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. 14 years later the land use charge law is still not widely accepted. Majority of Lagosians don’t even see the justification or the rationale for its promulgation, a lot more also feel its only another avenue to milk the masses dry.
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. Recently Abuja followed suit and before you batt an eyelid it could take full swing in the entire polity. Reason why it becomes paramount that the issue of the full implementation of property tax in the country needs a surgical procedure
What is Property Tax
Property tax is generally a tax imposed by municipalities upon owners of real property within their jurisdiction based on the value of such property. This form of tax is reported to be one of the most stable sources of revenue to governments however most state and local governments in Nigeria are yet to tap revenue from this form of tax. In developed countries, revenue generated from this tax is used to provide basic amenities to the people.
Throughout the world property taxes are commonly employed as the main source of locally generated revenue for the good reason that there is no other major source of taxation revenue that is exactly geographically defined. It is possible to use local income taxes and/or local sales taxes for generating local government revenue but both have difficult administrative problems. Local revenue may be generated from other sources, particularly rents from local government owned properties. In some cases, local income taxes are an important source of revenue. In many cases, however, property tax is the main source of revenue (and even when local income taxes exist, it may be easier for a local government to modify the property tax rate than to adjust the income tax rate).
Challenges in Property Taxation
No perfect policy exists due to challenges in human endeavours not even in a country where ‘stealing is not corruption’ in the words of the immediate past President of Nigeria. Thus, the following problems should be avoided and if possible eradicated to ensure a good tax system that ensures the attainment of public goods
- Assessment and valuation inconsistencies: Determining the appropriate rate of tax most times requires expert opinion and usually this is not available. Very skilled personnel are needed to carry out this activity. This greatly affects the accuracy of collected data. Lack of skilled manpower leads to under-valuation thus reducing government’s revenue, while over-assessment results into disputes which may delay payment of property taxes.
- Illiteracy and ignorance: This has over time been seen as a major hindrance to the collection of property taxes. To a great extent, affected individuals either do not see a need/importance of it or they do not know anything about it. More so, a lot of Nigerians have lost faith in our government. They see it as another avenue created by the government to take the masses on a reckless ride to poverty Inn
- Legal documents: The statutory nature of property taxation makes it necessary to be provided with appropriate legal documents or aiding laws to back up its activities. Most times these documents either are not in existence in the region or they fall short of some provisions. To ensure successful property taxation in the country, tax laws need to be either created or modified to fit present day activities.
- Attitude of the tax payer and taxing authority: No one wants to pay tax to the government on the protest that they do not know what the tax is used for. However they still need public facilities
Read also: PROPERTY TAX; How much do you know?
Prospects of Property Taxation
The choice for a good tax for local governments is limited compared to both the choices of federal and even state governments in Nigeria. This is because the higher levels of government are larger, cover jurisdictions having larger populations and have a greater capacity for tax administration if effectively managed. A number of conditions should be met for a tax to be a good tax that meets the challenges of the 21st century
- The revenue of a good tax at all levels should increase over time in order to match the natural growth in costs and to fulfil the growing needs of public services.
- Taxes should not be too sensitive to cyclical fluctuations.
- A good local/state tax should be distributed relatively equally among local governments. Equalisation of the revenue between local governments may be required to enhance differences in access to tax base.
- There should be a close relationship between the citizens who pay and the citizens who benefit.
- The tax administration should be inexpensive to administer, i.e. the tax yield should be much higher than the administrative costs. A realistic target is that the cost of administering a property tax should be significantly less than five percent of the revenue generated.
The administrative cost is arguably the biggest constraint to the growth of the property tax. It is just too expensive, and too hard to properly levy and enforce. So, countries are turning increasingly to “shortcuts” to address this problem. The introduction of the notional valuation based on location and area, self-assessment, indexing between valuation periods, and the exemption of the hard to tax properties are all examples of such shortcuts.
If the government of any state in the federation is hell-bent on implementing property tax in their localities, then the right steps must be taken for its acceptability. If the citizens cannot see the genuineness in the government’s approach towards the implementation of property tax then it will be a lost cause. The following must be put on the front burner for the implementation of a property tax regime.
- A comprehensive study should be made, by the government of states that are yet to instigate a property tax regime and its relevant authorities, in the states reported to having administered one form of property tax or another to see how these taxes were brought into law, how they are administered, the revenue/ benefits derived and what challenges are faced.
- More professional staff both estate surveyors and valuers, and tax administrators should be employed by the government in both the Ministry of Lands and Housing and States Board of Internal Revenue as this will bring in people with professional knowledge and expertise with regards to this tax, who will bring about the realisation of these taxes in the states of the federation.
- Detailed and up-to-date records should be kept of properties in the various states as this will enable the government in assessing taxable properties when finally the collection of such taxes is fully enforced. This is necessary if a successful property tax administration is to be achieved.
The success of determining property tax largely depends on proper land registration and adequate documentation. These are however the major low-points hindering effective land management in Nigeria.
What’s your thought on the possibility of a full implementation of property tax in the entire country?