Lagos: How far can taxation go?

by | January 25, 2018 12:40 am



Recent developments suggest that the Lagos State Government is taking an ambitious look at the taxation regime in the state. On December 29 last year, several news media reported that a bill to repeal the Land Use Charge Law of 2001, replacing it with an updated 2017 version of the same law had undergone a “second reading” at the Lagos State House of Assembly.

Instructively, comments by the Speaker of the House, Mudashiru Obasa suggest that only some three hundred thousand of an estimated two million taxable properties in Lagos, actually pay this land use charge annually, implying that the new bill is apparently seeking to correct some of the inefficiencies in the previous land use charge regime.

Last Tuesday, the Assembly went further to conduct a public hearing on the draft Land Use Charge bill and it is interesting to note not only the changes and innovations that the new bill proposes but also the concerns of the public regarding the bill.

The most remarkable development regarding the proposed new bill is that going forward, land use charge will be determined by professional market-value-based evaluation of properties. Real estate professionals such as estate surveyors and valuers therefore, will have a key role to play in the new dispensation such that property evaluation is systematic, transparent and adjudged to be fair to all.

Transparency is particularly critical as the government seeks to ensure that it is not shortchanged by unprofessional evaluation of properties.

Market-value based evaluation, however, poses its own challenges and participants at the hearing, voiced these quite forcefully. For instance, a big concern was that property value never depreciates. It always appreciates. The biggest implication of this is that one may have moved into in a neighbourhood many years ago and for reasons beyond his control, such a neighborhood may have grown over the years in market value. Such a development, they reasoned, could place a huge financial burden on owners of such properties. Another concern was that as property value never depreciates, the land use charge rate may correspondingly keep growing in line with the growing market-value and place increasing financial burdens on property owners.

The Lagos State commissioner of finance, who was at the hearing, made a number of clarifications to enhance understanding of the proposed bill, but also to assuage concerns about the forthcoming land use charge regime. He explained that using market-value-based evaluations was to help ensure standardization and drive transparency in the land use charge regime.

The commissioner was understandably silent about what the eventual rates would look like. However, while we can assume that the rates would most likely go up in line with the fact that property valuation will now be based on market-value the commissioner was quick to add that in the draft bill several “reliefs” would be made available to property owners and lessees whose leases are in excess of 10 years (these are the categories who ought to pay land use charge in the draft bill). “Relief”, actually, refers to “discount” in layman terms. According to the commissioner, every tax payer automatically gets a 40% discount on the assessed land use charge. Making payment within 15 days grants the tax payer another 15% discount on the assessed land use charge. In effect therefore, paying the assessed land use charge on time, could qualify one for a discount of 55%. In addition, pensioners living in their own properties are exempted from land use charge. There are several other reliefs including those pertaining to senior citizens (above 70 years), people living with disability, among others.

The sundry discounts or “reliefs” notwithstanding, one hopes that we can take solace in the promise by Governor Ambode that he has no plans whatsoever to overburden citizens with taxes and levies. The public’s expectation is that the new land use charge rates would be such that property owners and lessees would be able to pay the new rates with minimal discomfort, if any.

The real task for the government, therefore, is two-fold. One, having recognized that only a small fraction of taxable properties actually pay land use charge it needs to aggressively scale up its property identification and enumeration machinery. Thankfully, we are now in a digital age where the application of satellite-based technology can help with remote property identification and even certain levels of assessment of such properties for tax purposes. It is hoped that the government will employ these modern technological tools in identifying properties in the state in order to bring many more property owners under the taxation net.

Secondly, the Lagos State government also needs to continuously demonstrate to Nigerians, the kind of progress that accrues to society from focused and development-inclined taxation. Across Lagos, infrastructure work is very evident. In the Agege area, a new flyover which will considerably ease commuting in that neighborhood is in the works and is due for completion later this year. Oshodi which used to be defined by disorder and squalor is being completely overhauled into a modern traffic interchange. The international airport road in Lagos is being overhauled into a modern 10-lane expressway. Before now, of course, such projects as the flyovers at Abule-Egba and Ajah in Lagos have been completed, while sundry lay-byes have been constructed on major traffic bottle-necks to help ease traffic and improve both the commuting experience and efficiency of economic transactions in Lagos.

All of these projects speak to the importance of taxation and why it needs to be implemented in such a manner that it helps to fund and drive rapid economic development. The Lagos State government has made this point in the past via such slogans as “tax payers’ money in action,” and others, but the point needs to be made on a continuous and aggressive basis. Society must increasingly appreciate the nexus between taxation on one hand and the provision of social amenities and infrastructure which facilitate economic development, on the other.

In driving enhanced efficiency of its tax regime, government must also look at improving its enforcement apparatus. It would be unfair and a great disincentive to tax payers if only a small fraction of taxable residents continue to pay tax while many others enjoy the facilities provided from tax revenues yet avoid or evade tax.

Very importantly, however, government must continue to employ asymmetry in its tax assessments and payments. This way, the poor in Abaranje or Ayobo will not be as impacted as the wealthier segments of society who reside in the more affluent neighborhoods in Ikoyi, Victoria Island and Lekki. Perhaps this may be one of the unintended consequences of the “market-based” valuation of properties which will in due course form the basis of land use charge computation.

It is our expectation that upon passage into law and full-fledged implementation, the new land use charge regime will help provide considerable additional resources to the Lagos State Government to enable it tackle the question of infrastructure even more aggressively.

Equally importantly, we trust that evidence of judicious application of resources obtained via taxation by Lagos State, will encourage other states to be increasingly creative in how they seek the development of their respective states, outside of the increasingly contentious and unstable allocations from the centre. Intelligent taxation is clearly, the future.

Osebumere Odia