# **4.3 Prevalence and Payment of the Rural Land Use Fee and Agricultural Income Tax a) Prevalence**

Close to 80 percent of landholding households and 84 percent of documented landholding households pay a rural land use fee and agricultural income tax (Table 6). This corroborates the World Bank finding (2012) that farmers regard paying these taxes as a proxy for having title to the land. It is possible that in Ethiopia households make tax payments a priority to ensure continuance of their land rights given the tenure insecurity, population growth, and land shortages.<sup>17</sup>

**Table 6. Households that Paid a Rural Land Use Fee and Agricultural Income Tax, Percent**

|||Landholding|Documented Landholding|
|---|---|---|---|
||All Households|Households|Households|
|Percent of households who paid land tax|74.3|79.3|84.2|
|_Number of households_|_2,942_|_2,343_|_1,900_|

_Note_ : Household sampling weights are used.

# **b) Average tax payments**

Table 7 compares self-reported taxes (column A) with imputed tax liabilities using land area and the tax schedule of the region where the households reside (column B). The analysis for this table is restricted to Amhara, Oromia, and SNNP, the only regions for which we have tax schedules. We find that the mean difference in tax liabilities, in Birr, increases with land area class (column C), but the mean difference in percentage terms (column D) is larger for small landholders with less than 0.5 ha than it is for large landholders.

Why is there a large discrepancy between self-reported tax payments and imputed tax liabilities? There are several possibilities. First, the Revenue Bureau or the chairman of the _kebele_ (village) peasant association, delegated by the Revenue Bureau, may not have the most current landholder data and agricultural land area for tax assessment. Some of the land registries may not have tracked changes in ownership (World Bank 2012), and the land registry from the first stage registration is paper-based, making it difficult to update information on land title and farm area (Bezu and Holden 2014a). Four regions (Amhara, Oromia, Tigray, and SNNP) are conducting second-stage registration to update the land registry but each is moving at a different pace (Bezu and Holden 2014a). Yet the average land size has been declining for the last 10 years because of subdivision of farms (Holden and Tilahun 2020), which suggests that tax liabilities calculated with outdated information from the land registry may overestimate farmers’ tax liabilities.

Second, different methods used to measure land area could be another source of the discrepancy. The firststage land certification process obtained the area of farms using low-cost methods and local technologies, such as ropes and measuring tapes (Bezu and Holden 2014a; Deininger et al. 2008). Farmers are expected to provide updated information to the Revenue Bureau, but it is not clear whether this happens, and if it does, whether farmers provide land area data using self-reports, tapes and ropes, or GPS measurements.<sup>18</sup> Measurement discrepancies would result in different tax assessments for an area-based tax.<sup>19</sup>

> 17 As a comparison, about 60 to 70 percent of property owners in Lima, Peru, paid property taxes, with the compliance rate (percentage of owners paying taxes) ranging from 25 to 90 percent depending on the district (Del Carpio 2014). In Mexico City, the compliance rate is about 60 percent <mark>(Brockmeyer et al.</mark> 2021). At the other extreme, in the city of Kananga, Democratic Republic of Congo, only 8.8 percent of property owners pay property taxes (Bergeron et al _._ 2021).

> 18 Carletto et al. (2017) find a discrepancy in land area estimates between these three methods in Ethiopia, with farmers owning small plots overestimating their land area compared to GPS methods, while farmers owning larger plots underestimating it.

> 19 Second-stage registration is using GPS devices and satellite imagery to update farm areas, but the specific technology used for measuring land size (for example, handheld GPS devices or precision GPS devices) varies by location (Bezu and Holden 2014a; Holden and Tilahun 2020).

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