Effects of the Land Use Charge Law on Lagosians

On March 25, the Lagos State Government gave landed property owners till April 14 to pay the state Land Use Charge, or risk losing the benefit of enjoying 15 per cent discount for paying the levy. This article discusses the effects of the land use charge law on Lagosians.

Conceptually, Nigeria’s economic potential is well recognized as probably the biggest economy in Africa with considerable resource endowment being a pointer to strong growth. However, very little of such potential seems to have been realized. This is associated with unsustainable planning and visioning, economic stagnation, declining welfare and social instability in recent times.

Though the main objective of Vision 20:2020 is to make Nigeria one of the twenty largest economies in the world with ability to consolidate its leadership role in Africa and establish itself as a significant player in the global economic and political arena by the year 2020, but all that could just be fairy tales if some jaw-dropping ills in governance are not corrected.

The responsibility of Governments at all levels in providing infrastructure is enormous. This is in line with the fact that the existence of a solid infrastructure is required for national development, which cannot be achieved without good infrastructure that affects all sectors. By implication, infrastructure is important for the functioning of communities (which may be cities, town or society), Individuals and companies.

Lagos State faces the challenges of increasing population that makes use of available infrastructures, which have not experienced addition to cater for concomitant increase in demand while funds or budget allocations are far from being enough for managing them. With rapid population growth and decrease in available funds from the Federal, States and Local governments, the standard of maintenance of roads, water resources, bridges, electricity, and others have reduced to the lowest and disappointing level.

In 2001, the Lagos State Government promulgated the Land Use Charge law in response to the increasing demand for provision of urban and rural infrastructures occasioned by dwindling federal revenue allocations. This was in a bid to generate revenue internally via property tax.

Essentially, the Law states that with effect from date that the Charge is levied on a property, all other laws that impose tax on properties (the Assessment Law, Land Rates Law, Neighbourhood Improvement Charge Law, and Tenement Rate Law) would cease to apply to such property.

A supplement to the Law, known as Supplement to the Lagos State of Nigeria Official Gazette Extraordinary No. 41, Vol. 34 of 13th December 2001 Part B stated the Annual Land Use Charge Rates payable on assessed value of a property to be: owner-occupied residential property – 0.5%; industrial premises of manufacturing concerns – 0.5%; residential property/commercial –0.65%; commercial property used by occupier for business purposes – 1.75%; owner-occupied pensioner’s property, and family compounds are exempted from payment of Land Use Charge.

Invariably, the promulgation of the Land Use charge was bound to have its effects on Vision 2020 thematic area of housing in Lagos. There were concerns about the short and long term effects of the law which is one of the thematic areas of Vision 2020 which is the political, economic, and social nerve-center of Nigeria. Also, it was perceived in some quarters that the amount of charge payable which is considered to be inappropriate would be a major setback to the fulfillment of the law. There have even been arguments that the high charge and the penalties involved would discourage investment in new housing and maintenance of existing stock.

Read also: Land use charge “FAQ’S”

The Land Use Charge (“LUC”) is a charge imposed on the owner of the property. However, where the owner is not in possession of the property, the Land Use Charge Law (LUCL) authorizes the collecting authority to appoint the occupier, who is usually the tenant, to be assessed with and pay for the tax; the tenant is in turn authorized by the LUCL to offset such a payment, made under this Law, from monies that may be due from the tenant to the owner of the property. There is thus an indemnity in favor of the tenant/occupier against the owner. How this procedure would work in practice, especially in the light of the temperament of the Lagos land owner, is a major concern.

The immediate past Lagos State Government administration formulated policies which were aimed at developing the state in various sectors such as health, transportation, banking and finance and more, but with emphasis being directed towards the real estate or housing, the LUC has been foreseen by economists and estate surveyors and valuers to have an important and vital impact on the economy of Lagos State.

The Overall effect of the LUC on “VISION 20:2020” housing thematic area may be determined by considering the short and long run effects on rent and quality of housing that will be available in the open market. In the short-run, the incidence of LUC will cause reduction in net rent that is due to owners while the quality of housing will remain constant. However, the situation will change in the long-run.

In the long-run, the incidence of the charge will be passed onto the tenant, who will most likely be unable to pay; subsequently, the quality of housing will reduce. High incidence of charge will force property owners to transfer it to the tenant, thereby causing housing units in the state that have already witnessed high occurrence of informal housing to be worse off in the long run.

In Conclusion, the overall effect is the shortage of over 17 million housing units identified as a problem in the executive summary of “VISION 20:2020”, will be aggravated by the long-run effects of the LUC. The existing provision for penalty for delayed settlement of the LUC is considered too harsh. Many tenants in Lagos State do not pay rent as at when due (based on research), many are usually in arrears of six months or more. Imposing a penalty according to the number of months due to delay in payment of the charge, does not consider owners or estate surveyors plight in the management of properties in Lagos State.

Considerations must therefore be given to delays and defaults in rent payments. If the Lagos State Government insists on prompt payment of the charge, then there should be provisions to protect the owners against arrears by tenants, while penalty should be at 10% flat per annum after payment has been delayed for more than six months.

Also, it should be recommended that Estate Surveyors and Valuers should not be held liable to make deductions for the LUC from rents collected on behalf of their clients. Also, Lagos State Government should appoint Estate Surveyors and Valuers to determine the appropriate annual values on a net annual basis of valuation, collect and remit LUC to the government.

It is a good thing for the Lagos State Government to raise funds through property tax as applicable all over the world to finance physical and infrastructural developments and make life meaningful to the citizens. However, in giving “meaningful life to the citizens” the implication of inappropriate taxes in the short- and long- run especially on the poor Lagos dwellers and tenants must be considered as paramount.

Finally, in other to make the “VISION 20:2020” housing theme attainable in Lagos State, the incidence of LUC should not be at an enormous rate, so as to encourage investment in provision of housing and prevent neglect of proper maintenance of existing housing stock.

In the words of Late. President Musa Yar’Adua, “The Challenge is Great, the goal is clear, the time is now!