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There is outrage across many parts of Nigeria’s economic hub where invoices for the new Lagos state government property tax have been delivered with house owners and residents facing a four hundred to five hundred percent increase in the land use charge.
Depending on whether residential or commercial, the new land use charge goes as high as 0.78 percent and is charged on a government determined market value of the asset with no recourse to independent valuation.
BusinessDay investigation shows that the percentage rate charged on the high end U.K. property market (where Lagos state largely copied the tax from) comes to around 0.32 percent, where residents enjoy top notch government-provided infrastructure.
An apartment worth two million pounds in the U.K. attracts some 60,000 pound annual land use charge. UK Property values (used to calculate the charges) were last reviewed in 1991. The Lagos land use charge is subject to review every 5 years.
Small businesses appear worst hit with a number of losers from land owners to even tenants groaning under the reviewed charges.
It also threatens to roll back the 24 spot improvement to 145/180 on the 2018 World Bank ease of doing business index, which is predominantly hinged on surveys in Lagos (75%) and Kano (25%).
The 2019 survey process is already ongoing.
Documents seen by BusinessDay that detailed land use charges given to some residential and commercial land users showed exorbitant charges and inconsistent valuations.
One small business premises which was classified as a commercial user, had a land use charge bill of N1.709 million, which included an extra bill of N525, 706.20 in what the government called “balance carried forward from previous years.”
That amounts to a four hundred fold increase from the N425, 000 paid the previous year.
In another case, an affected Lagos resident decried an arbitrary valuation of the house where he operates his small business from.
“I have looked at the basis for calculation and not only has the rate increased from 0.394 to 0.761 percent, they have valued the house far in excess of its market value to maximize revenue,” the business owner who runs his small business at home told BusinessDay.
A property owner in Lekki who paid less than N400,000 last year received an invoice four days ago of a value in excess of N1.4m for 2018.
In another case in Apapa, a house owner who paid N76,000 last year for land rent was levied a land use charge of N400,000 for 2018 despite property values in Apapa plummeting on the back of the collapsed infrastructure and complete neglect by the government.
This ill-disguised act of extortion, aggrieved Lagos residents say, comes in the same month of hikes at toll booths in to Lekki and in a period of constant complaints of impecuniosity by most people who engage in honest work for a living.
“Is this government deaf & blind or just plain insensitive?” one Lagosian angrily said.
The Lagos House of Assembly quietly passed the Land Use Charge Bill 2017 on Monday January 29 and the government claimed then the purpose was to ensure compliance but invoices now being delivered show the real intention of the administration of Governor Akinwunmi Ambode who will seek re-election next year.
Business leaders tell BusinessDay Ambode is sure to get a backlash during a meeting the Governor is slated to hold today with the Organised Private Sector, in Lagos, billed as “a presentation of Lagos State’s giant strides and views on Government – Business collaboration towards accelerated economic development.”
Initial communication from the state government about the new tax and its computation caused worry and uncertainty but all that has transformed into anger and consternation as the people receive their invoices and learn how much more they have to hand over to the state government weeks after a controversial increase in road and bridge toll was enforced.
The charge review is probably due to a need to bolster the state’s Internally Generated Revenue (IGR).
The state budgeted some N1.046 trillion for 2018 of which N347. 039 billion was allocated as total recurrent expenditure and N699.08 billion as capital expenditure.
“The increment will lead to an increase in cost of housing and vacancy rate, further dovetailing to an increase in unemployment rate,” said Bismarck Rewane, CEO of Lagos based advisory firm, Financial Derivatives Company.
“What the state government plans to do with the revenue generated also raises eyebrows,” Rewane added.
According to the state’s commissioner for finance who outlined details of the law in a newspaper publication on Saturday, under the new law, the owner of each assessed residential property will be required to pay 0.076% of the property’s market value while the charge for a commercial/manufacturing property has been fixed at 0.256% of the market value.
By this formula, a residential property in any location with a value of N100m, 150m, N200, or N250m will attract a hefty land use charge of N760, 000 or N1.14m, N1.52m or N1.9m as the case may be per annum.
“The world over, Land Use charges are not based on market value but capital value for commercial users,” a person familiar with the matter told BusinessDay.
“Market value will give higher values for LUC but it’s practically not meaningful as the payer may not be earning that amount in cash from the house,” the person said, adding that there were 5 ways to determine capital value.
Ambode jettisoned all the 5 and came up with his own formula, which included a discretionary method of property valuation the person said.
These 5 ways include: Comparative method, Investment method, Residual method, Profit method and Cost method. None of which the new Land Use Charge is exclusively computed with.
“They have a formula that has elements of comparative and cost. But added a factor that is based on simply discretion,” another person familiar with the matter said.
Stiff penalties were also set for failure or delay to pay the assessed charged once it is delivered.
There are penalties ranging from 125 percent to 200 percent if payment isn’t made between April and August.
All of these were communicated under short notice.
“It appears victimising that under the new law, the modalities of arriving the Land Use Change, it includes the land value and any improvement/development on the land, as such the rack rent value is being used,” said Osahon Uhuangho, a real Estate Lawyer/Partner, BTO Partners.
“Some have taken mortgagees or personal loans to improve their land for profit making, and being charged extra by the government cannot exactly be seen as being fair by all.”
In 2002, the government of Bola Tinubu also enacted a controversial law titled Land Use Charge (LUC) and the Organised Private Sector (OPS), rose up in arms against the law.
The Nigeria Employers Consultative Association (NECA), says that today’s law is more controversial than the 2002 LUC.
“We know that his Excellency, Akinwunmi Ambode, was a civil servant at the time when the old LUC was enacted and he may recall the class action lawsuit filed by the Manufacturers’ Association of Nigeria (MAN),” NECA said in a statement released yesterday.
“Alienation, insensitivity, poor embrace of constructive dialogue and a castrating dispensation of taxes and levies have no place in good governance. This new Land Use Charge is one too many of recent fiscal initiatives by the Lagos State Government to boost its internal revenue. Such must not be at the expense of the corporate and individual health and well-being of the residents of the state.”
BusinessDay has gathered that there will be a consultation between the state Government and members of the Lagos State Chamber of Commerce and Industry (LCCI0, this Friday, 9th February to try and come to a resolution of the matter.
LOLADE AKINMURELE
