IMF points Lagos, Delhi as way to raising property tax

… For $3trn world’s growth target

…Says property taxes could drive development in low-income nations

The International Monetary Fund (IMF) has highlighted major cities like Lagos and Delhi as examples of how countries can raise the estimated $3 trillion needed to meet sustainable and inclusive growth targets for the global economy.

According to the IMF, this target requires governments worldwide to increase funding to levels equaling 4 percent of GDP for emerging markets and an even steeper 16 percent for low-income countries. The organization suggests that improving property tax systems in large, rapidly urbanising cities offers a promising path forward.

“The financial challenge is immense, especially for low-income countries. But by tapping into property taxes, there’s an opportunity to generate local revenue in a fair and sustainable way,” noted Jeff Kearns, managing Editor, IMF Blog, in a report titled, ‘How Property Taxes Can Help Low-Income Countries to Develop’.

The IMF’s recent analysis points to more efficient property taxation as a key revenue source for local governments, allowing them to fund essential services and invest in their populations without relying on broader national tax increases, which often spark social unrest.

Real estate taxes, which are collected and spent locally, are generally less politically controversial than nationwide tax hikes. The IMF asserts that as urbanization drives up property values, recurrent taxes on immovable property could allow local governments to capture a portion of the wealth generated by booming construction. However, such efforts face obstacles in many developing countries where income and wealth taxation are notoriously challenging.

According to the IMF, property taxes in advanced economies account for over 1 percent of GDP, and in some cases nearly 3 percent. In stark contrast, property taxes bring in only about 0.1 percent of GDP in regions like emerging Asia and Africa. The IMF’s report encourages low-income countries to aim for a tenfold increase in property tax revenues by improving coverage and capacity for property valuation.

“The potential for growth in property tax revenue is there, but it requires smart reforms and technological advances to make it happen,” said a senior IMF analyst. Emerging technologies such as new property identification systems and simplified valuation methods could help nations achieve this transformation. With these tools, municipalities can enhance the reliability of property taxes, ensuring they become a stable and progressive funding source for local services.

Furthermore, the IMF argues that when property taxes are well-structured, they improve local government accountability. By using tax proceeds to fund visible public services like sanitation, infrastructure, and healthcare, local governments foster a direct relationship between revenue and spending. “This system places a high responsibility on local councils, as citizens expect tangible benefits from the taxes they pay,” the IMF spokesperson added.

The IMF also recommends that national legislation should establish guidelines on property tax rates to avoid significant disparities in local services across different areas. Municipalities are encouraged to limit tax exemptions to a few public organizations and to publicly report any revenue lost due to these exemptions. “Transparency is key,” IMF noted. “It helps build public trust in the property tax system and ensures funds are used responsibly.”

Acknowledging that property tax reforms may affect “asset-rich but cash-poor” households, such as pensioners, the IMF proposes that governments consider allowing deferred payments until the property is sold. This approach would enable homeowners to retain their assets without facing immediate financial strain.

The report emphasises a gradual approach to reform, initially using area-based tax rates—calculated as a fixed rate per square meter—before transitioning to a full value-based tax model. Modern technology, such as drones and satellite imagery, can assist with mapping properties and expanding tax coverage.

Examples from Delhi and Bangalore demonstrate the effectiveness of satellite technology in property tax reforms, with officials using Geographic Information System (GIS) mapping to ensure comprehensive coverage. In Africa, Lagos has emerged as a pioneer, increasing its property tax revenue fivefold to more than $1 billion in 2011 by broadening its tax base and improving enforcement. “Technology is a game-changer here,” said a Lagos municipal official. “We can now map properties accurately, which has allowed us to vastly improve our revenue.”

The IMF’s analysis suggests that the demand for capacity-building in property tax reform is rising among developing countries, as many are beginning to see the benefits of combining the right policies with technology. “When the public understands the goals of these reforms, and when they see that the funds are directed to local improvements, property-tax reform becomes much more politically viable,” the report noted.