transfer of buildings is valid only upon getting registered in the concerned government
office, and the buyer is required to settle the real property transfer tax. A contract of sale of
an immovable can only be valid if both the requirements as to writing and registration before
a court or a notary are met with.124 This indicates that in the real property transfer tax, it is
not the tax authority only empowered to collect money rather the urban land management
offices also charged for the registration fees. There is integration between the tax authorities
and the land management offices in the urban centres because the urban land and property
registration offices do their tasks after they receive a receipt for the transfer tax.

121
See Art. 7 of TOT.
የአማራ ብሔራዊ ክልል መንግሰት፣ የኢነዳስትሪ እና ከተማ ልማት ቢሮ፣ የከተማ ቤት እና ይዞታ ስመ -ብረት
122

ዝዉዉር ለመፈፀም ተሻሽሎ የወጣ የአፈፃፀም መመሪያ ቁጥር 4, 2006. ገፅ.11.

123
የአዲስ አባባ ከተማ አስተዳደር መሬት ማኔጅመንት ቢሮ፣ የይዞታ አስተዳደር አሰጣጥ መመሪያ ቁጥር
12/2004፣ ገፅ. 46. See also, Art. 59(2)(a) com. Art. 5(7)(a) and (b) of the Income Tax Proclamation.
124
See Art.1723 of CC.
60
Upon receiving the contract or judicial order on the transfer of a property, the Government
office for this task pursues the billing and collection of the property transfer tax. As both the
transferor and transferee are available in most contractual settings, tax collection is usually
not complicated. Even when only one of the parties appear after processing the sales or
donation contract before a public notary or court of law, the transferee could get the title
transfer service upon settling the transfer tax.

3.4. Summery
Real property tax in Ethiopia was introduced during the modernization of the country’s tax
system in 1940s. The first real property tax law i.e. Proclamation No. 8/1942 was enacted in
1942. Following this, the real property tax legislations that were applicable in the country as
whole or for Addis Ababa Municipality come to be implemented. The 1947 Education Tax
and the 1959 Health Tax, which were levied based on land holding rights have been brought
on the board during the imperial era and can be categorized as real property tax laws. Based
on Municipal Proclamation No. 74/1945, the then Addis Ababa Municipality, enacted
Municipalities General Rate Assessment Rules Legal Notice 86/1945, and levied tax on
immovable property. Other legislations promulgated based on this law such as Municipal
General Rate Order, Legal Notice 87/1945 was introduced. Then after 3 years, Legal Notice
86/45 was repealed by Legal Notice 118/1948 and the general rate was replaced by percentage
rate. In 1964, the Addis Ababa Land and Building Tax Regulation, Legal Notice No. 301, come to
enforce by replacing the 1948 Legal Notice. This regulation brought two types of taxes: land tax
levied based on grades and building tax levied on the annual rental value of the building with same
percentage rate as of the previous.

Come to the Dergue era, the 1976 Urban Land Rent and Urban Houses Tax Proclamation No.
80/1976 and Regulations enacted for the implementation of this proclamation and for Addis
Ababa City Administrations Land Rent and Houses Tax Regulation can be mentioned. There
was urban land rent and urban house tax. For urban land rent, three factors were considered:
grading and sub grading, the purpose of the urban land (dwelling or business) and the size of
the land. Based on these factors fixed rate for each was applied.125 For houses, tax was
calculated base annual rental value depending on the purpose of the house i.e. for dwelling or
for commercial.

125
Schedules 1 and 2 of Proclamation No. 80, 1976 (as amended by Proclamation No. 161, 1979).

61
Nowadays, the Ethiopian city administrations have been using the old Urban Land Rent and
Urban Houses Tax Proclamation No. 80/76 with its amendments. These are what we are
calling ‘roof tax’ or in Amharic ‘taria gibir’, and ‘urban land rent’ or Amharic ‘afer gibir’,
traditionally.

There are other scattered property tax laws, which are termed as ‘incidental property taxes’.
Such taxes are rental income tax and real property transfer tax. Rental income tax is payable
based on the income generated by leasing the building. The tax rate is different for body
corporate and physical person. It is also different for buildings depending on the purpose that
the building is providing. The real property transfer tax is collected by the collaboration of
both the taxing authorities and the land administration and management office. The new right
cannot be registered on the real property right registration document and title deed cannot be
prepared unless all the taxes have been discharged.

Therefore, there is a legal gap that can be solved for the annual real property tax in the
country because those laws concerned on this annual real property tax are not modern and fit
for purpose. The urban local governments in the country are unable to generate enough
revenue for the cities development. The problem of real property management can be also
solved if the country and urban local governments apply structure real property tax that has
comprehensive objectives. However, it does not to mean that there are not real property tax
laws. As discussed here above, the rental income tax and property transfer taxes are there.
These taxes are incidental and urban local governments cannot plane exactly to collect them.
The revenue collected via these taxes is out of the annual budget because, for one thing they
are conditional and for the other thing, they are collected and send to the central treasury. The
only money the urban local government used is the fees: not the ta

62
CHAPTER FOUR: THE ON-GOING REAL PROPERTY TAX REFORM IN
ETHIOPIA

4.1. Introduction
After identifying the real problem in real property tax, this chapter brought to analyze the real
property tax reform process. The researcher tried to investigate the reasons why the Ethiopian
Government wanted to reforming real property tax. The preconditions for real property
reform are worthy discussed in this chapter. The government organ empowered to draft real
property tax and the powers and responsibilities of each levels of government such as the
Federal, Regional and Urban Local Governments are the areas discourse here. The proposed
real property tax’s base, rates and exemptions principles are addressed. The instructional
frameworks such as urban real property registration and cadaster, real property valuation and
other institutions like the review and appeal committees are also discussed. The researcher
tried to draw the challenges that the Ethiopian government faced to finished and implement
the real property tax reform.

4.2. Why Real Property Tax Reform is Needed in Ethiopia?

The reasons for undertaking real property tax reform vary from country to country. In some
countries, real property tax reform was part of an overall reform of local government
structure and finance. In other countries, it was part of a reform of the overall tax system.
And still other countries, real property tax reform has been carried out on its own, without
being part of other government initiatives. Generally, the main reasons of real property tax
reform in the different countries are summarised as to simplify the tax system, to raise more
revenues from property taxes, and to remove inequities in the tax system.1 The Ethiopian case
is not different from these reasons. Real property tax reform is needed in Ethiopia because of
the following main justifications.2

1
See Generally, John, Muellbauer, Property Taxation and the Economy after the Barker Review,
Blackwell Publishing, Oxford, UK, 2005, PP.99-117.
2
MoUDH, Concept Note to reform real Property Tax Legislation, 2013, p.12.

63
4.2.1. To Capture Real Property Increments and Generate Revenue:

Ethiopia as a country have been striving to generate finance for the development projects.
Tax revenue was 12.5% in GTP1 and this share of revenue is expected to be 17% in GDP2.
To increase the tax share of the national revenue especially at the local level, it is tricky by
using the existing system and the new policy and new sources of tax must be discovered.
Therefore, the Federal Government set economic objectives, including to establish a separate
tax policy.3 The Government of Ethiopia planned to modernize the existing tax collection
system and to introduce new sources of taxes in the country. To do these and more other tax
related activities ‘Tax Policy Directorate’ was formed under the Ministry of Finance and
Economic Cooperation in 2017. The main agenda of the Tax Policy Directorate is to enable
the tax revenue to be the leading finance source in the country.4 In the country, revenue from
urban land is alarmingly increasing from low starting point. However, as suggested by
different scholars,5 this is by land leasing arrangements than real property tax.6 This is a
problem in the country, particularly in the long run, while it may generate very substantial
resources in the short run. Urban land leasing system is less sustainable and progressive than
real property tax for the following reasons. Firstly, land lease fees do not recapture any of the
value of structures built on the land and do not capture increments to value over time. This
means that the value increment due to the private or public investment is not reconsidered as
times go. Secondly, lease fees are fixed sums of money, determined at a specific point in
time, that do not provide continuous payments like taxes. The government organ empowered
to lease public land might set the bench mark price based on different scenarios and calculate
the lump sum that could be paid. Thirdly, lease fees are fickle and narrow revenue source.
Fourth, the purchasing of leases through public sale drives up land prices which the state
cannot continue to regularly capture without property tax, provides no disincentive to
speculative property development, and may encourage it. Fifth, land leasing auctions are also
increasingly associated with the displacement of low-income communities, driving the poor

3
MoFEC, Growth and Transformation Plan (GTP II) in brief, Addis Ababa, 2015.
4
Interview with Ato Mulay Woldu, MoFEC, Director, Tax Policy Directorate, 28 March 2018.
5
See for example, Tom Goodfellow, Property Taxation and Economic Development: Lessons from
Rwanda and Ethiopia, SPERI Global Political Economy Brief, No. 4, 2016 [Here in after Tom
Goodfellow, Property Taxation and Economic Development: Lessons from Rwanda and Ethiopia].
6
Id., p. 7.
64
further and further afield as cities expand to get more funds.7 All these are reasons that makes
lease system only is not advisable for Ethiopia to generate revenue. To this end, it is
important to notice that the Republic of China, which has the world’s largest and most well-
known public land leasing system introduced real property taxes in January 2011, in two
cities, Chongqing and Shanghai, hoped that controlling skyrocketing housing prices and
stabilizing local governments’ revenue sources.8 After the lease system has been introduced
in Ethiopia, any individual or organization (with exception of exempted organizations)9 who
possessed urban lands have been forcing to pay lease fees substantially higher than land rent
they had paid previously and the people who are paying urban land fees are already feeling as
they are taxed.10 The reason is the misunderstanding of the lease fee and real property tax.
This confusion is not only on the taxpayers but somewhat within the elites and government
officials.11 Thus, one must understand that lease is a means of acquiring bundles of rights on
the urban lands. It is like acquiring of a building through sale. An individual who bought a
building is not exempted from real property tax. Real property tax and lease fee are
completely different concepts.

Therefore, as it is concluded under chapter three of this paper there are serious gap of real
property laws to accomplish the government’s objectives of value capture and generating
revenue for the local governments. Some of existing real property tax laws are very old and
unfit for the current situation, and the others are scattered in different proclamations,
regulations and directives. These laws are not even enough to generate revenue across
municipalities and it is deemed necessary to update and structure the real property tax
system.12 Even the revenue collected through rental income and property transfer taxes is out
of the annual budget because, for one thing they are conditional and for the other thing, they

7
Id., p.8.
8
Denis, Nitikin, et al, Land Taxation in China: Assessment of Prospects for Politically and
Economically Sustainable Reform, Annals of Economics and Finance 13-2, Pp.489-528, 2012, P.489
9
See Art. 12 of Urban Land Lease holding proclamation No. 721, 2011.
10
Tom, Goodfellow, Property Taxation and Economic Development: Lessons from Rwanda and
Ethiopia, p. 9.
11
Interview with Ato Abebe Zeluel, 28, March 2018.
12
Interview with Ato Abebe Zeluel, on the issue of what are the justifications for real property tax
reform in Ethiopia, 28 March 2018.

65
are collected and send to the central treasury. The only money the urban local government
used is the fees: not the tax.

4.2.2. To Use as a Tool for Real Property Management:

The other important justification which is not expressly stipulated under the proposed real
property tax is a tool as real property management. Real property taxation can act as a tool to
manage land use, urban density and expansion, land speculation13 and transactions. Real
property taxation is often used as an urban management tool. For example, how land-based
taxation is used has a significant bearing on urban structure and patterns. This is because real
property taxation can influence the quantity of urban land used, speculations, transactions,
and land market. This is particularly important in the context of rapid urbanization and
changing land use such as conversion of rural land to urban land.14 Real property tax system
that ensures transparency, promote market system, reduce real property transaction cost, and
help to fight against rent seeking practice. The property owner is secured his ownership or
possession by dully paying real property tax. The receipt of real property tax can be evidence
for the ownership or possession and these can be brought to the court of law to proof the
ownership save the counter rebut ability of the evidence.15 It is also the means to acquire
property ownership. This ascertained by the 1960th civil code of Ethiopia under Article 1168
which states as ‘the possessor who has paid for fifteen consecutive years the taxes relating to
the immovable shall become the owner of such immovable.’16 That is why the same civil
code obligate the owner or lessor (on the immovable is in lease contact) has a burden to pay
tax.17 Since the valuation and cadastre will be furnished the real property, tax will facilitate

13
Land speculation is a financial activity that involves the purchase of real estate with the hope that the
price will increase. Most land purchases can be better referred to as real estate investment, since land
tends to appreciate over time due to factors such as scarcity. Speculating on land typically involves the
purchase of real estate that may not lose value, and often refers to activities that took place in the early
history of the United States. As there were vast expanses of public land available throughout much of
the history of the United States, land speculators sometimes bought up large parcels with the specific
intent of withholding them from the market. This very act of land speculation could drive prices up, but
sometimes had detrimental effects as well. Therefore, if countries levy high real property on idle land,
speculators may have retreated from purchasing land for future expectation. See, https://legal-
dictionary.thefreedictionary.com/Land+speculation ( last Visited on December 3, 2017)
14
Sietchiping, Innovative Land and Property Taxation, United Nations Human Settlements Programme
(UN-HABITA).
15
See Art. 1168 of CC.
16
Ibid.
17
Id., Art.2915.
66
the real property transaction and reduce the cost of transaction. Nevertheless, the proposed
real property tax has no clear saying on how it is a tool for urban lands management.
Speculation is the rooted problem in Ethiopian city; however, there is no stressed attention
for this problem. The other tacit justification is that if the real property is managed and
financed for the infrastructures and social services there may be strong democratic city
management. This in return will bring good governance in the urban centres.18

4.3. The Endeavors to Reform Real Property Tax

Real property tax reform is constantly more political than its technical exercise.19 The special
characteristics of real property tax discussed in chapter two of this paper play an important
role for the political sticky of the tax especially in the developing countries. Just as it is
agreed by many scholars’ real property tax reform in developing countries noted many issues.
There must be clear goals, strong commitment from all levels of government, careful and
detailed plans with respect to legislation, valuation, administration, training, collection and
adjudication, and most importantly, political acceptance of the need for the reform.20

The Ethiopian Government through the then Ministry of Urban Development, Housing and
Construction (MoUDHC), now Ministry of Urban Development and Housing (MoUDH)
established one project office called ‘Real Property Tax Reform Project Office’, now
changed to ‘Urban Revenue Enhancement office’ with the financial aid of Bill and Melinda
Gates Foundation in 2012.21 The main objective of the project office was enabling the
Ethiopian cities to generate sustainable, efficient, and reliable revenue through different
means of sources. Among the options, that the office had in hand is real property tax. The
project office has been undertaking to reform urban real property tax system provided that
technically feasible and financially viable basis. As part of the activities, officials and experts
of the project office paid official experience sharing visit from the Western countries that had
experiences in reforming the real property tax and used for good purpose.22 Then, the

18
Interview with Ato Abebe Zeluel, 28 March 2018.
19
Richard M., Bird and Enid Slack, International Handbook of Land and Property Taxation, Edward
Elgar Publishing Limited, Northampton, Massachusetts, USA ,2003 p.64.
20
Ibid.
21
Interview with Ato Abebe Zeluel, 28 March 2018.
22
Interview with Ato Meksud Heruy, MoFEC, Urban Revenue Reform Project Office, Capacity
building and communication Unit coordinator, on the Issue of what activities undertaken to reform real
property tax, March 27, 2018[Here in after, Ato Meksud Heruy].
67
government undertook pilot study on real property identification and valuation, in cities of
Bahir Dar, Mekelle and Dire Dawa. However, Addis Ababa was not included despite its
massive accumulation of real property wealth. One study concluded in Ethiopia the people
felt as they are taxed, and there would be too much resistance, both because of the extent of
interests in real property and a general concern not to inflame the significant political
opposition to the regime that exists in the city. More than this, the study elaborated that in the
capital Addis Ababa, public opinion and maintaining political support have been significant
factors behind the limited attempts to effect property tax reform since the 1990s.23 Some
others argued that the Ethiopian Government assumed that real property tax will discourage
real estate investment because real estate investment is one of the attractive investments for
non-Ethiopians.

Ato Abebe Zeluel, General Manager of the project of office has other justification for the
exclusion of the capital from the pilot study undertaken. One and main objective was its
difficult and complexity to take Addis Ababa as sample. It is very simple to take pilot studies
in other three cities for Addis Ababa but taking the study of Addis Ababa for other seemed
difficult.24 The government is presumed to be politically welling because real property tax
reform requires a political champion. Nowadays, the project budget is phased out, but the
government is financing from the central treasure. This indicated that the government
commitment is there to reform the real property tax. All activities like, Urban Property
Registration and the pilot cadaster projects have been financing by the Government just to
support the real property tax reform keeping other advantages of these projects.25 However,
political commitment is more than this. The government by any means did not disclose the
process of real property tax progress. Just it may be the fair of political resistance.

4.3.1. Preconditions for Real Property Tax Reform

To implement property tax reform successfully, there are basic elements need to be in place:
these are preconditions for reform. The preconditions may depend on the nature and extent
of real property tax reform.

23
Tom Goodfellow, Property Taxation and Economic Development: Lessons from Rwanda and
Ethiopia, 2016 p. 7.
24
Interview with Ato Abebe Zeluel, the Issue of pilot studies, 28 March 2018.
25
Ibid.
68
For example, if the reform intended to focus on the assessment base, a precondition for the
successful implementation of that reform is the availability of technical expertise or
valuators. Other preconditions for property tax reform embrace the existence of a cadastre, a
land registration system, the capacity of Local Urban Government, and a solid administrative
infrastructure. The other precondition critically importance is the political will of the ruling
government of a given country. Practically, what has been difficult to commence successive
real property tax reform in the world is political motivation. The Governments assumed that
they might face of significant taxpayer resistance if they go ahead. Furthermore, they are
prone to political intervention often resulting in the failure to regularly reassess real property
values. For instance, in Kenya, the primary obstacle to implementing real property tax reform
was lack of political will and additionally weak administration.26

All the above-mentioned preconditions are required to reform real property tax and none of
them are achieved by the Ethiopian Government because it is a deep-seated reform not to
only on valuation, collection or administration only.27 The real property valuation system is
very traditional and need technical expertise. On this regard the department of real property
valuation has been opened in Bahir Dar University, Institution of Land Administration by the
very incitation of the Ministry of Urban Development and Housing.28 However, education in
one university is not expected enough to produce experts on this regard for the reform. Real
property tax particularly requires an updated registration and information system of real
property ownership. On this issue regard, the government has been installing but the progress
is not promising as the experience drawn from different cities in the country.29

4.3.2. Which Government Organ Should Draft Real Property Tax Laws?

From different literatures, it is understandable that Ministry of Justice, Ministry of Finance

Parliamentary councils and so on are empowered to draft the tax legislations. Yet, in
Ethiopia, there is no clear stipulation that shows which Government organ is mandated.

However, the Ministry of Finance and Economic Cooperative based on proclamation No.
916/2015 which provided that ‘[t]he Ministry of Finance and Economic Cooperation shall

26
Remy, Sietchiping (eds), Innovative Land and Property Taxation, United Nations Human
Settlements Programme (UN-HABITAT), Nairobi, Kenya, 2010.
27
Interview with Ato Habitamu, Legal Expert, MoFEC, 27 March 2018.
28
Interview with Ato Desta G/Georgis, MoUDH, Urban Revenue Reform Project Office, Real Property
tax reform Unit Coordinator, on the Issue of what preconditions are needed and what did your office
do, March 28, 2018[Here in after Ato Desta G/Georgis].
29
Ibid.
69
have the powers and duties to: initiate economic cooperation policies and fiscal policies that
particularly serve as a basis for taxes, and duties; and follow-up the proper implementation of
same’30is presumed to be the government organ empowered to draft tax legislations. Because
according to this proclamation, one may argue that tax is one part of fiscal policy of Ethiopia
and this is an inherent power of the Ministry of Finance and Economic Cooperation. The
Ministry has been drafting tax proclamations i.e. primary legislations in practice.31 The other
argument may be that the drafting power of tax legislations is for the Ethiopian Revenue and
Custom Authority (ERCA) because the tax administrative power is given to it and should
know the real problem of the tax laws during the implementation process. On the contrary,
there may be an argument that since ERCA is the administrative organ, it should not be only
it empowered to draft tax legislation.

There are stakeholders, which have interests in the tax laws involved to the legislative
drafting of the tax laws. Concerning the secondary legislations i.e. regulations and directives,
the respective primary legislations empowered the council of Ministers to enact these
regulations. The MoFEC or ERCA may enact directives.32 However, some proclamations do
not give delegation for any one of the above-mentioned organs regarding to the tax
regulation.33

Coming to the real property tax laws, the same argument applied for it. However, the
Ministry of Urban Development and Housing took the first responsibility in 2012.34 The
reasons that the MoUDH undertook different activities for the drafting process of real
property tax law is because of its responsibility to support the urban centers in the country to
enhance revenue through the sustainable means of revenue sources. That is why the then
Ministry of Urban Development and Construction and with the support of the Gesellschaft
für Internationale Zusammenarbeit (GIZ) and the Ethiopian Civil Service University has
developed a training program for revenue enhancement planning to urban local government

30
See Art. 18 of Definition of Powers and Duties of the Executive Organs of the FDRE Proclamation
No.916, Federal Negarit Gazette, Year 22nd, No.12, 2015.
31
Interview with Ato Mulay Woldu, MoFEC, Director, Tax Policy Directorate, 27 March 2018.
32
See Art. 8(5) of VAT Proclamation No. 285, Federal Negarit Gazette, Year. 8th, No.33, 2002.
33
VAT proclamation No. 285 is the best example for this assertion.
34
Interview with Ato Abebe Zeluel, on the Issue of is MoUDH legitimate draft tax laws, 28 March
2018.
70
officials.35 Revenue enhancement means that a city administration or municipality must be
committed to optimizing the revenue sources that are legally and administratively available.
It was even to discover the new sources based on the study. The intent is to use each source
of revenue to its fullest potential in accordance with the wider goals and priorities of the
country. Revenue enhancement involves exploring opportunities to diversify revenue sources
when existing revenues are inadequate to meet the demands of the citizens. The capacity for
city administrations to supply urban services and undertake the necessary infrastructure
development is naturally constrained by limited financial resources.36 Real property tax is one
of others identified by the ministry to support the urban local Governments as per the General
manager of the project office. Apart from this, even if the proposed law has no clear maxim
about the real property tax as a tool for land management, MoUDH has a responsibility to
establish systems to urban land management.

Hence, to draft real property tax law, the mandated organ is primarily the MoFEC, but
committees have been organized for this purpose. The first committee is the steering
committee which contains the Minister of Ministry of Urban Development and Housing, one
state Minister from the same Ministry, state Minister from the Ministry of Finance and
Economic Cooperation and vice director of Ethiopian Revenue and Custom Authority. They
are four in number and the Minster of MoUDH heads the committee. The main
responsibilities of the steering committee are to show the road map of real property tax and
supervised the technical committee. It also empowered to evaluate the work of the same
committee. This committee also has the responsibility to consult the work to the other higher
executive organs to confirm with the political will of the government in general. It provided
the background information and reform strategy for drafting a prototype legislation to guide
property tax restructuring for the technical committee.37 Up to now, the steering committee
discussed and passed decision on the following agendas such as the constitutional power for
municipalities to tax real property, the division of taxing power and responsibilities for
property taxation among various levels of Government and definitions and scopes of current
property taxes, including their tax bases and rates. The methods of property valuation for tax

35
MoUDHC, Revenue Enhancement Plan Guide for Ethiopian City Administrations, Working Manual,
Published by GIZ.
36
Ibid.
37
Interview with Ato Desta G/Georgis, 28 March 2018.
71
purposes, appeal procedures, penalties for noncompliance and capacity building and public
outreach strategy were also the core topics given for technical committee.38

The second committee as indicated here above is the technical committee, which comprises
six experts from the MoUDH, two members from MoFEC and ERCA each. The main task of
these committee has been preparing all the necessary prototype of laws and other documents.

The draft legislation was the first task for this technical committee. As the first stage in the
drafting process, a framework Concept note has been developed to capture a refined and
shared perspective of the concept, contents and objectives of real property tax among the
local and international multidisciplinary team of experts and project management staff of the
modernized property tax system. The Concept note is a product of a series of discussions and
13 revised paper works by and among the team of experts and the project manager. Then the
task of drafting the legislations is primarily stimulated by the project on modernized property
tax system of the Ministry of Urban Development and Housing. Thus, the drafting process
has been guided and informed by the concept, principles and objectives of real property tax to
the extent it applies to land and landed property.39

For this purpose, relevant information has been drawn from legislations enacted concerning
real property tax in Ethiopia before and after the FDRE constitution by the technical
committee. The legal developments and practices of other countries are also taken into
account through a review of literature that has been conducted by the expert team
commissioned for the task even if it is not clear which countries’ experiences.

As per Ato Abebe Zeluel, these committees have been working since 2012 for this purpose.
After they finished their respective works, the draft proclamation will go through the
Ministerial level discussion. Then based on the discussion, comments will be revised (if any)
and submitted to the MoFEC legal service department. The Legal Service Department of the
MoFEC will submit to the Attorney General and the attorney general in return will submit to
the council of ministers for further discussion. House of Peoples Representative, then, may
proclaim as a separate proclamation like other proclamations. Here, the process of legalizing
the proclamation has to be the same as others. What makes difference the proposed
proclamation is that different stakeholders’ participation is observed unlike the other tax

38
Interview with Ato Abebe Zeluel, 28 March 2018.
39
Interview with Ato Amilaku Adamu, Chairman of the technical committee, 29 March 2018[Here in
After Ato Amilaku Adamu].
72
legislations proclaimed before?40 From this perspective, the integration of different
stakeholders is appreciable.

The proposed real property tax is expected to empower the urban local governments to collect
and use the real property tax revenue.41 It is permissible by the Constitution to enact a
proclamation by which the Houses of the Federation and Peoples Representatives can jointly
appoint municipalities with proper supervisions from the Federal and Regional Governments
to administer the modern property tax system.42 However, the constitutional back of this real
property tax is debatable, because the FDRE constitution stated that the State Governments
are empowered to levy and collect taxes and duties on revenue sources reserved to the States
and to draw up and administer the State budget.43 This means that it is not mandatory to take
to the joint session rather the House of Peoples Representative can proclaim the framework
laws. However, the framework like other proclamations and can assign the powers for the
State Government.44

4.3.3. The powers of the Federal, Regional and Urban (Local) Governments

4.3.3.1. Powers and Responsibilities of the Federal Government

Unlike other taxes, real property tax needs the synergy of different organs and levels of the
government in general. The organs of governments such as cabinets, land administration and
management offices, the tax authorities and judicial organs shall have their own
responsibilities with respect to the real property tax. This arrangements and synergy of organs
can be observed at each level of the governments i.e. the Regional and Local Urban
Governments. Thus, at the Federal government through the MoFEC and MoUDH shall have
specific responsibilities.45

I. Responsibilities of MoFEC

The Ministry of Finance and Economic cooperative is the principal organ empowered to draft
the tax policies and legislations as worthy discussed here above. Therefore, the Ministry

40
Interview with Ato Habtamu, Legal Expert at MoFEC, 27 March 2018.
41
Interview with Ato Abebe Zeluel, 28 March 2018.
42
See Art. 99 of FDRE Constitution.
43
Id. Art.52(2)(e).
44
See for Example, Art. 24 of Investment Proclamation No. 769, 2012, Federal Negarit Gazeta, 18th
Year No. 63.
45
MoUDHC, Concept Note to reform real Property Tax Legislation, 2013, Pp.13 & 15.
73
could have among others, the following specific responsibilities on the real property tax, such
as to:
a) It shall draft the Real Property Tax Proclamation at the Federal Level

The MoFEC have to draft the Federal Real property tax at the federal level and present to the
concerned body for approval. In doing so, the Ministry shall define basic terms and concepts
pertaining to property taxation and establish the range of tax rates for land use and buildings.

b) It shall Determine the Exemption and in Lieu of Tax Principles

It is to mean that it shall determine exemptions of the land use and building taxes and make
goodwill financial contributions to urban local Governments in respect of the tax exemptions
made by the Government for properties that belong to organizations of the Federal
Government, intergovernmental organizations, and diplomatic institutions. It also shall
determine how the in lieu of tax revenue have to be shared between the federal and the Urban
Local Governments where the exempted real property is situated.
c) It Shall Follow Up the General Performance of the Tax

Setting and ensuring the consistent application of the real property tax is the best to
understand the effect of the tax in the community. Conduct periodical national performance
review of local property tax systems and develop and implement national communication and
mobilization framework guidelines for public education and instigation programs on property
taxation to promote a culture of voluntary compliance are also important. Studies on the
perception of the tax payers and other issues are also the very responsibilities of the MoFEC.
II. Responsibilities of MoUDH

The MoUDH is the one, which took the incentive to introduce the real property tax. However,
it is not the principal one, empowered by law, because it is the MoFEC empowered to draft
the real property tax. This does not to mean that the MoUDH has no role in the real property
tax, rather, it has to play the important role in fulfilling the pre-request of the real property
tax. Among others, the MoUDH has the following responsibilities. It shall enact regulations
and standards for cadaster and Urban Property Registration. It also shall set the legal and
economic principles of property valuation. Setting criteria for the categorization of urban
areas for the purpose of property taxation and ensure consistent compliance therewith by
Regional and Federal City Governments, conduct periodic market impact assessment,
livelihood impact assessment and other types of socio-economic assessments, on the basis of
which property tax rates can be determined and re-evaluated periodically in the urban areas

74
and conduct real estate market study and publish semi-annual and annual national market
price index of real property by consolidating and analysing Regional price indexes are also
the responsibilities of MoUDH.

4.3.3.2. Powers and Responsibilities of the Regional Governments in General

Regional Governments may be responsible for the following activities as far as real property
tax is concerned. These are:46 to comply with the basic concepts and principles of property
tax and user fees adopted by the Federal Government; to comply with the legal and economic
principles of property valuation and taxation adopted by the Federal Government; and to
conduct urban categorization for property tax purposes by applying national criteria set for
this purpose. They can determine the minimum and maximum property tax rates for different
categories of urban areas in the region within the framework of national rating ranges and
criteria of urban categorization. They shall make goodwill financial contributions for urban
local Governments in respect of the tax exemptions made by the Regional City Government
for properties that belong to organization exempted by the Federal Government in principle.
Generally, the regional or the Federal city administrations can follow the framework of the
federal government and act accordingly.

4.3.3.3. Powers and Responsibilities of the Urban Government in General

The case of the Federal cities, namely Addis Ababa and Dire Dawa, are different from the
constitutional framework of the division of taxing power between Federal and Regional
Governments. These Federal cities have specified sources of revenues and taxes decided by
the parliament.

The power of Addis Ababa City Government emanates from Article 49 of the FDRE
constitution. This Article stipulates the elaboration and determination by law of the specific
contents of this power but including the levy of taxes. Taking advantage of this nature and
scope of power regarding Addis Ababa, the Charter Proclamation that is enacted by the
House of Peoples Representatives confers on it broader levy power unlike Regional
Governments. This is achieved not only in the enumeration of an extensive list of taxes and
user fees but also in the special power of the City of Addis Ababa to impose other municipal
taxes and fees.

46
MoUDHC, Concept Note to reform real Property Tax Legislation, 2013, P.15.
75
The same scope of taxing power also applies to Dire Dawa City Government, which is the
second Federal city not directly attributable to a specific constitutional clause similar to that
of Addis Ababa. Its status has emanated from a technical arrangement that legalized its prior
de facto status. This has been achieved based on the Charter Proclamation enacted by the
House of Peoples Representatives. The Charter has been enacted based on the prior
authorization of the House of Federation passed in accordance with the Constitution and
Federation Council consolidation and powers definition Proclamation.47

Any changes to be made by Federal cities in the rate, bases, and administration of any tax or
fee should consider the taxing powers and rules stipulated by the above-mentioned charter
proclamations. For so doing, both Federal and Regional Governments should also consider
the specific and explicit powers and functions as well as sources of taxes and fees.48 The
adoption of the real property tax to match payments and expenditures; hence, urban
governments should impose and collect the levy. This is in line with the principles of taxation
stipulated by Article 100 of the FDRE constitution. The setting of the property tax base, rate,
and collection must be in conformity with the Federal and Regional principles, but it should
also empower Urban Local Governments to generate adequate revenues.49 With sufficient
revenues, Urban Local Governments must finance the provision and management of quality
services for their residents.

One key principle that must be complied with in this process is non-interference in the
taxation of property belonged to the Federal or Regional Government. This principle is
susceptible of manipulation in conformity with the prerogative of the Federal Government to
delegate any powers, including levy and collection of property tax.

Taking this into account, the enhancement of the revenues of Urban Local Governments by
collecting taxes from properties of the Federal Government may be achieved by making use
of two alternative approaches. The first and preferred approach may be to require by law the
Federal Government to make to local urban Government’s goodwill financial contributions in
view of property tax that may be due on properties belonging to the Federal Government but
situated in their geographic jurisdictions. The other alternative approach is to delegate the

47
See Article 62(8) of FDRE constitution and Proclamation No. 251. Both the constitutional clause and
Proclamation No. 251/2001 define the powers, functions, and procedures of operations of the House of
Federation.
48
See Arts. 96-98 of the FDRE Constitution.
49
Interview with Ato Abebe Zeluel, 28 March 2018.
76
power to levy a real property tax on Federal Government’s properties to Regional
Governments.50 Article 50(9) of the FDRE Constitution stipulates:“[t]he Federal Government
may, when necessary, delegate to the States Governments powers and functions granted to it
by Article 51 of this Constitution.”51 The Federal Government “shall levy taxes and collect
duties on revenue sources reserved to the Federal Government”, In accordance with article
51(10) of the FDRE constitution. In this phrasing, the taxing power forms part of the general
power sharing constitutional framework, in which case the power of delegation clause
appears to be relevant for application. This is, though, applicable within the framework of the
division of fiscal and taxing powers and sources of revenues spelt out under the
constitution.52

Using this flexibility of power of delegation and if both houses of parliament adopt real
property tax by law, the Federal Government can confer its right to levy a property tax from
real property to Regional and Local Urban Governments. Even in this condition, the
delegation has to be made directly to the Regional Governments first and then further down
to Local Urban Governments. This devolution of power can further be justified by other
national policy principles of the FDRE Constitution elaborated in the context of the
determination of the nature and contents of the division of taxing power and will have to be
specified by the framework legislation to be enacted by the House of Peoples
Representatives.53

In the same manner, the Regional Governments can also devolve the power to their Local
Urban jurisdictions in this context by asking their Regional council to enact Regional
Proclamation based on the FDRE Constitution and their respective Regional Constitution.54

Therefore, the Local Urban Governments may be responsible to real property tax assessment
and rate determination, valuing of the properties, collecting and administration of the
annually collected revenue based on the general principles enacted by the Federal and
Regional Governments.55 The public participation is a key instrument because a new real

50
See Art. 50(9) of FDRE Constitution.
51
Interview with Ato Meksud Heruy, 29 March 2018.
52
See Arts. 94-100 of FDRE Constitution.
53
See Arts. 55(1) and (6) of FDRE Constitution.
54
See Art. 50(5) of FDRE Constitution.
55
MoUDHC, Concept Note for reforming real Property Tax Legislation, 2013, p. 18.
77
property tax must be designed in the way that majority of the pupation can and are able to
pay. And this has to be the responsibility of the Urban Local Governments.

4.3.4. The proposed Tax Bases, Rates and Exemption of Real Property Tax

Ethiopian real property tax reform committee proposed the tax bases, tax rate and the
exemption principles. Let me discuss these separately.
4.3.4.1. Tax Bases

In most countries, as discussed in Chapter two of this paper, real property tax is levied on
land and improvements. The term improvements include structures, buildings, irrigation
systems, and other manmade features on the land. In some countries however, only the land
portion of the property is taxed for example in Kenya, and some others only buildings are
taxed for example Tanzania. However, most of the countries in the world taxed both land and
buildings. Those countries, which levied tax on both the land the buildings and/or
improvements, also have difference. Some of the countries valued both the land and buildings
together and other countries valued land and improvements separately.56 In countries where
both land and buildings are taxed, the land portion is sometimes taxed more heavily than
improvements for two main reasons: to encourage real estate investment and discourage
speculation.57 The importance notice here is that in many countries improvements other than
buildings are not taxable.58

The steering committee in Ethiopia proposed two types of real property taxes that will be
valued differently but taxed by the same rate. The first is land use tax where it applies to
urban leasehold land and improvements other than buildings. Here what land and
improvements are, the urban land acquired by the lease system and the improvements
thereon. Here the two concepts are not simple to access as a single object because the
arrangement of right is different. Land is owned by the Nations, Nationalities and Peoples of
Ethiopia, whereas the improvements can be owned either by public or privately.59 Therefore,
since tax has been paying by the owner (lessor) i.e. not by the lessee, the proposed urban land

56
Jeffrey P., Cohen and Cletus C. Coughlin, An Introduction to Two-Rate Taxation of Land and
Buildings, Federal Reserve Bank of St. Louis Review,2005, P. 360.
57
Maita, Gomez, the Failure of the Real Property Tax in Local Governments, 2010, P. 5.
58
Neva, Žibik and Dušan Mitrović, (eds), Development of a Real Property Appraisal and Taxation
System in Slovenia, The Fiscal Decentralization Initiative for Central and Eastern Europe, ------p. 7-9.
59
See Art. 40 of FDRE Constitution in general.
78
use tax in Ethiopia is against law.60 The old possessions (urban lands acquired before the
introduction of lease system in the country or by the permit system and the buildings thereon)
are not subject of real property tax. What the improvements other than buildings is not clearly
defined. Thus, it must be exhaustive as to have effective and transparent real property tax.
The same is true, why old possessions or possessions acquired by permit system are excluded
from real property tax. If this is not clear enough, it is the means of discrimination. If the
government’s justification is that the old possessions can be converted to lease system by the
modalities of conversion stipulated under the lease proclamation, there are preconditions for
the conversions.61 The of conversion of old possession to a leasehold system is unsuccessful
for decades,62 and it is not fair to leave these urban lands and building thereon without
tax/rent payment. The argument of the steering committee is that as the permit fee will
increase to be in line with the real property taxes paid by leaseholders, revenues of urban
localities will enlarge.63 However once again, the experience shows that the permit fees are
not significant.64 What land use tax is not also clear because the landholder has been paying
the lease charge. How can be valued is also difficult to concluded. This type of tax may
create confusion on the taxpayers. If the intention of this tax is to recoup the land value
increment, it seemed that reconsidering of the bench mark price of the lease before. The
future land value capturing is advisable for local governments, through revision of the
benchmark price.65 However, the system they approach shall be consistence with the urban
land policy of the country. The choices of local governments to capture future increments in
urban land value due to numerous factors may be well intended provisions that incorporated
into the land lease (contract) to renegotiation between the contracting parties. These
conditions include, for example, a periodical review of the rent level to keep rental payment
in line with increments of urban land value and inflation. Other opportunities to
renegotiation comprise lease modification for acquiring additional land rights for land

60
See Art. 2915 of CC.
61
See Arts. 6(2) -(&) of Urban Lands Lease Holdings Proclamation No. 721/2011.
62
Taye Minale Belachew and Habtamu Sitotaw Semahagne, ‘Converting Old Possessions into Lease
System in Ethiopia: Decades of Unsuccessful Endeavors’, Bahir Dar University Journal of Law, Vol.
6, No. 1, 2015, PP.121-151.
63
MoUDH, Concept Note to reform real Property Tax Legislation, 2013.
64
Interview with Ato Meksud Heruy, 27 March 2018.
65
See Art. 6(1) of Urban Lands Lease Holdings Proclamation No. 721, 2011.
79
redevelopment and contract renewal for extending the possession of land use rights.66 This
approach is widely used by the countries which are reforming real property tax like the
Republic of China.67 Therefore, introducing ‘urban land use rent’ is the best instead of ‘urban
land use tax’ because it can be treated as a transition system in which leasehold charges are
collected in the form of annual land rent. The annual land rent may then be converted into
tax systemically to go with the real property tax. There are advantages of urban land rent
system like lower the incentive for local governments to lease public land rapidly, better
characterize the landowner-renter relationships between the government and lessees, generate
substantial income for covering tax revenue underperformances when the new property tax
system is in transition as the Republic of China did.68 This system was practiced in Ethiopia
from 1975 to 1990, as discussed under chapter three of this thesis.

The other tax proposed is building tax where it applies to buildings on urban leasehold land.
Here also it is only the buildings taxable as far as they are built on the land possessed through
the lease system. It may bear the same problems as discussed above.

4.3.4.2. Tax Rates

With respect to the real property tax rate, there is no consensus on how high or low a tax rate
should be; it is intrinsically dependent on the tax purposes. If the purpose of the real property
tax is to generate enough money for the urban local governments, the rate has to be
sufficiently high.69 However, whatever the purpose it has, the rate must be affordable and
welcoming by the taxpayers.

The proposed real property tax rate in Ethiopia at Federal level is envisioned to be that, not
less than 0.4% and not greater than 0.5% for land use tax. For the building tax, the rate shall
not be less than 0.05% and not greater than 0.15% of the assessed annual value. The annual
increment excluding inflation shall not exceed 1 % and 2.5% of the value of the property at
most.70 These are the ranges that can be considered during the determination of the real

66
Yu-Hung Hong, Potential Impacts of Real Property Tax Reform on Industries in China: An Input-
Output Analysis, Lincoln Institute of Land Policy, Cambridge, Massachusetts, USA, 2005, p. 40.
67
Id., p.41.
68
Id., p. 54.
69
Blanca, Fernandez, et al, A systematic framework of location value taxes reveals dismal policy
design in most European countries, 2016, available at
https://www.researchgate.net/publication/286449308 (last visited 10 June, 2018).
70
MoUDH, Concept Note to reform real Property Tax Legislation, 2013.
80
property tax rates and annual valuation laws by the Regional Governments or urban local
Governments. The numbers sited here seemed magical because the researcher tried to gate
the justification, but no one answered this fact. The rates are also high for the country to
introduce the reform because the experiences show that the rate must be low to begin and
then increase gradually. For example, Tanzania, to introduce the real property tax reform in
1996, it used 0.1%. Then it increased to 0.15% after two years and nowadays it up to 0.7%,
save the differential based on purpose of the land i.e. residential, commercial, and industrial
have different tax rate.71 Even the proposed building tax rate range has to be different for
different building types, which lacked consideration.

The other issues here are that the Federal Government cannot determine exactly what the rate
value is, however, it must determine the range i.e. the lower and the upper limit of the rates.
The Regional Governments are expected to take and adopt the said range. Then, the Urban
Local Governments can fix real property tax rate annually based on the annual plane. That
means the rate may vary from year to year or from property to property, because it depends
on the annual budget needed by the Urban Local Governments and the other objectives the
tax intended to have. The annual budget needed divided by the taxable real properties, is the
tax rate. Here what is important to notice is that the budget is not to mean that all needed for
wages and salaries rather the budget is the one, which the Urban Local Government need for
urban development purposes. However, the rate shall be high enough to generate sufficient
revenues to cover the cost of local public services and other objectives.72

4.3.4.3. Tax Exemptions

Real property by its nature has many public and national interests unto them. For instance,
exemption may be decided based on the economic, legal, and political factors of the property
in hand, as discussed under chapter two and three of this paper. Thus, real property tax
exemptions are based on these grounds.

The proposed real property tax-exempt land use right and building owners whose threshold is
less than Birr 300 annually. This amount was established in 1975, may be too low nowadays
to render any meaningful purpose. The current real estate market assessment is very high

71
Richard M., Bird and Enid, Slack, International Handbook of Land and Property Taxation, Edward
Elgar Publishing Limited, Northampton, Massachusetts, USA, 2003, PP.199.
72
Harry, Kitchen, Property Taxation: Issues in Implementation, The Consortium for Economic Policy
Research and Advice, Association of Universities and Colleges of Canada, 2005, P. 30.

81
compared with the 1975 and the researcher argues that Birr 300 as a bench mark for
exemption is not sound because it very hardly to find any annual income Birr 300 for land
use and building provided that the bench mark of exemption must be determine based on the
current annual income. In addition, from this justification point of view, the real property tax
could exempt residential houses occupied by the owner i.e. if the residential houses are
occupied other than the owner they have to be subject of this tax.

The steering committee proposed to exclude buildings erected on permit lands from the real
property tax. Land uses, and buildings owned by public agencies and non-profit organizations
have to pay for their consumption of public goods in the form of a payment in lieu of taxes.
The amount of payment may be based on negotiation between the local urban government
and the involved public agencies and non-profits. The payment should be considered as a
good will from the exempt parties to support the construction and maintenance of local
infrastructure.

Based on the Federal principles the Regional Governments can exempt real property tax and
levy compensatory goodwill contributions in lieu of tax by Regional legislation on the
property in the respective regions.

However, both Regional and Federal Governments shall take into account principles in their
respective determination of in lieu of tax payments. Contributions such as the relationship
that exists between the goodwill contribution and the type of the tax and its category, the
fairness and meaningfulness of the goodwill contributions, non-interference in the taxing
power in respect of which the determination of goodwill contributions exists, and
considerations of prevalence of equity for orphans, elderly people, and persons with
disabilities.

4.3.5. Institutional Framework for Real Property Tax Administration

The main elements to be specified in drafting a real property tax are definition of the tax base,
identification of the parties responsible for payment, determination of the tax rate, and
assignment of administrative functions and tax revenues among levels of government. These
elements can be the activities of one or more institutions.73 There are four key component of
real property tax administration in the international experiences.74 These are identification of

73
Victor Thuronyi, ‘Tax on Land and Buildings’, International Monetary Fund: 1996, vol. 1, pp.23-67.
74
Roy Bahl, Property Tax Reform in Developing and Transition Countries, USAID, 2009, p. 16.
82
Properties, Keeping the records so that the tax roll can be continuously updated, valuation
and revaluation and collection, enforcement and appeals.
To implement all the above-mentioned elements on the real property tax reform, appropriate
institutional arrangements are very significant and would both improve the quality of tax
reforms proposed and increase the likelihood of successfully implemented.75 The existence of
them is even not enough rather; there must be synergy among them. Keeping the Federal
structure and the levels of the Government responsibility through the Federal to Urban Local
Governments worthy discussed in Chapter three of this paper, there shall be responsible
institutions for real property Valuation, Urban real property registration and cadastre, real
property tax billing and collection and the judicial actors to hear any grievance on the
assessment or whatever of the real property tax concerned.

4.3.5.1. Urban Real Property Registration Institution

To begin with, the institution which is empowered for cadastre and registers all bases of real
property tax is needed.76 The process of real property registration comprises the legal part of
the cadastre, which contains the unique cadastre number of the object, address, and type of
the object.77
The first thing to be consider is the difference between cadastre and registration.
Accordingly, cadastre is normally a parcel based, and up-to-date land information system
containing a record of interests in land (e.g. rights, restrictions and responsibilities).
There are four types of cadastres:
The first is legal cadastre is a register identifying the legal owner and precise boundaries of
each land parcel. It is an updated landholding information system containing a record of the

75
William J., McCluskey and Riël C.D. Franzsen, Property Tax Reform in Africa: Challenges and
Potential, Paper prepared for presentation at the “2016 World Bank Conference on Land And
Poverty” The World Bank - Washington DC, 2016, P. 8.
76
See Generally, Neva, Žibik and Dušan Mitrović, (eds), Development of a Real Property Appraisal
and Taxation System in Slovenia, The Fiscal Decentralization Initiative for Central and Eastern
Europe, ------------
77
Fana Broadcasting Corporate, Ethiopia should be implemented Urban land and landed property
registration immediately, 20 April 2007 E.C, available at
http://www.fanabc.com/index.php/component/k2/item/7226.html (Last visited 13 April 2018)[Here in
After FBC].
83
rights, restrictions and responsibilities (3Rs) on a defined legal boundary for each
landholding demarcated as parcel on map.78

The second is real or physical cadastre which mainly carried out for the physical mapping of
land holding boundaries and locating other real properties for land inventory.

The third is fiscal cadastre (Tax cadastre), on the other hand, is a record of information
necessary for levying real property taxes, which includes location and value of parcel. In this
cadastral system information is collected for land taxation. It is usual that characterised as
low accuracy and the rightful ownership is not properly determined as its vital objective is to
collection tax. If someone agrees to pay real property taxes, it does not matter to the
Government who the rightful owners are.

The fourth one is multipurpose cadastre and is relatively new development that incorporates,
at one source, the data concerning the legal and fiscal cadastre along with information on
land use, infrastructure, buildings, soil and other environmental factors. The advantage of the
multi-purpose cadastre is that it provides a single database by combining operations of the
real property cadastre and registration of property rights. This ensures the correlation
between the cadastre and the property registration system. Any changes in methodology for
creating the cadastre database do not require coordination between the agencies but can be
introduced within a single system. The unity of the database requires fewer resources for its
maintenance, thus saving time, labour, and financial resources associated with its creation,
maintenance, and updating.79
Real property registration in other words is to mean, the process by which a landholding
right, restriction, and responsibility is registered in the legal cadastre register.80 The register
officer to register landholding right, restriction and responsibilities and issue certificate of
titles.81 Based on the definition there are two basic components to a land records system
namely a piece of land and the rights over that piece of land. The basic unit in the land
registry is a parcel and its boundaries. Historically, land records have been carried out for

78
See Art.2(2) of Urban Landholding Registration Proclamation No. 818/2018[Here in after Urban
Landholding Registration Proclamation].
79
Olga Buzu, ‘Development of Ad Valorem Real Property Taxation System in Moldova’, Eurasian
Journal of Economics and Finance, 2014, Vol. 2 N. 3, PP.79-88, p. 80 [here in after Olga Buzu,
‘Development of Ad Valorem Real Property Taxation System in Moldova’, Eurasian Journal of
Economics and Finance].
80
See Art. 2(18) of Urban Landholding Registration Proclamation.
81
Id., Art.2(22).
84
two main purposes. First, as fiscal record primarily for the public sector, they have served as
the basis for the full and accurate taxation of land.82 Land registration systems are often used
as a source of government revenue through the collection of fees and transfer taxes. Second,
as a legal record, primarily for the private sector, they have used as registers of owner ship
and other related rights.
The Ethiopian Government has been undertaking different measures to modernise the urban
land management system. Federal Urban Real Property Registration and Information Agency
establishment by Council of Ministers Regulation No. 251, 2011. The Agency has been
empowering to coordinate the Federal and Regional urban real property registration
institutions and create a uniform database system of urban real properties.83
Then after, the Urban Landholding Registration Proclamation No. 818/2014 was enacted. The
proclamation provides for the registration of rights, restrictions and responsibilities relating to
urban land. It also has the principles of a legal cadastre and landholding adjudication and
registration system and defines the Legal Cadastre as ‘an updated landholding information
system containing a record of the rights, restrictions and responsibilities on a defined legal
boundary for each landholding demarcated as a parcel on a map.84
The council of Ministers after the enactment of the abovementioned proclamation, it
proclaimed, Urban Cadastral Surveying Regulation No. 323/2014 intended to provide the
principles of cadastral survey system implementation, specifies survey measurement and
calculation activities and procedures.
Urban Landholding Adjudication Regulation No. 324/2014 provides for the objectives and
principles of landholding registration and adjudication, and further detail on the
implementation of Proclamation 818.
Following the enactment of the Regulations the then Ministry Urban Development, Housing
and Construction, now Ministry of Urban Development and Housing, declared directives
such as Urban Cadastral Survey Directive No. 44/2014 which provides directions to
surveyors on cadastral survey and preparation of the cadastral base maps and Urban Land
Adjudication and Registration Directive No. 45/2014 which provides guidelines and
directions on the implementation of Proclamation 818/2014, including details on the

82
Audrius, Aleknavicius, problems of real property Taxation in Lithuania, Lithuanian University of
Agriculture,2006, P. 7.
83
See Art. 9 of Urban Real Property Registration and information Agency Establishment Regulation
No. 251, 2011.
84
See Arts. 2(5) of Urban Landholding Registration Proclamation No. 818, 2014.
85
application for landholding adjudication and registration, the implementation of systematic
and sporadic landholding adjudication and registration, responsibilities and grievance
handling.
The MOUDH once again prepared standards Urban Legal Cadastre Standard 03/2015 that
offers the activities and procedures for cadastral surveying and management of data for the
Urban Legal Cadastre, Urban Cadastral Index Map Numbering System Standard 04/2015 that
Specifies the Urban Cadastral Index Map Numbering System and Urban Land Adjudication
and Registration Standard 05/2015 that delivers the activities and procedures for urban land
adjudication and registration, including necessary forms. The important concern here is the
MOUDH is running legal cadastre since legal cadastre is the back bone and complement to
every type of cadastre.85
Urban Legal Cadastre Registration Payment Computation standard 06/2015 is also prepared
to set out the standard for payment under the legal cadastre, including fee calculations for
sporadic registration and the provision of landholding certificates.
Therefore, one can say that the legislative framework is relatively comprehensive about the
land registration and cadastre, there are may be complexity resulting from devolution of
responsibilities and the interaction of regularisation and registration activities. Both represent
challenges at the operational stage but may also have solutions in legislative reform.86 The
Regional or the city level laws can be drawn from the Federal laws.

Come to the institutional framework, as discussed in many parts of this paper, the real
property cannot be given for the specific government level rather need nexus between the
three levels of governments, i.e. Federal, Regional and Urban Local Government. To do so,
MoUDH shall develop and maintains policy and legal frameworks for the land registration
and cadastre. It should provide technical support, training and guidance to Regional
Administrations and cities. It also shall develop national data Centre on urban land
registration and related information, produce cadastral base maps and second order ground
control points.

85
Interview with Ato Desta G/Giorgise, 29 March 2018.
86
Tony Burns, et al, Establishing A Legal Cadastre for Good Governance in Ethiopia: Identifying
Bottlenecks and Steps Toward Scale-Up, Paper Prepared for Presentation at the “2017 World Bank
Conference on Land and Poverty” The World Bank - Washington Dc, March 20-24, 2017. P. 5 [here in
after Tony Burns, et al, Establishing A Legal Cadastre for Good Governance in Ethiopia: Identifying
Bottlenecks and Steps Toward Scale-Up].
86
Regional Governments are expected to establish and operates appropriate land holding
registration and information bodies based Regional Proclamation at Regional and city level
and ensures proper enforcement of regulations and directives issued under Proclamation
818/2014. The determination of the urban Centre in which landholding registration may start,
assessment and monitors staff need and performance, fixing the appropriate service fees
chargeable for registration and other services.

The Urban Local Governments must serve as the sole centre that produces information to
produce the legal cadastre, maintaining parcel files and preparing local development plans are
among the very responsibilities of the Regional Governments. They are expected to organize
and manage the legal cadastre data for the City. Moreover, the urban centre could undertake
public awareness about the importance of real property registration and cadastre
continuously.

Coming to the practical aspect of the above-mentioned legislations and institutions, several
pilot projects have been established within cities to develop urban legal cadastres and
ultimately implement the new system, including the pilot in Addis Ababa and other 23 cities
(including Adama, Mekele, Hawassa and Bahir Dar). However, these pilots have been slow
to progress and have faced many challenges such as lack of information management, finance
at city level, experts and institutes to enforce cadastre and land registration.87 Given the
failure of urban cadastral pilots in Ethiopia, the ability to complete and scale-up the current
pilots remains a concern.88 The general conclusion is that the project is not going well even
till to date. The reasons are firstly, Staff are required for file management, create and
maintain the legal cadastre but it hardly to get well trained staffs and even some contracted

87
Rahel Hailu, Implementation of Urban Land Adjudication & Registration in Ethiopia,
MoUDH,2018.
88
Interview with Ato Abebe Zeluel, on the issue of challenges to finalized real property reform, 28
March 2018.
87
out.89 All the above-mentioned organs are not doing their task appropriately provided that the
real property tax cannot be implanted in the country.90

Just to this phenomenon, real property tax has been staking and even will stake for the
indefinite periods of time in the future as far as the other requirements are late.

4.3.5.2. Real Property Valuation for Taxation

Real property valuation for the purpose of tax is highly depending on the appropriate data
confined in the real property cadastre. This indicates that, it can be finalized till real property
in the country is recorded in the cadastre system.91In accordance with the established
procedure, real property valuation for tax purposes may be carried out only after the
identification of properties and their official owners and after mandatory registration of real
property in the cadastre system. In almost all countries which have been using the real
property tax, the cadastre system and property rights registration system are integrated into a
single unified cadastre system.92 However in Ethiopia, the all pre-requirements are not fully
implemented, real property valuation is very week. The valuation trend in Ethiopia has no
any standard and many valuation activities have been undertaking for different purpose.
There is no either independent valuation system or available professionals in the field. But
generally, there are two basic reasons for valuation. These are valuation for compensation
purpose when expropriation takes place and valuation for buildings tax purpose.
Expropriation with in advance compensation is a common and legalised act of the
government in response of ‘public purpose’.93 Therefore, compensation for is estimated based
on replacement cost of the property. As we can understand from this proclamation, the

89
Interview with Ato Abebe Zeluel, on the issue of what are/will be the challenges to apply real
property tax, 28 March 2018, See also, Tony Burns, et al, Establishing A Legal Cadastre for Good
Governance in Ethiopia: Identifying Bottlenecks and Steps Toward Scale-Up p. 1, See also, Reporter
News Papers, Urban Real property registration and Cadastre failed due to lack of technology facility, 04
March 2018, available at https://www.ethiopianreporter.com/article/8202 (last visited 13 April 2018,
and See also, Ato Solomon, Director for the Federal Urban Real Property Registration and Information
Agency, interview with ‘ Voice for Urban Development’, about Urban Real property Registration and
Cadastre, available at http://www.mwud.gov.et/c/document_library/get_file?uuid=4cc56508-adad-
4124-bcd8-3d6e431aabbd&groupId=10136 ()last visited on 13 April 2018).
90
Interview with Ato Abebe, 28 March 2018.
Olga Buzu, ‘Development of Ad Valorem Real Property Taxation System in Moldova’, Eurasian
91

Journal of Economics and Finance. P. 27.

92
Ibid.
93
See Art.2(2) & 2(5), Art. 9 and Art. 10 of Expropriation of Landholdings for Public Purposes and
Payment of Compensation Proclamation No. 455, 2005, Federal Negarit Gazeta, 11th Year No. 43.
88
method of valuation for compensation is a cost replacement model. The regulation enacted to
implement this proclamation i.e. the Federal Compensation Regulation No. 135/2007 has
detail provisions for both urban and rural land property assessment of compensation.94 The
regulation stipulated that compensation for building is the replacement cost of such
building.95 It is just the cost that is expected to build the same building at the time of
expropriation.96 The urban lands are not entitled for compensation in monetary, however, the
replacement is allowed. Here even the replacement is not clear whether the land replaced is
the same size, value, or whatever character with the expropriated one.
The other main valuation trend is for tax purpose. When urban building is going to be
transferred, there is a valuation for tax capital gain tax purpose. In this case, the value of the
building to be transferred must be valued separately from the value of the land. To value the
building, calculating the current engineering cost of the building under sale by civil engineers
is a method. The value of the land is also to be determined and graded by cities′ government
professionals based on access to infrastructure, land and buildings′ markets, etc. This method
also tends to cost approach. As discussed, many times in this paper, the real property tax is
characterised as land rent and house tax (capital gains, roof, and rental income taxes) the
valuation of land rent has been more of based on area of the land and sometimes the grade is
considered.
Generally, the valuation system employed is not modernised and useful for the proposed real
property tax. Thus, MoUDH undertook three pilot studies on the real property identification
and valuation for real property tax in Bahir Dar, Mekelle and Dire Dawa cities.97 The result
of the study indicated that the market value cannot be advisable because of the distortion
nature of the real property mark nowadays.98 Therefore, according to Ato Abebe, the
expected valuation model will be cost based approach for a while. Then after the market
distortion is corrected, the government will proceed to that market-based approach. The
annual rental value and sales will not be employed because, the rental value has been
distorting by brokers if they unable to know estimated annual value of real properties. Sale,

94
See Payment of Compensation for Property Situated on Landholdings Expropriated for Public
Purposes Council of Ministers Regulations No .135, 2007, Federal Negarit Gazeta, 13th Year No. 36.
95
Id., Art.3.
96
Id., Art.14.
97
See MoUDH, Final reports on the property identification and Valuation on the three cities, 2015.
98
See MoUDH, Final reports on the property identification and Valuation on the three cities, 2015.
89
except the publicly auctioned sale, almost all is missed reported. The cost approach is going
to be the valuation approach to value the buildings and other improvements; however, here
the question is how the urban land use tax will be calculated? Even what cost is going to be
consider, is not simple because the very reason of real property tax is to capture the future
increments as cost sharing for the infrastructures and other services. If the cost of the
taxpayer is going to be consider, how it be simple. The cost of the taxpayer maybe either
construction or relocation cost. If consider the construction cost, the construction materials
are increasing day to day. And if we consider relocation cost, it failed valuation approach as
discussed here above. It does not consider the inflation or deflation. If the cost of the urban
local government for the installation of the infrastructure and social services, then how can it
be fair for the taxpayers. As far as, the researcher’s knowledge, as a beginner, the area based
with same additional criteria such as road types and location with specified rate is widely
used, so Ethiopia is better if it uses this approach for the urban land use rent (not tax). And
for the buildings, the annual rental value is advisable especially for commercial and industrial
building because there is conflict of interest on the amount of the rent.99 The lessee would not
hide the exact value not to pay greater business income tax since such expenses are
deductible from business income tax.100

4.3.5.3. Other Institutions for Real Property Taxation

Following the finishing of the real property valuation, the real property tax assessment can be
conducted based on the rate and levied. The grievances can be presented to the appeal
committee established for this purpose because the present, tax appeal committee is more
general and since real property had unique characteristics, there must be a highly specialized
member there. The reviews and decision of property tax appeals may require unique
expertise. Hence, we recommend setting up an independent judicial body to handle these
appeals. This is what other countries have been practicing at this movement internationally.
For example, in the United Kingdom, this kind of judicial body was called the Lands
Tribunal and was later renamed as Lands Chamber of the Upper Tribunal. In the United

99
William J., McCluskey and Michael E. Bell, Rental Value Versus Capital Value: Alternative Bases
for the Property Tax, International Studies Program Working Paper 08-18, Andrew Young School of
Policy studies, Georgia State University, Atlanta, USA, 2008, P. 7.
100
See Art. 22(1)(a) of the Income Tax Proclamation.
90
States, the property assessment appeal boards are state agencies created for the purpose of
establishing a consistent, fair, and equitable property assessment appeal process.101
These appeal boards conduct administrative hearings with the statutory authority to review
any final decision, finding, ruling, determination, or order of a local board of review relating
to protests of an assessment, valuation, or application of an equalization order. They also
handle disputes over compensations for public acquisition of private property. In general,
members of these specialized judicial organs consist of judges, experts on land laws, and
estate surveyor or assessors.
The establishment of a special judicial system in Ethiopia to settle disputes over property
valuation and other land related matters would require a multi-disciplinary team of experts.
The experts are expected to come from the discipline of economics, management,
architectural, valuation, and law backgrounds. As understand from the memo of the steering
committee under MoUDH, they would form a review Committee and Landed Property Tax
and Charges Appeal Commission. Both the Review Committee and Appeals commission can
be formed at Regional and Local Urban levels.
These two level of complaint monitoring and adjudication organs can follow the structure of
the Review Committee and Tax Appeal Commission and rules specified in the existing
Federal tax administration proclamation No. 983, 2016.102
The Tax Review Committee will accept, examine, and dispense all claims brought by
dissatisfied taxpayers in the assessment and payment orders of tax collectors. The claims may
concern the unfairness or unlawfulness of the amount and method of assessment as well as
interest and/or fine sanctioned against the tax payers in respect of delayed, understated, or
misrepresented tax rates. The complaint period to the Tax Review Committee is within ten
days starting from the receipt by the taxpayer or assumption of receipt of the tax assessment
and collection n notice.
Dissatisfied taxpayers can directly appeal to the Tax Appeals Commission within specified
days against overstated taxes or against the decision of the Review Committee. The
Commission can review both issues related to facts and the law. Yet, appeal before ordinary
courts against the judgment of the Commission should be limited to issues of law.

Christopher, Hodges and Magdalena, English Justice System – Beyond he Courts: Mapping Out the
101

Non-Judicial Civil Justice Mechanisms, P.13-15.

102
See Arts.84-92 of the Federal Tax Administration Proclamation No. 983, 2016.
91
4.4. Challenges to Finalize the Reforming Process

From the lengthy discussion on real property tax reforming process, the following main
challenges are identified.

The first one is the financial problem. Real property tax reform by its nature needs more
attention and studies. Finance is needed to furnish the whole system of registration, cadaster,
and valuation systems in Ethiopian cities, which is a bottlenecked problem to over overcome.
At the beginning of the reform, it was financed by the aid of Bill and Melinda Gates
Foundation but now it is phase-out.103Due to this reason the project office is now added with
another office called Urban Revenue Enhancement Office.

The second one is lack of valuation techniques and standards. This is one of the prerequisite
for the real property tax to implement. Ethiopia as a country is at poor stage on this regard
because the valuation methods are very traditional and cannot be used for taxation. The
choosing of approaches for the valuation is very difficult as discussed here above because the
market is very distorted by the different factors.

The third one is lack of modern land administration system in general and real property
registration and cadastral system in particular. Identifying the property for taxation is a
crucial element for the real property tax to be fair and effective. Without proper registration
and cadaster, it is hardly possible to identify the property and the taxpayers too.

The fourth is lack of experts in all areas of real property tax is and will be a great challenge
even in the future. It can be said that this problem is the father of almost all problems. Lack
of Valuators, system developers and legal experts are needed. As discussed, many times in
this paper, due to the unique characteristics of real property tax, it requires a specialized
expert, unlike other tax which cannot be as such unique experts’ intensive. Capacity building
is a vital tax of the governments in each level.

The Fifth, the land tenure system is also one of the challenges for real property tax in
Ethiopia. The proposed real property tax is intended to levy on buildings and urban lands
acquired through leasehold. Buildings and urban lands are proposed to value separately and
rated jointly. This lengthy process is due to the land tenure system. The leasehold system has
been complicated the proposed real property tax. Lack of experiences is also play a role to
hinder the progress of real property tax reform. The international experiences especially from

103
Telle phone interview with Ato Desta G/Georgis, 4 June 2018.
92
those countries which have the same economic status and land tenure system can be a good
benchmark to accomplished real property tax reforming process.

4.5. Summery
Real property tax law reform is needed because the existing laws are very old and due to this
reason, the Urban Local Governments are unable to capture the value increment of real
properties by the private and government investments. On the other hand, there is high
demand for revenue for the urban infrastructures and public service. Here, what the
researcher wanted to stressed is that the proposed real property tax law has no expressly
stated objective on the urban real property management but can be a justification for reform.
Due to these reasons, the government of Ethiopia via the MoUDH and MoFEC has been
proposing the new real property tax law. There are two distinct, but related real property tax
proposed by the government: urban land use tax and building tax. The Federal structure of the
country has been considering during the proposal of real property tax laws. The Federal
Government must have established major standards and framework laws. The Regional
Governments on the other hand Regional Governments could take the legal framework and
legislate the laws suitable for them. To implement structured real property tax real property
tax valuation system, Cadaster, and urban land registration are pre-requests. However, there
are major challenges such as finance, lack of valuation and cadaster systems, lack of experts
in all field, and the land tenure system hindering the reforming process.

93
CHAPTER FIVE: CONCLUSION AND RECOMMENDATIONS

5.1. Conclusion
This research discussed about the Ethiopian real property tax laws from the historical
perspective to the existing laws and critically analyzed the reforming process. Just after
addressing all these issues, the research reached on the following conclusions.

Hitherto, real property tax in Ethiopia was historical and was among the firsts in modern tax
legislations. There was promising development of real property tax laws during the Imperial.
However, since the land tenure system was changed, the development of such taxes
becoming very slow. The taxes were only revenue demand dribbled because if we look the
Education and health taxes, the main reasons for them to be enacted were the demand to
expand education and health facilities in the country. The other important lesson is that based
on the 19945 Municipal Law the then central government provided the power of enacting
laws for real property tax for the Municipalities such as Gondar, Dessie Jimma, Harar, Dire
Dawa and Addis Ababa. This indicates the even the local nature of the real property tax was
considered that time.

Come to the Dergue era, the nationalization of all rural and urban lands, and the extra houses
by proclamation, discouraged the development of real property tax. Having this fact,
however, the 1976 Urban Land Rent and Urban Houses Tax Proclamation No. 80/1976 and
regulations enacted for the implementation of this proclamation and for Addis Ababa City
Administrations Land Rent and Houses Tax Regulation can be mentioned, and this
proclamation and regulations have been using by tax authorities even if it is out dated. What
done in this era was the Urban lands tax changed to the Urban Lands Rent. In this era, houses
were the base for tax assessed by percentage rate, whereas land was subject of rent payment.

The FDRE constitution has no clear provision about the real property tax. The research
concluded that nowadays there is no structured real property tax levied based on the annual
value incensement of the property. What is then, there are some property related taxes/fees,
which are termed as ‘incidental property taxes’. Such taxes are known by the society as roof
tax, rental income tax and real property transfer tax. Roof tax is very insignificant and is not
subject of door-to-door collection. The rental income tax in the other hand has been
collecting as far as the building is rented and generates income. The real property transfer tax
is collected by the collaboration of both the taxing authorities and the land administration and

94
management office. The new right cannot be registered on the real property right registration
document and title deed cannot be prepared unless all the taxes have been discharged.

Real property tax law reform has been started before eight years without significant
endeavors. The justifications are because the existing laws are very old and due to this
reason, the Urban Local Governments are unable to capture the value increment of real
properties by the private and government investments. On the other hand, there is high
demand for revenue for the urban infrastructures and public service. Here, what the
researcher wanted to stressed is that the proposed real property tax law has no expressly
stated objective on the urban real property management but can be a justification for reform.
The tax bases are proposed to be the land and building value. However, the land use tax has
to be land use rent to reconcile with the leasehold system. The lesser is not obligated to pay
tax in Ethiopian law. The tax rate proposed is high and not proposed for different land uses.
The rates range only two i.e. for land use tax and building tax rate, without classifying
buildings based on land use.

5.2. Recommendations

Based on the discussions and findings in the consecutive Chapters in general and Chapters
three and four, the researcher recommends the Federal Government to prepare frameworks
and/or standards on the following issues:

➢ Structured real property tax law is better to be enacted: on doing this, the House of
Peoples Representative and Houses of Federation in joint session could decide and assign
the Power of real property taxation for Federal Government to legislate framework and
the Regionals could follow the framework and enact their own laws.
➢ The Regional Governments are better to empower the urban local governments for
administration.
➢ Real Property tax experts shall be trained in wider range to develop the real property tax
system: the experts such as valuators, assessors, and data base management professional
are very important to start real property tax. Therefore, the government must be very
committed to train these experts in University and in technic and vocational training
institutes.
➢ To introduce the real property tax successfully, the following road map is recommended
for the Federal Government:

95
Step one: Modernize the land administration and management system in the country

As discussed under chapter two of this thesis, land administration is used to refer to the
process of recording and disseminating information about the ownership, value, and use of
land and its associated resources whereas land management is the processes by which the
resources of land are put to good effect. Therefore, the real property tax to be effectively
reformed, there must be modernized land administration and management policy.

Step two: Identify and classify taxable real properties

Identification of the taxable property such land and buildings based on the information
registered by the land administration authorities is the next step. The identified taxable
properties can be also classified based on the land use. That is to mean, urban land must be
classified as residential, commercial, mixed, and industrial. This classification enables to
determine the tax rate.

Step three: Answer the when, where, and how questions of real property tax reform

Then after the having identify and classify the real property, the next step could be planning
about the real property tax. The ‘when’ question can be answered based on the readiness of
all stakeholders of real property tax. The experts typically needed for the valuation and
assessment of real property tax cannot be available at once rather it needs time to train.

The other thing is that the reform could be consider as a pilot rather than intended to cover all
the cities because it enables to learn from the performance of the pilot cities to introduce in
the country in general. The criteria for selecting the pilot cities for the reform may include the
presence of reasonably developed real estate markets, adequate tax administrative capacity to
implement the reform, and a certain level of public acceptance to property taxation. During
the execution of pilot real property tax, some local governments may find themselves facing
resistance not pay from the tax payers. Public participation during the process of reform is the
best mechanism to overcome the expected problems. The tax rates could be determined ‘in
range’ and cannot be very high rather be affordable and welcoming by the taxpayers.

Step four: Enact new law which have comprehensive objectives

The new real property tax could be comprehensive. The purpose of it could not be restricted
only on the revenue generation rather equally emphasized for real property management. The
new law is better if it considers only buildings taxable property. Because the lessee cannot
obligate to pay tax on land as the Ethiopian law.

96
Step five: Reconsider the leasehold system

The urban lease proclamation is better to reconsider to the future developments costs be
capture by the local governments. This is because the urban land use tax is not possibly
incorporated in the reform. Making it to be complicated with lease fees is unnecessary. In
addition, how idle investment could prevent is the core issue that would be answer by the
lease proclamation.

5.3. Further Investigations

The researcher assumed that further investigation is needed before the introduction of real
property tax on the following themes:

➢ The Perception of the People Towards Real Property Tax

➢ Assessment on Experts Needed for the Full Implementation of Real Property Tax in
the Country

97
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 አስቻለው አሻግሬ, ‘የታክስ ከፋዮች ቅሬታ አፈታት በኢትዮጵያ (Tax Appeal Procedures in
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Federal Income Tax Proclamation, No.286, 2002, Federal Negarit Gazette, 8th Year No.34.
Federal Tax Administration Proclamation No. 983, 2016, Federal Negarit Gazette, 22nd
Year No.103.

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 Government Ownership of Urban Lands and Extra Houses Proclamation No. 47, 1975,
Negarit Gazeta.
Health Tax Administration, Order No. 22, 1960, Negarit Gazeta, 19th Year No. 11.
Investment Proclamation No. 769, 2012, Federal Negarit Gazeta, 18th Year No. 63.
Land Tax, Proclamation No. 70, 1944, Negarit Gazeta, 4th Year No. 2.
Payment of Compensation for Property Situated on Landholdings Expropriated for Public
Purposes Council of Ministers Regulations No .135, 2007, Federal Negarit Gazeta,
13th Year No. 36.
Proclamation to Provide for a Tax on Land, Proc. No. 8, 1942, Negarit Gazeta, Year 1, No.
1.
Rural Land Use Fee and Agricultural Activities Income Tax Proclamation No. 77, 1976,
Negarit Gazette, 35th Year No. 19.
Stump duty proclamation No. 110, 1998, Federal Negarit Gazette, 4th Year No. 36.
The Health Tax, Decree No. 37, 1959, Negarit Gazeta, 18th Year, No. 14.
Turnover Tax Proclamation No.308, 2002, Federal Negarit Gazeta, 9th Year No. 21.
Urban Land and Urban Houses Tax, Proclamation No. 80, 1976, Negarit Gazeta, 35th Year,
No. 25.
Urban Landholding Registration Proclamation No. 818, 2014, Federal Negarit Gazette,2oth
Year No. 25.
Urban Lands Lease Holding Proclamation No. 721, 2011, Federal Negarit Gazeta, 18th
Year No. 4.

Urban Real Property Registration and information Agency Establishment Regulation No.
251, 2011, Federal Negarit Gazette, 7th Year No. 85.
VAT Proclamation No. 285, 2002, Federal Negarit Gazette, 8th Year No.33.
የአማራ ብሔራዊ ክልል መንግሰት፣ የኢነዳስትሪ እና ከተማ ልማት ቢሮ፣ የከተማ ቤት እና ይዞታ ስመ

-ብረት ዝዉዉር ለመፈፀም ተሻሽሎ የወጣ የአፈፃፀም መመሪያ ቁጥር 4, 2006.

የአዲስ አባባ ከተማ አስተዳደር መሬት ማኔጅመንት ቢሮ፣ የይዞታ አስተዳደር አሰጣጥ መመሪያ ቁጥር

12/2004 ዓ.ም.

III. Internet Sources

Alekaw Dargie, Legality Principle of Taxation in Ethiopia: At the State of Porosity or Its
Non-existent from Inception? 2016, available at

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 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2733017 ( last Visited on
December 3, 2017).
http://www.fanabc.com/index.php/component/k2/item/7226.html (Last visited 13 April
2018).
http://www.mwud.gov.et/c/document_library/get_file?uuid=4cc56508-adad-4124-bcd8-
3d6e431aabbd&groupId=10136 ()last visited on 13 April 2018)
http://www.mwud.gov.et/web/guest/duties-and-responsibilities [last visited on February,
3,2018].
https://legal-dictionary.thefreedictionary.com/Land+speculation (last Visited on December
3, 2017).
https://legal-dictionary.thefreedictionary.com/Land+speculation ( last Visited on December
3, 2017).
Hugh Dalton, Principles of public finance, Routledge Library Edition, London, 2009, [Here
in after Hugh Dalton, Principle of Public Finance] available at
http://www.yourarticlelibrary.com/finance/public-revenue-meaning-tax-revenue-non-
tax-revenue-with-classification-of-public-revenue/26277 ( last Visited on December
2, 2017).
Julian Ware, Land Value Capture, final Report, 2017, availableat
https://www.london.gov.uk/sites/default/files/land_value_capture_report_transp
ort_for_london.pdf ( last Visited on December 2, 2017).
Noah Safari, Reform on land and property tax in municipalities, 2009, available at
http://www.aigaforum.com/articles/Reform_on_tax.htm [Last visited on 19 April
2018].
Reporter News Papers, Urban Real property registration and Cadastre failed due to lack of
technology facility, 04 March 2018, available at
https://www.ethiopianreporter.com/article/8202 (last visited 13 April 2018).
Smriti Chand, Public Revenue: Meaning, Tax Revenue, Non-Tax Revenue with Classification
of Public Revenue, the Next Generation Liberary, available
http://www.yourarticlelibrary.com/finance/public-revenue-meaning-tax-revenue-non-
tax-revenue-with-classification-of-public-revenue/2627 ( last Visited on December 2,
2017).

IV. Policy Documents, Reports and Others

Fana Broadcasting Corporate, Ethiopia should have implemented Urban land and landed
property registration immediately, 20 April 2007 E.C.
MoFEC, Growth and Transformation Plan (GTP II) in brief, Addis Ababa, 2015.
MoUDH, Final reports on the property identification and Valuation on Bahir Dar City,
2015.

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 MoUDH, Final reports on the property identification and Valuation on Dire Dawa City,
2015.
MoUDH, Final reports on the property identification and Valuation on Mekelle City, 2015.
MoUDHC, Revenue Enhancement Plan Guide for Ethiopian City Administrations, Working
Manual, Published by GIZ.
MoUDHC, Policy Memo to Reform on Real Property Tax, adopted in May, 2012.
MoUDHC, Concept Note for Prototype to Modernized Property Tax Legislation, 2013.
ንጋት፣ በአማራ ክልል ነጋዴ ሴቶች ማህበር (አክነሴማ) እየተዘጋጀ በየወሩ በነፃ የሚሰራጭ የማህበሩ

ልሳን እትም፣ አንደኛ ዓመት ቁጥር.2፣ መጋቢት 2008 ዓ.ም.

የከተማ ልማትና ኮንስትራክሽን ሚኒስቴር, በኢትዮጵያ ከተሞች ዘመናዊ የንብረት ግብር ስርዓት

ትግበራ ፕሮጀከት መነሻ የፖሊሲ ማዕቀፍ, አዲስ አበባ, 2005 ዓ.ም.

V. Interviews

Interview with Ato Abebe Zeluel, General Manger, Urban Revenue Project office,
MoUDH, 27 March 2018.
Interview with Ato Amilaku Adamu, Chairman of the real property tax reform technical
committee, MoUDH, 28 March 2018.
Interview with Ato Desta W/Geworgis, Coordinator, Real Property Tax Reform Unit,
MoUDH, 29 March 2018.
Interview with Ato Habitamu, Senior Legal Expert, Legal Service Directorate, MoFEC, 29
March 2018.
Interview with Ato Meksud Hyruy, Communication Coordinator, Real Property Tax
Reform Unit, MoUDH, 28 March 2018.
Interview with Ato Mulay Woldu, Director, Tax Policy Directorate, MoFEC, 29 March
2018.

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Appendix

Semi structured interview questions which were presented to officials in MoUDH and MoFEC

Introduction:

I am Tilahun Dires, Msc student at Bahir Dar University Institution of Land Administration. I am
doing my Msc thesis on a title “Analysis of the Ethiopian Real Property Tax Laws and the
reforming process”. The purpose of this interview is to get information about the real property tax
reform. The information you will give is secret and use for the said purpose only. You are selected
purposely for this research.

Questions:
1. What does to mean real property tax in Ethiopia context?
2. Do you think reform is needed for real property tax?
3. If the answer for Q. 2 is ‘yes’ what are the reasons, which initiate reforming of real property tax?
4. Whose responsibility is to propose reform measures for real property tax in Ethiopia and why?
5. If your office is one of the organs responsible to propose, what progress did achieve?
6. What are tax bases, which proposed to be apply for the real property tax reform?
6.1. Land only?
6.2. Building only?
6.3. Land and building together?
6.4. Land and Building separately?
7. If the answer for Q. No. 6 is out of 6.2 i.e. building only, what will be the fat of the current urban
lands leasehold system? Or can land value tax and land lease go together?
8. What is/are the main purpose of the real property tax reform?
8.1. Is it for revenue sources?
8.2. Is it for urban real property management?
8.3. is it for both
9. What preliminary activities were performed to make real property tax effective on the following
main preconditions of real property tax reform?
9.1. Political commitment/ willingness
9.2. Technical experts
9.3. Valuation Mechanisms
9.4. Cadastre
9.5. Real property registration system
10. What problems do you think the reform has been facing? Or do you think that everything will safe
for the reform?

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