For a variety of reasons, many developing countries especially since the 1990s have embarked on programmes of democratic decentralization that are aimed at creating local self-governing systems that are democratic, relatively autonomous and effective in delivering services. Finding independent sources of financing for these emerging, locally based organs of governance has been one of the central challenges that confront these efforts in most countries.
The literature suggests that sources of independent local government revenue are few in poor countries. As a result, most countries design decentralization programmes that depend heavily on intergovernmental transfers from national to local governments. The problem is that many central governments are engulfed in a systemic financial crisis and are desperately exploring strategies for reducing their expenditure commitments. One outcome is that revenue transfers are often irregular or fall much below the levels of expenditure decentralization, leading to serious fiscal gaps at the local level. Even where transfers are adequate and reliable, a fiscal regime which compels local actors to depend so heavily on central financial arrangements for practically all of their expenditure requirements undermines the development of lateral rather than vertical relations within the state, with serious implications for public participation and effective accountability. In the meantime, cities of developing countries continue to grow phenomenally in a way that makes conventional strategies for financing urban infrastructures unsustainable.
Many analysts view this development as fatally aggravating the problem of urban/local governance. This paper suggests a different and more positive view. It reviews the literature which concedes that property taxation remains largely untapped and might indeed be progressive in developing countries. This literature highlights mainly the technical constraints to progress-assessment, valuation and collection. In contrast, this paper contends that the problem of the tax is due to a combination of political and technical factors where the latter are dependent not independent variables. The paper undertakes an analysis of the key stakeholders in implementing successful property taxation policies based on research conducted in four countries- India, Nigeria, Republic of South Africa and Zimbabwe in the early 1990s. The paper suggests that willingness, opportunity and capacity remain critical factors and demonstrates how opposition to the tax can be overcome by partnerships between central and local governments, public and private and domestic and external factors.