The name is absent

122

III. Taxation of rural and urban improvements ("rates")

A. Form of taxation

Rates and ground rents are both forms of recurring annual costs imposed on the holders or
users of real estate. They are quite distinct from consent fees, transfer taxes, and scrutiny fees, which
are paid only when land is transferred or when a leaseholder seeks a building permit.

In Zambia, rates are applied to the estimated value of improvements only, while ground rents
are applied to the value of the land as such, not including the value of any improvements. Revenues
generated by rates accrue to local government (city, municipal, and district councils), while ground
rents are paid to the MOL of the central government. Neither applies to land still under customary
tenure. Rates apply to the rateable areas of each district or city—referring, essentially, to the urban
area, but some agricultural land near to or within the urban perimeter may be included.' The fact that
rates are applied only to improvements, rather than to market value of land plus improvements, is
problematic. A number of economists, from Henry George ⁵ to the present, consider this the wrong
approach to taxation. They reason it would be far better to exempt improvements (or at least newly
built ones) and apply a heavy annual tax on the site value of the land under them, thereby capturing
some of the market value that results from government expenditures on infrastructure. As a result of
inflation, poor administration, and lack of interest, neither the rate nor the ground rent generates
significant revenue—nor has any other economic impact at present.

The current legal and institutional framework for setting and collecting rates is inadequate, but
improving, particularly through the work of the Government Valuation Department. The legal and
institutional framework for setting and collecting ground rents on urban and rural lands is worse.
Government is aware of the problem, and officials have stated their intention to address it, but no
improvement is yet in sight. Far less clear is the present and potential revenue generation of rates and
ground rents, where little hard information is available. Research is needed to determine the revenues
available to traditional authorities, and their relationship, if any, to land allocations and land uses.

B. Speculation

Speculators are investors who buy undeveloped land and hold it without making
improvements, hoping to resell it at a higher price in the future. Their activity does not create
productive employment for anyone except the speculator; their returns depend on their assessment of
market information and the risks they bear in the event that higher land prices do not materialize.
Speculators favor any tax that does not apply to the market value of undeveloped land. Because that
market value depends almost entirely on location, or on site-specific soil and climate factors, it is often

Z^ambi^a h^as 3 l^arg^{e c}iti^es (L^usak^a, Ndola, and Kitwe) and 9 smaller cities. The rest of the country is divided among
some 60 districts. Each of these entities has an elected city or district council, which sets policy, and council employees,
who implement it. Below the district council, in communal areas, some authority rests in tribal chiefs, who in turn oversee
village headmen.

Henry George, an American whose views appeared in Progress and Poverty about 1880, believed so much revenue
could be obtained by taxing site values that all other taxes, including the income tax, could be repealed. The movement he
founded was thus known as the Single Tax Movement. Some cities in the United States and other English-speaking countries
have adopted lower rates on improvements than on land values, and a few exempt new construction completely for a certain
time.

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