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The Lagos State Government would
surely have gaped its mouth at the reactions of its ever praise-giving
residents; did the Ambode’s administration get this one wrong? The answer would
be a partial “Yes” and at the same time an anemic “no”. No doubt, it would be
agreed that the promulgation of the Land Use Charge (hereinafter, “LUC”) Law of
2018 did not come as a surprise, indeed, the former LUC Law of 2001 was in dire
need of repeal.  

At least judging from the
more recent legislation, we can identify one unique benefit contrasting the old
law, that is, a consolidation of all land related taxes such as ground rent,
tenement rate, neighborhood improvement levy etc. into one absolute and unique
tax. The new law also appears to have taken cognizance of the dynamics of modern
housing in the state, flowing from the recognition of the possibility of a
landed property used for both residential and commercial activities. An example
would be a 4 story building wherein the first 2 stories are used for
residential functions and the lowers stories are used for commercial activity
like schools or stores.
To criticize, there appears
to be nothing wrong in the legal process that gave birth to this law. All boxes
appear ticked, consultations were made, town hall meetings held, legislators
had swung into action and stakeholders were abreast of the situation.  
In a State where the major
natural resource is “Tax”, one might begin to wonder why the sudden outbursts
emerging from the masses. The following paragraphs may identify some of the
reasons.
1.      
TAX
RATE FORMULA:
Classification
OLD RATE
NEW RATE
Pensioner’s
property
0.000%
0.000%
Lagos
State Government properties
N/A
0.000%
Owner
occupied residential property
0.150%
0.076%
Vacant
properties and open empty land
0.000%
0.076%
Industrial
premises of manufacturing concerns
0.500%
0.256%
Residential
property occupied by owner and 3rd party
Unclear
0.256%
Residential
property not occupied by owner
0.650%
0.760%
Commercial
property (used for business purposes)
1.750%
0.760%
Family
compounds
0.000%
Any rate
above
The tax rate differs per the
classification of the property as seen in the schedule of the LUC Act 2018, the
Old rate is also shown to further the difference


Furthermore, the formula for
calculation of tax required as seen in the same schedule is thus:

(Land Value + Building
Developments Value) x Relief Rate x Charge Rate

That is:

LUC=
(LA X LR) + (BA X BR X DR) X RR X CR

Where in (in summary):

LUC
is
“the annual chargeable tax fee being the LAND USE CHARGE”

LA
is
“area of land per square meter”

LR
is
“average market value of the land per square meter as determined by the professional
values “

BA
is
“value of total developed floor area on a plot of land in square meters

BR is
“average construction value of medium quality buildings and improvement in the
neighborhood based on the market value done by values”

DR
is
“depreciation rate for the buildings and improvements on the land.

RR is
“relief rate where applicable to owner occupier”

CR
is
“the annual charge rate expressed as a percentage of the assessed market value
of the property which may vary at the governor’s discretion”.

Clearly, the above expressed
formula is complex and calls for the applications of mathematicians. According
to Kenneth Erikume, ‘the formula … could have led to complexity by the
assessors in computing the reliefs. For example, rather than give a pensioner
100% relief, multiplying by 100% to arrive at the LUC (which is what the
formula seems to suggest) would give no relief at all. It is important for the
State to clarify and simplify the computation so that an average property owner
can compute it without any external assistance. Giving taxpayers the option for
self-assessment would also reduce controversy. It seems that it is still too
complicated even for the assessors.’

Some reports state that LUC
rates have increased by 200% to 500%. This is not exactly correct in all cases,
based on the rates alone. In some critical economic and social areas, rates
have dropped as shown in the table above.

It is pertinent to note that
there has been a downward review of the LUC law which was announced on the 15th
of May, 2018. The implication of this amendment is that commercial property
owners are to be granted a 50% discount. Properties used by owner and third
party and also property used by for Industrial and Manufacturing purposes are
to enjoy a 25% discount. A solely owner occupied property will enjoy a 15%
discount.

Additionally, the penalty
for late payment has been waived completely.

2.    
FINANCIAL
STANDING OF LOW-INCOME PROPERTY OWNERS

The minimum wage issue has
been a perfect challenge to this new law. The National Minimum Wage Act of 2011
provides N18, 000 as the least ‘take-home-pay’
for a public servant. Although Lagos State appears to house all the
billionaires in Nigeria, the percentage of low income earners, however, still outweigh
the upper class.  Areas such as Ikorodu,
Badagry, Magboro in Lagos State still consists of relatively cheap properties,
a galore for the minimum wage worker. If the intention is to use the property
for residential and commercial purposes then the LUC Act will present a hurdle
in the maintenance of such ownership of property.

3.     TRANSLATED IMPACT ON RENT

For many landlords,
particularly those in Lagos, property is a thriving business, one in which no
loss occurs, just appreciation and profits. The presence of the LUC Act 2018
has definitely adjusted that narrative. With no research or polls conducted we
can safely assume that Lagos landlords will transfer the aggression of the 2018
Act on their tenants, many of which may be minimum wage earners. Judging from
the steady inflation and the rise in food prices (as a result of the unrest in
the middle belt and Northern area of Nigeria), Lagos may, for the first time,
experience an efflux of residents to neighboring states.   

4.     PENSIONERS UNDER THE ACT

It is observed that in both
the LUC 2001 and 2018 Law, pensioners are exempt from land taxes. However,
under the interpretation section (section 1) the new law introduces a
definition of “pensioner” as a person
who retires from a pensionable office in the State (Lagos State of Nigeria)
.
There are 2 interpretations of this, depending on what is considered as
‘pensionable office’. According to Kenneth Erikume, “ It could either mean that
the pensioners that get the exemption must have retired as workers in the
government of Lagos State or that the pensioners must have retired as workers
in Lagos State. The first interpretation would be very discriminatory and it is
doubtful whether this was the intention of the drafters. The second
interpretation would be logical as Lagos State is at liberty to grant an
exemption only to those who have contributed to its economy during their more
active days in terms of taxes and driving the economy.”

Another misconception may
arise, as to whether the grace of the law extends to all properties owned by a
pensioner everywhere in the state. For example, will tax be paid by a pensioner
on all his many properties in Lagos (both residential and commercial) save the
one he currently resides in? or are all the properties covered under his
status?

Despite the criticism
cloaking this new law, amid the swift reaction of the government, it cannot be
held to be true that this law is Draconian. Several reasons point to the
benefits of the LUC Law 2018. The following paragraphs shall highlight just a
few.

1.     DEBT PORTFOLIO

As at 2017, Lagos State
amassed a debt profile of N603.25
Billion (both foreign and domestic) as against its revenue of N410.5 Billion. In light, of this
distressing fact, it would only be logical for a government to offset this
insipient financial doom. The perceived slight increase in the LUC may be an
approach by the Ambode’s administration in bridging the gap towards financial
autonomy and leverage.

2.     LAND USAGE

Looking at the rates
marshaled out in the new law, LUC Law 2018, it is obvious even to the blind
that, a vacant land owner would be at a loss, if he fails to utilize his
property. The implication of this new law is that all lands will be utilized;
this will go a long way in solving the housing deficit plaguing the Lagos
Government. Similarly, it could also instigate a rise in commercial entities,
thereby adding to the internally Generated Revenue (IGR) of the state.

3.    
CONSOLIDATED
TAX

As has been observed earlier
in the first paragraph, the new LUC Law has attempted to consolidate all land
related taxes as opposed to the former LUC Act. As seen in section 1 of the new
Law, the land use charge is said to include “all property and land based
rates and charges payable under the land rates law, the Neighborhood
Improvement Charge Law and Tenement Rate
”. This is a sure improvement on
the culture of never ending land related bills.

Conclusively, I would argue
that the Land Use Charge is not an inhuman law, it is an ambitious one.
However, just like an electronic application, the Lagos State Government may
need to debug and update this new law. The reasons for this update would be to
tackle the problems and glaring disadvantages this new enactment portends. The
government will also need to educate its residents on the importance of paying
taxes. There is no gain saying that all thriving economies get their nutrients
from the tax payer’s commitment. 

Eseoghene Palmer Esq.

Adedunmade Onibokun &
Co.