In Tanzania, the LUKU System has been adopted as the primary prepaid metering solution for electricity and has been successful in increasing access to electricity for many people across the country. “LUKU” is the acronym of “Lipa Umeme Kadiri Utumiavyo” meaning “Pay for electricity as you need it.” The LUKU System works by installing prepaid electricity meters in households and small businesses. These meters are connected to a central system that allows users to purchase electricity in small increments as needed.
While the primary use of the LUKU System has been for prepaid electricity metering, Tanzania has also implemented the system for payment of property tax. Under the LUKU System, each electricity consumer pays a specified monthly amount depending on whether they are occupants of an ordinary building or a storey building. Owners of structures without power continue to pay property tax using the previous system, which is through banks and mobile phones, until they are connected to electricity.
Property taxation is a complex and highly regulated area, and any system in this regard requires careful planning to ensure that the system is designed and implemented in a way that is transparent, fair, and effective. When considering its advantages in terms of efficiency and administration, the adoption of the LUKU system for paying property tax in Tanzania seems to be a good move.
However, the current tax system in Tanzania is fragmented, with different taxes levied by various government agencies or through different payment systems. The January 2023 issue of our magazine discussed the benefits and implications of a unified tax system, how the current tax framework for real estate in Tanzania could benefit from a harmonized approach, and proposed steps the government should take towards harmonizing the tax systems.
