Despite facing scathing criticisms over the controversial increment in the land use charge, the Lagos State Commissioner for Finance, Mr. Akinyemi Ashade, told Property & Environment Editor, CHINEDUM UWAEGBULAM, that the purpose of the jerk is to increase internally generated revenue, and to ensure that all economic activities on real estate give returns to the government for improving the living conditions of residents.
Why did Lagos State embark on the review of the land use charge?
I will give you a good example. 1n 1984, the state government enacted a survey law, in that, it was encoded that if you want to lodge your survey plan with the state government, you should only pay 50 kobo. That is still what law is as of today. So, the administrators and bureaucrats tried to be creative since 50 kobo is still nothing.
In doing that, they said, administrative fee should be N1, 000. So, if you want to lodge your survey plan today, you pay only N1, 050. That law is obsolete and nobody has done anything about it. We have quite a number of laws like that, which we are consciously looking at. Land use charge was one of those laws.
The old regime of the land use charge is about the cost of your property, it is called ratable value; that is the cost of what it took you to build the property.
As you know, with developments in different areas, there are also adjustments in terms of the present value of a property now and 16 years ago; it will never be the same.
So, we resolved to standardise the rate in order to remove the element of subjectivity, and to a large extent, go by way of the market value of the property.
There are different types of market valuation, and we are not restricting any one to any of the market valuations, all we ask is let it be market-value determined. With that, it is objective, and you will know your category of property, whether owner-occupier or a commercial.
From there, you will also know the appropriate type of charge rates, and how much that will translate into, but no matter how you do this, we have a regime of reliefs.
We even also realised under the market value that we cannot charge property owners the total value, as the law provides for a 40 per cent discount. It is only 60 per cent of the market value of the property that is chargeable, the rates are also friendly and competitive, compared to the rest of the world.
But there has been so much criticism on this use of market value to arrive at the property rate. Why did the state adopt that?
Because market value is a leveler; that is what can be objective and equates everybody. For example, if you have the same type of mansion in Ikoyi, and another one in Ikorodu, it is market valuation that will determine the real value of the property in both locations, and basis to assess under the land use charge.
Using any other basis won’t work. We want people to be aware that taxation or tax matter is a personal matter.
So, if you want to engage us, let us talk about it, it is a personal affair; let us discuss it, know your situation and tell you the reliefs that would be applicable to you so that we can come up with your actual bill.
For the people that are saying that the use of market value should not be the basis for deriving the LUC rate, we ask, what better application should be used? The cost of building houses varies according to areas, so each property needs to be valued according to its location in order to achieve standardised rates for everyone. That is progressive and rational.
It is instructive to note that according to the law, the incidence of payment is on the landlord, and not the tenant.
Have you thought of the effect on tenants, and other low-income earners?
People are saying that the charge would be passed on to the tenants, but with our reliefs, what property owners are supposed to pay is equitable. We expect it would not be passed on to the tenants. So, the reliefs would reduce the burden to a level that it can’t be passed on like people have argued.
The various reliefs made available to payers, include a general 40 per cent relief for all property liable to LUC payment; a 10 per cent relief for owners and occupiers with persons with disabilities; a 10 per cent relief for owners and occupiers of 70 years and above; a 10 per cent relief for properties above 25 years old; a five per cent relief for property occupied by their owners for over 12 years; a 20 per cent relief for non-revenue generating federal and state government property, and a 20 per cent partial relief for non-profit making organisations.
To enjoy any of these reliefs, applicants must make claims with evidence for approval to the Lagos State Commissioner for Finance.
There are fears that the law will cause inflation, increase in rent and affect real estate development in Lagos.
We don’t actually foresee such problems. The argument has been made that there can be inflationary adjustments here and there. We have to wait and see how this will play out.
This is a progressive tax regime of property tax meant only for property owners. With the increase we have done, we won’t see a massive jump in inflation and all that because it is the value that was created that we are asking that something should be paid back to the state government for capital development.
There has been some resistance against the law, what options are left for the government?
The government of Lagos State is not unaware of the reactions of a section of the public to the reviewed Land Use Charge Law of 2001.
According to statistics, by 2030, Lagos State is projected to become the third largest consumer market in the world, with a population of 35. 8 million, closely behind Tokyo and New Delhi.
Expectedly, the high population growth and the rapid urbanisation will put infrastructure and public services under enormous pressure.
The question is, are we ready? In order to improve on service delivery, increase internally generated revenue (IGR), and not depend on federal revenue, Lagos State has sought to grow its revenue base by ensuring all economic activities on real estate give a return to the government for the sole purpose of improving the living conditions of residents of Lagos State.
There is a provision for self-assessment in the law, how does this work? Can’t there be cooked up figures by property owners?
Why we encourage self-assessment is because the formula has been simplified now. There are three components of market value, and charge rates applicable to a property, so you can do it by yourself and make the right payment. If you want to wait for government to do it for you, we will do it for you and serve you the bill.
This is not about revenue for us, but it is about things being done the right way. Ordinarily, you should do your valuation regularly in order to know the value of your property.
With the valuation, we’re also helping you in case you want to borrow money from a bank. There are other benefits attached to this, so let people do self-assessment, compare and know if the government is really cheating them. This is the type of engagement that we want at this period.
END
“It is instructive to note that according to the law, the incidence of payment is on the landlord, and not the tenant” Oga honorable finance commissioner, LUC is an indirect tax and the end users are the ones paying.