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International Journal of African and Asian Studies www.iiste.org
ISSN 2409-6938 An International Peer-reviewed Journal
Vol.39, 2017
106
Property Taxation under Fiscal Decentralisation in Malawi: What
Are the Available Institutional and Governance Arrangements?
Chunxia Sun
1
Thomson Raphael Bwanali
2*
1. College of Public Administration, Huazhong University of Science and Technology, 1037 Luo Yu
Road, Wuhan, 430074, Peoples’ Republic of China
2. College of Public Administration, Huazhong University of Science and Technology, 1037 Luo Yu
Road, Wuhan, 430074, Peoples’ Republic of China
* E-mail of the corresponding author: trbwanali@yahoo.co.uk
The research is not financed by any funding agency.
Abstract
The paper investigates institutional and governance arrangements that fiscal decentralisation provides for
property taxation. Research for the paper was based on a case study of Lilongwe City Council in Malawi and
data were collected through document analysis and semi-structured interviews with senior officials from central
government, Lilongwe City Council and other stakeholders in the implementation of fiscal decentralisation and
property taxation in Malawi. Fiscal decentralisation in Malawi provides the following institutional and
governance arrangements for property taxation: autonomy for the taxing authority; constitutional oversight
bodies; dispute handling mechanisms; local representation; collaborative arrangements; and performance
reporting. The paper concludes that fiscal decentralisation that has been implemented in Malawi has institutional
and governance arrangements that would create smooth administration of property tax. The limitation with the
paper is that it is based on one case study of a local government area designated to levy property taxes.
Key words: Fiscal decentralisation, Governance, Institutional arrangements, Property taxation
1. Introduction
Developing countries have implemented fiscal decentralisation with the rationale that lower levels of
government would have control over local finances. Fiscal decentralisation is “a two-dimensional policy
institution that involves either decentralisation of a tax instrument, when local governments have the power to
raise taxes, or decentralisation of expenditures when local governments bear the responsibility for implementing
expenditure functions” (Porcelli, 2009, p.1). Literature presents property tax, a levy on real property, as the most
appropriate source of local government’s revenue for the following reasons: it easily gets local acceptance;
indicates clear jurisdiction of its coverage; ensures predictable flow of revenues and its suitability for budget
balancing (Bahl & Martinez-Vasquez, 2008; Bird & Slack, 2004; Monkam & Moore, 2015). Fischel (2001)
likens the property tax to a benefit tax especially in cases where it matches with benefits enjoyed in local public
services. Effectiveness of a property tax system requires constant improvements and according to Bei (2013), the
quality of institutional arrangements determines the success of reform. The paper investigates institutional
arrangements that fiscal decentralisation provides for property taxation. Findings of the research are significant
to both theory and practice of property taxation in developing countries because knowledge about institutional
and governance arrangements that fiscal decentralisation provides for property taxation would provide scholars a
basis for building theory for improving performance of property tax. The findings are also significant to
developing countries that are in initial stages of fiscal decentralisation and use property taxation as an option for
financing local government because through this paper they can learn other institutional and governance
arrangements that might be lacking in their own property tax systems. Research for the paper was based on a
case study of Lilongwe City Council in Malawi and data were collected through document analysis and semi-
structured interviews with senior officials from central government, Lilongwe City Council and other
stakeholders in the implementation of fiscal decentralisation and property taxation in Malawi.
2. Theoretical Perspective
The paper is based on theory of fiscal decentralisation and institutional theory based on the understanding that
International Journal of African and Asian Studies www.iiste.org
ISSN 2409-6938 An International Peer-reviewed Journal
Vol.39, 2017
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fiscal decentralisation and property taxation involve several institutions that link up and coordinate with each
other. Therefore understanding the concepts of fiscal decentralisation and institution is necessary. Scholars of
public finance propagate that financing of public goods should be done at the level where they would be deemed
most efficient. Studies in public finance and public goods undertaken by Kenneth Arrow, Richard Musgrave and
Paul Samuelson formed basis for the present perspective of fiscal decentralisation (Oates, 2005). Fiscal
decentralisation is promoted as an effective arrangement for ensuring that in a multi-level government, each level
is assigned economic tools for financing public goods and services. Fiscal decentralisation is based on the
Decentralisation Theorem which states that:
For a public good- the consumption of which is defined over geographical subsets of the total
population, and for which the costs of providing each level of output of the good in each jurisdiction are the
same for the central or respective government – it will always be more efficient to (or at least as efficient)
for local governments to provide the Pareto-efficient levels of output for their respective jurisdictions
than for the central government to provide any specified and uniform level of output across all jurisdictions.
(Oates 2012: 35)
The theory places a responsibility on each level of government of ensuring that public goods and services are
efficiently delivered to the local people. The proximity of a local government to people within its jurisdiction
puts it as a good provider of public goods and services because it understands their needs better than the central
government. A study conducted by Bird, Ebel and Wallich in 1995 suggested that fiscal decentralisation is
complete when local governments have “an independent and autonomous source of tax revenue” (cited in
Bryson and Cornia, 2003, p.45). Davey and Péteri (2004) suggested local taxation in the following ways: levying
taxes themselves; imposing a locally decided surcharge on a revenue levied and collected by other levels of
government; and receiving a fixed share of national taxes collected within their jurisdiction. Expenditure
assignment for a local government represents the most significant aspect of fiscal decentralisation because that is
where taxpayers judge relevance of local taxation. Local governments should ensure public expenditure respond
to local requirements to avoid local government failure. Dollery, Crase and Byrnes (2006) have defined
government failure as “the inability of a public agency (or agencies) in a given tier of government to achieve its
intended economic efficiency and equity objectives” (p.342). Local government failure could also result from
spending limitations specified by the central government in the fiscal decentralisation policy framework,
therefore, local government should ensure that revenue mobilisation initiatives are driven by public expenditure
requirements. Property taxation as a common form of local taxation ought to adopt institutional and governance
arrangements that will maximise revenues.
The term “institution” has ignited considerable debate among social scientists who argue about its definition and
what it constitutes. An earlier definition by North in 1990 described institutions as “the rules of the game in a
society or, more formally, are the humanly devised constraints that shape human interaction” (cited in Vitola &
Senfelde, 2015, p. 272). The definition considers that institutions are based on human behaviours because
humans create institutions and determine how they should be run. Greif (2000) define economic institutions as
“a system of social factors - such as rules, beliefs, norms, and organisations - that guide, enable; and constrain
the actions of individuals, thereby generating regularities of behaviour” (p.257). The definition implies that an
institution has structures and rules that coordinate interaction between different agents and whose actions are
expected to be rational. Hodgson (2006) views institutions as “systems and embedded social rules that structure
social interaction” (p.18). Wilson (2006) faults Hodgson’s definition for not incorporating the behaviour of
institutions’ actors. Incorporating actors’ behaviour as a component of institutions extends institutions to
informal set-ups because behaviours occur during either formal or informal interactions. In addition, persistent
informal efforts by agents to interact with each other and conform to formal rules and regulations result into their
actions being regarded as conventional by the society, thus creating informal institutions. According to Phillips,
Lawrence and Hardy (2004), the foundation for institutional theory is the fact that “institutions are social
constructs produced through meaningful interaction” (p.638).
According to Young (2004), the nature of institutions is self-reinforcing and they possess relatively stable
characteristics in terms of their scope, administrative structure and links with other institutions. Institutions can
also be identified by their hierarchical nature or availability of sub-systems. Coriat and Weinstein (2002)
describe two aspects of institutional structure namely: “the coherence and hierarchy between institutions, or
institutional sub-systems” (p.280). Coriat and Weinstein (2002) argue that coherence of institutions is important
because it helps a system’s performance to not only depend on itself but also other sub-systems. Similarly,
performance of fiscal decentralisation does not only depend on the local governments implementing it but also
on technical and financial assistance from central government and choices from citizens. In addition, institutional
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ISSN 2409-6938 An International Peer-reviewed Journal
Vol.39, 2017
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hierarchy helps in understanding the entire system and identifying roles of each agent. Maguire and Hardy
(2006) summarise the literature on definitions of institutions and conclude that regulatory institutions comprise
of: “legislation, systems of standards and penalties, specialised organs for delegated decision making and review
procedures; secretariats; and monitoring mechanisms which combine to influence behaviour” (p.9). Institutions
involved in fiscal decentralisation and property taxation are regulatory in nature. Based on this summary, it can
be argued that the institution of fiscal decentralisation and property taxation comprise of policy makers,
implementing agents, policy and legislation that regulate agents’ coordination and their roles. On the importance
of institutional arrangements, scholars agree that they play a great role of influencing behaviour (Hodgson, 2006;
Phillips, Lawrence & Hardy, 2004) because deviation from the agreed conventions is regarded as a misbehaviour
and attracts penalties or sanctions. The role hints that institutional arrangements not only link and coordinate
agents but also encompass public governance. Bovaird and Löffler (2009) define public governance as “how an
organisation works with its partners, stakeholders and networks to influence the outcomes of public policies”
(p.4). Thus, as an institution, fiscal decentralisation should promote governance in property taxation by
collaborating with all concerned agencies and citizens. Collaborative governance refers to the “the processes and
structures of public policy decision making and management that engage people constructively across the
boundaries of public agencies, levels of government, and/or the public, private and civic spheres in order to carry
out a public purpose that could not otherwise be accomplished” (Emerson, Nabatchi and Balogh, 2012, p.3).
Such arrangements create trust among all agents and promote citizens’ voluntary compliance to pay local taxes.
3. Methodology
The paper is based on an exploratory qualitative research that involved a case study of Lilongwe City Council in
Malawi. Case study is “a strategy for doing research which involves an empirical investigation of a particular
contemporary phenomenon within its real life context using multiple sources of evidence” (Robson, 2002,
p.178). In a case study strategy, a small geographical location and a limited number of people are selected as
respondents to the research. There are three main types of case studies namely: descriptive, explorative and
explanatory (Yin, 2009). Research for the paper adopted descriptive and explorative orientation to a case study in
order to get a description of property taxation in Malawi; and to investigate institutional and governance
arrangements that fiscal decentralisation provides for property taxation. According to Zainal (2007), advantage
of case studies is their ability to “explore and investigate contemporary real-life phenomenon through detailed
contextual analysis of a limited number of events or conditions, and their relationships.” (p.1). Flyvbjerg (2006)
begin by arguing that a case study does not provide reliable information about a broader class; but it may be
useful in the preliminary stages of research because it provides hypotheses, which may be tested systematically
with a larger number of cases. The choice of a case study for the research was relevant to investigate
arrangements in a phenomenon, property taxation. Lilongwe City Council was selected as a case study because,
firstly, it is the capital city of Malawi where the seat of government is located, as such it offered a high
probability of interviewing key informants from both the government and the public. Secondly, Lilongwe City
Council implements many if not all government policies pertaining to fiscal decentralisation and property
taxation because of the capital city status.
Data were collected by analysing documents pertaining to policy and legal framework for fiscal decentralisation
and property taxation in Malawi. Forty-two semi-structured interviews were conducted with purposively selected
key informants from central government, Lilongwe City Council and other stakeholders in the implementation of
fiscal decentralisation and property taxation at national, local authority and community levels. In addition, four
focus group discussions were conducted with property owners to understand the following: public involvement
in property taxation; perceived level of accountability at the taxing authority; and communication arrangements
between property owners and the taxing authority. Four focus group discussions were arranged with property
owners from each of the four categories of properties created by the Lilongwe City Council. Categories of
properties are commercial, industrial, residential-low to medium density and residential-highy density. There
were already existing area committees of property owners for all categories which act as a platform for
communicating with Lilongwe City Council and utility providers, and the researcher held discussions with
members after getting consent from the leadership of each committee. A set of different open-ended questions
were asked to each interviewee depending on the role his or her institution plays in property taxation and his or
her own responsibilities in the institution. However, in all cases questions were focused on the role of a particular
institution in property taxation and how it coordinates with other stakeholders. The research objective and
qualitative research approach that was adopted pre-determined a thematic analysis of data. Themes developed
were characteristics of a particular agent and roles in property taxation. Responses from interviews and focus
group discussion were transcribed and summarised according to the themes.
International Journal of African and Asian Studies www.iiste.org
ISSN 2409-6938 An International Peer-reviewed Journal
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4. Property Taxation in Malawi
The administration of property tax in Malawi is governed by the decentralisation law, the Local Government Act
of 1998 which provides legal authority for both fiscal decentralisation and property taxation. The legal
framework provides locally generated revenues, ceded revenue and transfers from central government as main
sources of local government finance. There is no limitation on the sources of locally generated revenue which
include: property rates; ground rent; fees and licences; commercial undertakings; and service charges
(Government of Malawi, 1998a). Locally generated revenue contribute about “65-80 percent of all revenues” of
urban local governments and property taxes are the biggest source of locally generated revenues of urban
governments in Malawi as they account for “between 40-50 percent of all revenues” (Choi et al., 2016, p.53).
4.1 Institutional Framework for Property Taxation
Since property taxation in Malawi falls under the broader fiscal decentralisation, it is associated with the same
institutions that provide local authorities with policy guidance, technical, financial, and human resource
assistance in relation to fiscal decentralisation. These institutions can be classified as: governmental; political;
non-governmental; private; and citizens. Government institutions are directly linked with the central government
and include all ministries, departments and agencies that are directly involved in the implementation of fiscal
decentralisation and land management. These include: local governments authorities; Ministry of Local
Government and Rural Development (MLGRD); National Local Government Finance Committee (NLGFC);
Malawi Local Government Association (MALGA), Local Government Services Commission (LGSCOM);
Ministry of Finance, Economic Planning and Development (MFEPD); and Ministry of Lands, Housing and
Urban Development (MLHUD).
Local authorities are grouped into four types, namely: city, municipal, town and district. City, municipal and
town local authorities are responsible for government business of urban areas. The decentralisation law provides
that the organisational structure of each local authority should be composed of the secretariat and a council. The
secretariat is under the leadership of a Chief Executive Officer and it is involved in the administration of all
service sectors in the decentralisation process. The council is a political arm of the local authority comprising of
Members of Parliament and Ward Councillors, who are elected representatives for local people of a local
government area. The council is headed by a chairperson and in urban local authorities he is designated as the
Mayor. Currently, property taxes are levied on assessable property situated in local government areas which
legislation has designated as taxable for property tax purposes. The decentralisation policy entrusts MLGRD
with responsibility of managing local authorities and the entire decentralisation programme through provision of
guidance and support, and linking central government and local authorities (Government of Malawi, 1998b).
According to Chiweza (2010), MLGRD performs some of its functions through special local government
institutions namely: MALGA, LGSCOM and NLGFC. MALGA is composed of all local authorities who are
represented by their elected leader and among its responsibilities include representing and lobbying for local
councils interests, for example, revenue generation (Kutengule, Kampanje, Chiweza & Chunga, 2014). The
NLGFC was established in accordance with section 149 of the Malawi Constitution, and its main function is to
monitor the financial performance of local authorities. The national constitution mandates NLGFC to examine
and supervise accounts of local government authorities using the available laws in consultation with the National
Audit Office (NAO) (Government of Malawi, 2002). Similarly, LGSCOM was established in accordance with
section 147 sub-section 4 the Malawi Constitution and its role is to appoint and discipline staff of local
authorities (Kutengule et al., 2010). The only exception are administrative heads of local authorities who are
appointed by the Minister responsible for local government. The role of MFEPD in property taxation is to
formulate, monitor, evaluate and review property tax policy in consultation with NLGFC. Finally, the (MLHUD)
is involved in property taxation because of its role in managing land and regulating land services, such as
valuations.
Political stakeholders in property taxation are all elected representatives of the people, thus Members of
Parliament and Ward Councillors. As members of the political arm of the local authority’s council their role is
largely to provide oversight on revenue generation and expenditure. At national level, the Malawi Parliament
also provides an oversight role under the provisions of Public Finance Management Act of 2003 by summoning
administrative heads of local authorities “to answer audit queries raised by the Auditor General” (Kutengule et
al., 2014, p.33). Citizens and groups are involved in property taxation, first as taxpayers and finally through
public procurement arrangements that are entered into with the local authorities, for example, valuations of
property and collection of tax.
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4.2 Property Tax Policy
Tax base defines the immovable property on which tax will be levied. The tax base can be composed of the
following: land only; improvements on land only; and both land and improvements, for example buildings
(Slack & Bird, 2014; Kelly, 2013; Slack, 2010; Franzsen, 2002). Malawi’s property tax policy provides that both
land and improvements on it which are within a local government area are subject to tax and covers both
residential and non-residential property where the latter includes commercial, industrial and government or
public buildings. However, section 67 of the Local Government Act mandates local authorities to levy tax in
areas that have not been designated as assessable by the Minister of local government. The following do not
qualify as property assessable to tax: “all streets; sewers and sewage disposal works; land and improvements
used directly and exclusively as a cemetery, crematorium or burial ground; land and improvements used as a
public open space; and railway lines used for transit” (Government of Malawi, 1998a, p.19). The tax policy
exempts from tax all real properties that are exclusively used as the following: public religious worship; public
library or public museum; hospital; an educational institution; sport centre (Government of Malawi, 1998a).
However, the exemption does not extend to property used as residence for staff of these institutions or any other
property that the exempted institution might use for profit-making. In addition, all assessable property that is
owned by diplomatic missions as approved by the Minister of Foreign Affairs is exempted from property tax and
this includes residences for staff. Literature suggest that in some countries, government property does not
necessarily enjoy full exemption but the central government is supposed to pay to local government a
contribution in lieu of property tax, for example, in Kenya and Canada (Kelly, 2013). Similarly, government-
owned property in Malawi is taxed at a discounted rate of fifty-percent of the applicable tax rate.
The bases on which tax could be levied include: sale value, capital value of property, rental value of property and
income realised from property (Monkam & Moore, 2015; Aluko, 2005). Capital value is the original cost of
acquiring and improving the property whereas rental value refers to the value that the property would realise if it
is being let out. Malawi adopted the sale value also known as market value as basis for levying property tax.
According to Monkam and Moore (2015), developing countries face challenges with value-bases for calculating
tax on property because they require vibrant property markets and sound management of data from the market.
To a large extent, application of market value basis by Malawi’s local authorities rely on outsourced professional
valuers. Malawi’s local governments have autonomy of setting their own tax rates and the legislation mandate
them to “differentiate tax between area and between different classes of property within the local government
area” (Government of Malawi, 1998a, p.25). In Malawi, legislation describes the owner of assessable property as
the taxpayer who is liable to paying tax levied on the property he owns and if the property is co-owned, this
responsibility is shared among the co-owners.
4.3 Property Tax Administration
Property tax administration by local authorities in Malawi involves the following functions: property
identification, valuation, assessment, collection, and enforcement and taxpayer services. Some of the functions
are performed in collaboration with other governments departments and in some cases, local authorities
outsource services from the market.
4.3.1 Base identification
A first step in property tax administration whereby the tax authority identifies the property that is to be taxed
through cadastral surveys in order to establish property ownership and its boundaries. The surveying exercise
involves mapping of boundaries and collection of information for each property with reference to the adopted
property tax base definition and result into the development of a valuation roll. A valuation roll is register
containing details of ownership of property, its location including boundaries and amount of tax that is due
(Monkam & Moore, 2015). Section 68 of Local Government Act directs that apart from showing details of
property and its owner, the valuation roll should also contain the total valuation of the assessable property: value
of the assessable land; and value of the assessable improvements situated on the land. In Malawi, urban local
authorities have mandate over all urban land as a result they possess a database of property owners. However,
the records are not good enough and periodically property identification is undertaken in conjunction with the
ministry responsible for land.
4.3.2 Valuation
Property valuation determines the value on which a taxing authority will apply the tax rate in order to compute
tax liability for each taxpayer. The Local Government Act under Section 65 provides a five-year cycle for
undertaking at least one valuation of assessable property and that a supplementary valuation to be undertaken
once in every twelve months to ensure that new assessable properties are included in the valuation roll. Further,
International Journal of African and Asian Studies www.iiste.org
ISSN 2409-6938 An International Peer-reviewed Journal
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legislation requires that valuations should be undertaken by a valuer registered under the Land Economy
Surveyors, Valuers, Estate Agents and Auctioneers Act. However, such technical expertise is not readily
available in local authorities like is the case with Lilongwe City Council which out-sources valuation services
from the market. It has been learnt that valuers are remunerated based on a percentage of total value of properties
recorded, thus a valuer who presents high values is paid more than the one who presents lower values.
Legislation provides that before commencement of valuation exercise, occupants of property should be given a
forty-eight hour notice to enable them prepare. On their part, property owners are required to provide
information about their property within twenty-eight days from the date they receive a notice about valuation.
When valuations have been undertaken by private valuers, Valuations Department in the Ministry of Lands,
Housing and Urban Development provides technical assistance of verifying all values before updating the
valuation roll. The Local Government Act under Section 75 requires local authorities to make the valuation roll
available for inspection by interested taxpayers or groups (Government of Malawi, 1998a). The valuation roll is
not used to levy property tax until the general public has been invited to inspect it and is satisfied with the
information it contains. According to section 70 and 71 of the Local Government Act, local authorities are
empowered to alter valuation roll and correct errors whenever it is deemed necessary.
4.3.3 Assessment
Assessment function involves calculating annual tax liability for each taxpayer by applying the set tax rate to the
value of property. In Malawi, assessing property tax and determining tax rates are responsibilities of the
administrative arm of local authorities only. Lilongwe City Assembly uses different rates to levy property tax
depending on, first, the use of such property such as for commercial, industrial and residential purposes. Then
differential rates are applied depending on the population density of the areas where property is located namely:
low, medium and highy. Legislation provides neither a period within a year for which taxes are assessable nor a
specific date on which taxes become payable and that is left to local authorities to decide. However, in practice,
local authorities assess tax bi-annually and have fixed 30th June and 31st December as dates on which taxes are
payable for respective halves of the year. The law only authorises local authorities to notify taxpayers about their
tax liabilities within a period of not less than twenty-one days before the date on which the tax is payable
through either print media that circulates in the local government area or any media that might be decided.
According to Lilongwe City Council, in addition to door-to-door delivery of bills and placing notices in print
media, it also uses mobile public address system to communicate to property owners that taxes are due.
4.3.4 Collection
The function involves sending bills to taxpayers and collecting taxes that are due. Tax collection requires a
considerable level of compliance from taxpayers, therefore it is necessary to design proper collection strategies.
The Lilongwe City Council conducts door-to-door delivery of tax bills after realising using the post was one of
the factors that promoted non-compliance because taxpayers used to claim that bills were not reaching them. As
regards the actual collection of taxes, Lilongwe City Assembly contracted commercial banks located in various
points in the city who collect property taxes on its behalf. In addition to the commercial banks, another payment
point is at the council’s headquarters where collection is done by a commercial bank located within the council’s
premises, and the council itself.
4.3.5 Enforcement
The function ensures that the tax authority addresses tax arrears by enacting the tax law to undertake actions that
are provided for forcing defaulters to pay any tax that might be unpaid after a specified period. Apart from
reducing tax arrears, enforcement also promotes voluntary compliance among taxpayers by charging penalties on
tax arrears or imposing sanctions against some services, for example, denying issuance of business licences or
tax clearance certificates (Kelly, 2013). Lilongwe City Council enforces tax arrears by: charging penalties; seals
property of tax defaulters; names and shame defaulters in both print and electronic media; outsourcing services
of professional debt collectors, specifically lawyers; and commences litigation proceedings against defaulters.
4.3.6 Taxpayer service
The taxpayer service function handles objections and appeals that taxpayers might have against tax assessments
or valuations. Under section 76 of the Local Government Act, property owners objecting a property tax
determination are required to file such objection to the local authority within twenty-eight days from the first day
on which the rate is payable. It is further specified that objection should be filed in writing. However, property
owners in Lilongwe City expressed dissatisfaction that often the authority takes long to resolve disputes possibly
because no time-frame is specified for it to resolve disputes.
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5. Findings and Discussion
The implementation of fiscal decentralisation in Malawi has created institutional and governance arrangements
for property taxation that are discussed below.
5.1 Autonomy for the taxing authority
Autonomy of a public institution refers to the “discretion of public organisations in decision making in respect of
policy or managerial issues” (Lægreid, Verhoest & Jann, 2008, p.93). Institutions’ autonomy could be reflected
by legislation, lines of accountability and the ability to design and implement operating procedures. The legal
and institutional frameworks for fiscal decentralisation demonstrate that local authorities in Malawi are granted
semi-autonomous powers for administration of property tax. Legislation for decentralisation provide autonomy
in the following areas: setting of tax rates; levying of tax in areas that have not been designated as assessable by
the Minister of local government; determining periods for which taxes are assessable and dates on which taxes
become payable; outsourcing of services when the local authorities don’t have capacity.
The arrangement where a taxing authority has multiple lines of accountability could also erode its autonomy
because each stakeholder would wish to exert authority. For instance, local authorities do not have complete
autonomy in organisational management because they neither design their own organisational structures nor
recruit staff. The line ministry, the MLGRD, and relevant agency LGSCOM are responsible for designing
organisational structure and staff recruitment respectively. With such arrangements, human resource
requirements in property tax administration are not readily addressed until approval is sought from LGSCOM.
Similarly, local authorities cannot implement monetary incentives for staff involved in property taxation, for
example, annual bonuses, because staff remuneration levels are determined by the MLGRD.
The current arrangement also creates problems in staff performance measurement where there is no clear system
in place because top-level managers in local authorities feel that is the duty of LGSCOM. The situation is further
complicated by the arrangement to have administrative heads of local authorities appointed by the Minister. The
arrangement has potential to erode local authority’s autonomy and bring political interference in property tax
administration.
5.2 Constitutional oversight bodies
Existence of external constitutional oversight bodies in property tax administration ensures accountability and
responsibility on the part of a taxing authority. Accountability requires public officials to record and disclose
their actions together with outcomes to the larger public (Brandsma & Schillemans, 2012). Schillemans and
Busuioc (2014) view accountability as a relationship between actors entrusted with undertaking of a
responsibility and regulatory authorities that monitor the actor’s behaviour. Oversight of local government
finance in Malawi is provided by NLGFC, NAO, National Parliament and MFEPD. NLGFC is the one that
constantly monitors and evaluates performance of property tax revenues and related expenditure. Local
authorities are under law required to furnish the NLGFC with financial reports every month. Based on such
report the NLGFC conducts routine checks to ensure that the taxing authorities are complying with laws on
public finance management. Secondly, legislation on public finance management provides that all public
institutions should be audited by the NAO. Thirdly, the National Parliament which makes property tax laws and
approves local government budgets is the highest oversight institution. Apart from ensuring accountability in
property tax administration, external agencies like a Ministry of Finance, also monitor and evaluate the
efficiency and effectiveness of the tax system. Expert guidance helps to evaluate if the tax policy is achieving its
objectives in a fair and effective manner. Constitutional oversight bodies should coordinate with each other in
executing their roles because relationship and interaction between them affect functioning and autonomy of
public organisations on which they play oversight role (Lægreid et al., 2008).
5.3 Dispute handling mechanisms
In property taxation, disputes could arise relating to perceived unfair valuation or assessment. A taxing authority
is supposed to be accountable to taxpayers and one way of achieving that is through availability of clear
arrangements for resolving taxpayers’ disputes or complaints. Dispute handling mechanisms could be instituted
either for maintaining citizen satisfaction with the tax system or getting feedback on the weaknesses of a tax
system and non-conforming behaviours of tax officials, for example, corrupt practices. Mookhey (2013) argues
that taxpayers’ satisfaction with dispute handling procedures and outcomes help in building health relationships
between the tax authority and taxpayers and minimises recurrence of disputes. In addition, handling of disputes
presents a taxing authority with an opportunity to justify its decisions and educate taxpayers on a particular issue.
In order to promote accountability, procedures and processes for resolving disputes or complaints should be
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known to taxpayers. According to Brewer (2007), accessible, simple and transparent procedures for handling
complaints keep stakeholders informed and build confidence in complaint handling process. With this
background on importance of effective dispute handling in tax administration, a property tax system should
ensure that there are either internal or external mechanism for handling disputes. The external mechanism could
be a specially arranged and independent arbitrator for handling disputes with minimal costs to both parties
involved.
5.4 Collaborative governance
One of the institutional arrangements that fiscal decentralisation provides for property taxation is for the taxing
authority to collaborate with other government departments and the private sector in executing some functions
like valuation of property and collection of taxes. Managers of taxing authorities have the ability to increase
collaborative governance when they are provided with the required regulations to build a network that would
help an institution achieve objectives of a tax policy. Smith (2007) shares a similar view and argues a stable and
well-structured local government influences collaborative governance because it offers managers a position to
build extensive collaborative networks that commits it to recognisable outcomes. Stakeholder involvement helps
to achieve good governance (Fung, 2015), thus, accountability, transparency and public participation which in
return enable all stakeholders namely: government agencies, the market and citizens to make a property tax
system effective. Involving stakeholders outside government machinery improves management and performance
of public organisations because policies are easily understood thereby attracting support during implementation
(Scott, 2016; Leach, Weible, Vince, Siddiki & Calanni, 2013; Ansell & Gash 2008). Apart from valuation and tax
collection, property taxation requires collaboration in taxpayer education where non-governmental organisations
could be contracted to educate taxpayers on processes and benefits of property tax.
5.5 Local representation
The political arm of local government council present voters’ involvement in property tax administration. On one
hand, Ward Councillors and Members of Parliament are expected to act in the interest of the people they
represent whenever property tax matters are deliberated at the local authority. On the other hand, political
representatives should engage voters by consulting them and provide feedback on developments regarding
administration of property tax. Geys, Heinemann and Kalb (2010) argue that engagement increases the voters’
monitoring ability because voters are politically aware and develop an interest of public offices’ activities. Voters
who are also taxpayers of property tax are compliant with tax obligations when they perceive that acts of local
government are to their interest (Smoke, 2008) and the political representatives should help the taxing authority
in sensitising voters on performance of property taxes and their expenditure. Local governments that that derive
more finances from local sources than external sources should ensure that there is a relatively high voter
involvement coupled with better service delivery. On one hand, a study by Geys et al. (2010) established that
high voter involvement result into improved performance of local government with high fiscal autonomy
because voters pay more attention to locally-sourced public money.
5.6 Performance reporting
The requirement by law that the taxing authority should record and disseminate information pertaining to its
performance is important in promoting transparency and accountability. The information does not only aid
monitoring by oversight bodies but also creates trust among citizens on how the authority is generating revenue
and spending it. The information could be on performance indicators set by a Ministry of Finance, reasons
behind a particular performance and feedback on the effectiveness of a property tax system. For citizens, reports
on performance have a potential of influencing compliance behaviours in paying taxes.
6. Conclusion
Fiscal decentralisation that has been implemented in Malawi has institutional and governance arrangements that
would create smooth administration of property tax. The arrangements promote values of good governance for
taxing authorities and all stakeholders. They enhance autonomy, accountability, transparency and public
participation, through citizen representation in the tax institution. Good governance could result into taxpayers
trusting the taxing authorities that property taxes are administered according to their interest. The belief that the
taxing authorities are acting according to the interest of taxpayers promotes voluntary compliance in paying
taxes. It is commendable that all institutional arrangements for fiscal decentralisation and property taxation
including the establishment of external oversight bodies are regulated by law
However, there is need check against the autonomy of taxing authorities being eroded because of conflicts
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between different oversight bodies. In addition, arrangements for organisational structure and staff recruitment
should be reconsidered in order to grant the taxing authorities some autonomy. This will enable taxing authorities
to develop and implement programs for measuring staff performance whose results would be used for identifying
skills and competences, determining staff remuneration and awarding of incentives. Relationships between
oversight bodies should be mutual and strongly linked so that property taxation contributes significantly to local
government financing.
The limitation with the paper is that it is based on one case study of a local government area designated to levy
property taxes. However, the findings could be applicable to all designated local government areas in Malawi
because the same legislation for fiscal decentralisation and property taxation is applied across the country. Future
research should assess how institutional and governance arrangements influence performance of property tax
revenues.
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