As a property owner, why should I be bothered when the property rate impost of my property rate bill rises significantly? Will this increase affect my property rate for the year?. Absolutely.
Local authorities expect property owners to recognize the effort involved in deciding the rate impost, which directly influences property rate calculations.
Recently, the Ghana Revenue Authority (GRA) stepped into assist the metropolitan, municipal and the district assemblies (MMDAs) with property rate collections. This move, however, received mixed reactions from stakeholders. On November 16, 2023, the GRA announced at their website the transfer of collection responsibilities back to the MMDAs, expressing confidence in their ability to manage property rate administration and collections.
The property rate impost aidslocal authorities in revenue generation, serves as an economic indicator, and ensures fair tax distribution. In certain situations, it can be relied upon to make informed investment decisions.
Going forward, let us dive deeper into the understanding of the significance and importance of the property rate impost, a rate part which is so crucial, and yet underrated for a considerable number of years.
What is Property Rate Impost?.
Property rate impost also known as the tax rate, is a critical part of the property rate system. It is the percentage at which the taxable value of a property is multiplied to decide the tax liability. The rate impost is typically expressed as a decimal or a percentage, and when applied to the rateable value, the final rate bill is reached.
In Ghana, the differential rate impost is commonly used, applying different rates to residential, commercial, industrial, and mixed-use properties.
While most homeowners and investors focus on purchase prices, mortgage rates, and market appreciation, the rate impost can have an equally—if not more—profound impact on long-term financial obligations. Unfortunately, the rate impost stays underrated in financial planning, despite their ability to shape investment decisions, home affordability, and accelerate local economic growth.
How is it determined?
The rate impost is decided through a multi-step process that involves local governments, assessment authorities, taxing authorities and local stakeholders. Thus, the rate impost is calculated based on a combination of factors.
The formation of the rate impost begins with local authorities assessing their financial obligations for that particular year. The municipality then decides their annual budgetary needs for public services, infrastructure, and debt repayments.
In addition, the municipality considers alternative revenue sources like fees, fines, permits, licenses, grants & donations, etcetera before agreeing on the level of funding that must come from property rates. The total amount needed from property rate is referred to as the rate levy—the amount that must be collected from all property owners.
To fairly distribute the tax burden, all properties including newly built properties, improvements or change of ownership in the district must be assessed for a rateable value. Depending on the jurisdiction, the rateable value is usually based on a percentage of the full market value. Right after a revaluation exercise is concluded by the rating division of the Lands Commission, announcements and notices detailing property’s assessed value are sent out to property owners to come and inspect and appeal if they are unsatisfied with their assessment.
Setting the Property Rate Impost
For any municipality to arrive at the rate impost, two things will be needed—the budgetary requirements for the year, and the total rateable value of all properties in the district less exemptions and abatements. The exemptions and abatements can be quite a stretch for the municipality to capture on their books.
The rate impost is therefore calculated as follows:
Rate Impost=The Tax Levy (Budget for the year)/Total Rateable Value in the District. For example, Budget is Ghs 50,000,000 and Total Rateable Value is Ghs 880,000,000. Thus, the Rate Impost is 50M/880M=0.0568 or 5.68%. {Let us assume that exemptions =1M, Tax Abatement = 1M}
The Municipality now decides the total rateable value of all properties within its jurisdiction and calculates the rate impost by the estimated tax revenue by the total rateable value of all properties. Further to this, public hearings are held where the proposed rate impost and the budget are debated on. The municipality then adopts the agreed rate impost and budget through a formal resolution or ordinance.
Publication and Implementation
As required by section 137-142, 144 & 146(8) of the Local Government Act 2016 (Act 936) and Regulation 8 (1 & 2) & Regulation 14 (1,2,3) of the Immovable Property Rate Regulations 1975 (L.I 1049), clearly states that the Valuation Lists prepared for revaluation of properties, and the Imposition of Rates and Fee-Fixing Resolution must be published.
As a result, the municipality is required by law to publish the adopted rate impost in the local newspaper, local government bulletin or other designated publication. The publication typically includes the rate impost, effective date, and other relevant details. It is only after publication that the municipality can go ahead with the issuance of the rate bills since rating is a statutory provision.
However, there are concerns that certain municipalities have resorted to the use of a provisional rateable value as a basis for the determination of the rate bill. Please bear in mind, a provisional rateable value that has not been processed or published cannot be used as the legal basis for billing property rates. It is illegal to apply a legally processed rate impost to a non-published provisional rateable value to arrive at a legally determined rate bill.
The publication process ensures transparency andgives an opportunity for property owners to review and understand their tax obligations.
An example of a property rate calculation:
|
MARKET VALUE |
RATEABLE VALUE |
RATE IMPOST |
PROPERTY RATE BILL |
| A |
7,500,000.00 |
4,500,000.00 |
0.01 |
45,000.00 |
| B |
7,500,000.00 |
4,500,000.00 |
0.04 |
180,000.00 |
Table 1.0
|
MARKET VALUE |
RATEABLE VALUE (revaluation) |
RATE IMPOST |
PROPERTY RATE BILL |
| A |
8,500,000.00 |
5,500,000.00 |
0.008182 |
45,000.00 |
| B |
8,500,000.00 |
5,500,000.00 |
0.032728 |
180,000.00 |
Table 2.0
The tables 1.0 & 2.0 above illustrate the two different scenarios—where there are increases in rateable values and decreases in the rate impost to arrive at the same bill. The market value has been intentionally inserted in the table above for emphasis with respect to the rateable value. Ideally, the rate impost is adjusted accordingly each time the municipality conducts a major revaluation exercise. Otherwise, the increased rate bill issued by the municipality will be so high that it could easily defeat the purpose of this laborious and costly exercise.
Though revaluation exercise will result in an increase of the various individual assessments, it does not necessarily mean property rate will increase. The increases are usually with the local authority’s need to raise a certain amount of taxes in their annual budget.
Challenges with Rate Impost at every stage
Rate impost setting is a complex process, and each stage presents its own unique challenges. And since municipal authorities rely heavily on historical data, economic conditions, and political considerations, the process is prone to inefficiencies and disputes. Let us critically look at the various stages in relation to the rate impost:
Budgeting & revenue needs assessment—Local governments estimate revenue needs based on past expenditure and economic trends. Unexpected events can make projections inaccurate. The residents also demand better service, but the higher rates can be so unpopular creating political and economic tensions. Adjusting the rate levies fairly can be quite challenging resulting in certain areas experiencing rapid growth because of increased service demands, whilst other areas are on the decline.
Inaccurate or outdated property assessments—The assessing authorities conduct property assessments infrequently leading to outdated property values that do not reflect the current market. This results in property owners often challenging the assessments, arguing they are overvalued leading to administrative delays and revenue uncertainties. The valuation methods used in the various jurisdictions pose in consistencies and an unfair tax burden. And finally, assessors face staff shortage and budget constraints making it difficult to conduct prompt and correct property valuations.
Setting the property rate impost—Interestingly, fluctuations in total rateable value can easily cause the rate impost to increase or decrease. Certain municipal authorities have been known to set the rate impostbased on prior property values and revenue needs, which may not align with current economic realities.
Another challenge which may present itself is when the municipal authority tries to balance the rate impost with revenue needs. A lower rate may not generate the required and adequate revenue to cover essential services, whilst a higher one may create pushbacks or property value declines. Inefficiencies in tax exemptions, abatement and non-occupancy equally reduce the total rateable value, forcing rate impost adjustments which can shift the burden to other taxpayers.
Rate Impost approval & implementation—there are countless situations where elected officials may hesitate to approve the necessary tax increases due to voter backlash, even when added revenue is needed. The public opposition and legal challenges delay the decision-making processes which affect the municipal’s budget and service delivery.
Billing & collection of rates—This is by far the greatest challenge most municipal authorities face—ratepayer non-compliance, complexity in the billing cycles, legal and administrative burdens in collections, and rising unemployment, inflation, and economic downturns increasing delinquency rates as well as reducing expected revenue for municipalities to carry out community demanded services.
Conclusion
In conclusion, mastering property rate impost involves understandingproperty rate assessment, rate determination, and financial planning. However, municipalities often lack transparency by not publishing rate proceeds, which could encourage property owners to pay taxes. We believe strongly that greater disclosure of how tax revenue is used can build trust, improve compliance, and support sustainable urban development.
Property rate administration and collection has been quite an arduous task for the MMDAs. They need to considerevolvinginto the new age in collections where they align themselves with main government-related services to the public. This could be the surest way to create a win-win situation for both property owners and local authorities.
By Ernest Heymann
The Writer is a Property Tax Specialist
with Auditel International (Gh) Ltd/Member of AGI.
Email: auditelghana@gmail.com
