Addressing Inefficiencies in Property Rate Collection and Unlocking Revenue Potential
The National Rating Act of 2024 marks a significant step in reforming Kenya’s property rating and valuation framework. This law was introduced to address long-standing issues, which have been holding counties back from earning their full potential. A study conducted in 2018 by the National Treasury, with the support of the World Bank, revealed that county governments had substantial unrealised revenue potential, particularly from property rates. This catalysed the introduction of a new law to replace the outdated Rating Act of 1963 and the Valuation for Rating Act of 1956, which had failed to align property rates with the rising market values.
The Rating Bill was initially passed by the National Assembly in October 2023. It then underwent amendments in the Senate before a mediated version was approved in November 2024. It received presidential assent on 4th December 2024, marking the beginning of a legislative journey aimed at unlocking the revenue potential of county governments.
The new law encourages the use of modern technology to make valuations more accurate and efficient, ensuring that property values reflect the current market rates. Counties are now required to review and update their valuation rolls every five years, with a possible two-year extension if approved by the county assembly. A valuation roll is a list of ratable properties showing owners, their addresses, locations of land, tenure, acreage and assigned value.
To streamline operations, the Act creates the Office of the Chief Government Valuer, which will offer expert guidance and strategies to counties and the national government to promote best-practice on handling various valuation issues. It further establishes the National Rating Tribunal, which will handle property disputes quickly within 60 days, fostering fairness and efficiency in adjudication processes. In addition, the Act introduces measures to ensure accountability and equity in revenue collection. Property owners are required to pay rates promptly, with counties empowered to enforce payment through notices and, if necessary, the seizure and sale of properties with unpaid rates after a 60-day notice period. However, property owners may apply for rate remission and applications not acted upon within 60 days are deemed approved, providing a safeguard against administrative delays.
Further, the law excludes freehold agricultural land from its scope, focusing instead on urban properties and other rateable properties. Counties are encouraged to consider different property categories such as residential, commercial or agricultural when determining rates, allowing for incentives that promote good land use. Counties can also employ the use of private valuers to expedite the preparation of valuation rolls, preventing backlogs and alleviating the workload on government valuers to ensure timely updates.
This new legal framework is designed to address inefficiencies that have previously cost counties billions of shillings in lost revenue. By aligning property rates with market values, fostering responsible financial management and promoting transparency and accountability, the Act is set to transform county revenue collection, enabling better delivery of services and infrastructure development for the benefit of citizens.
The Act establishes a flexible framework, allowing county governments to use one of four major methodologies for valuing properties, customized to their specific areas, as specified in Section 9(2) of the Act. This is not a one-size-fits-all strategy, and here are the options:
- Annual Rental Value: This method focuses on the potential rental income of your property. It considers either the actual rent you could get or the equivalent of comparable rents in the open market. As the Act defines it, “annual rental value” means the amount arrived at based on the actual annual rent realizable or the annual equivalent of comparable rents. This method is most relevant when your property is used for rental purposes.
- Area Rating: This is a straightforward approach that calculates rates based on the size of your land. Counties can use a flat rate, a graduated rate based on acreage, or a differential rate based on land use. As the Act defines it, “area rate” includes a flat rate, graduated rate or differential rate adopted by the county government. This method may appeal to owners of larger land holdings.
- Unimproved Site Value: This approach values the land as if it were vacant, without considering any buildings or improvements Sections 7, and 9(2)(c)]. In essence, “unimproved site value” is the value of vacant land that does not include the value of any improvements. This method highlights the raw value of your land.
- Combined Approach: This method blends the value of the land with the value of any improvements Sections 7, and 9(2)(d)]. This offers a more comprehensive approach.
Before any of these methods are implemented, county governments must seek public input Section 10(1). This is not a mere formality but a key opportunity for land owners to shape how their property rates are calculated. Notices about proposed methods will be published in the Kenya Gazette and in at least two newspapers of wide national and county circulation, and will be circulated through electronic media, ensuring you get at least 60 days to make your views known Section 10(2). As the Act states, “Prior to the adoption of any form of rating, the County Executive Committee member shall, issue a notice of not less than sixty days inviting comments from the members of public Section 10(1)
National Rating Tribunal
A key feature of this Act is the establishment of the National Rating Tribunal Section 39(1). This tribunal is will hear and determine appeals and objections related to property valuations and rates, aiming to resolve issues within six months. The Tribunal will not be bound by the rules of evidence in the Evidence Act Section 42(2). If you disagree with the Tribunal’s decision, you can appeal it at the Environment and Land Court.
On Exemptions:
Not all properties will be subject to rates. The Act exempts certain types of land, including properties listed under Section 38 which include:
• Land used exclusively for public purposes.
• Places of public religious worship.
• Cemeteries, crematoria, and burial grounds.
• Public health facilities.
• Public educational institutions and libraries
However, these exemptions do not extend to properties used for profit or for residential purposes Section 38(3). The Act also specifies that places of public religious worship with profit-earning ventures are only exempt for the place of worship and that rateable property leased for foreign embassies are still subject to rates if registered under the rateable owner.,
Paying Rates Consequences of Default
The County Executive Committee Member will determine when rates are due, and you will be able to pay through authorised bank accounts or electronic payment systems, or by any other means prescribed under Section 15(2), and 16(1). However, it’s crucial to pay on time as the Act introduces stricter enforcement measures for defaulters under Section 19(2). These measures can include penalties, denial of county services, or even the creation of a charge against your property under Section 19(2)(d).
Relief for Those Who Need It
If you’re struggling to pay your rates, the Act provides some routes for relief. You can apply for a remission of rates, where a portion or the whole of the rates may be reduced Section 17(1). There are also possibilities for discounts and waivers of interest and penalties, though these will have specific criteria set by each county under Section 18(1).
Public Land and Contributions
The Act also addresses the issue of public land, with provisions for contributions in lieu of rates under Section 20(1). The National Land Commission will create guidelines for including or excluding certain public lands from valuation rolls [20(2)].
What Does this Mean for You as a Property Owner?
- More clarity and consistency: The Act aims to create a more transparent and consistent system for property taxation Section3(a).
- Increased public participation: You have a greater say in the valuation process as prescribed in Section 10(1).
- A structured dispute resolution process: The National Rating Tribunal offers a formal avenue for addressing disagreements by the Tribunal established under Section 39(1).
- Potential changes to your tax liability: Depending on the new valuations, your property taxes might increase or decrease.
- Stricter enforcement: Be prepared for stricter measures if you fail to pay your rates as provided under Section 19(2).
In conclusion, this Act is a huge step towards modernizing property tax collection in Kenya. Keep a close eye on updates from your county, as they will be creating their own specific legislation and regulations to implement this Act. This change not only impacts property owners, but also shapes how property ownership and responsibility is understood in Kenya.
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