As Lagos reduces land use charge

Lagos has been in the proverbial eye of storm ever since it commenced distribution of demand notices for the payment of Land Use Charge for 2018. Many property owners expressed surprise at the figures they saw in their bills. According to media reports, many property owners were shocked to find increases of up to 400% on the bills they paid only a year ago. The Organized Private Sector, the segment most hit by the increases immediately went on air to vehemently protest these increases. Anyone who was present at the Town Hall Meeting organized by the Lagos Chamber of Commerce and Industry could not have missed the passion with which the representative of the OPS criticized the new land use charge regime. “Any increase above a hundred percent,” he stated very forcefully, “is unacceptable.” But nowhere was the “war” as violent as cyberspace. Across various chat-groups, different people gave their own interpretations to the developments. One famous whatsapp message which became viral actually warned that “if you own a duplex in Lagos, you will now have to pay N3m annually as Land Use Charge…” Another asked “how can you increase tenement rate or the Land Use act (sic) from N120k to about N1million for a 3-bedroom bungalow?”

It was the gross misinformation on cyberspace more than anything else that befuddled the arguments of the government making the communication process increasingly arduous. Government through its operatives including the Governor of Lagos, Mr. Ambode, had argued that the increases in land use charge had actually been sequel to the repeal of the 2001 Law and passage of a new Land Use Charge law by the state house of assembly. The review, it said, had been predicated on a need to bring obsolete charges up-to-date, standardize the practice of property valuation upon which charges are calculated, as well as ramp up property enumeration across the state and in the process bring more properties into the tax net. Government had also explained that the taxation approach being employed was progressive one, wherein the poor are less affected than the rich. In fact it added that the majority of properties, comprising some 75 percent, were actually valued below N10 million implying that all they would need to pay would be N5,000 annually equivalent to some N417 per month.

Its spokespeople had further stated that among the other 30%, majority of properties were valued under N20m, in which case tax liability was actually relatively low. It further demonstrated that for a property valued at N20million for instance, an owner-occupier would not need to pay more than some N9,120 on an annual basis. Opposition to the new charges, however, remained very vehement, waning slightly with better education. In fairness, agitation against the increased land use charge was not without basis. Many young people argued that the increases would merely provide a convenient cover for landlords to arbitrarily hike their rents. Indeed some clamoured that rather than property valuation, potential rent ought to have been the basis of determining the land use charge for commercial buildings. Another argument, this time by real estate practitioners, was that in expecting payment for unoccupied properties, government was being unfair on its members especially given that occupancy rates had declined considerably in the face of the economic recession.

Members of the organized private sector also lamented that the taxes could cripple the operations of their members already reeling from the difficulties in the operating environment. It is instructive that despite its good intentions which it laboured to explain to Lagosians, the Akinwunmi Ambode led administration still listened to the agitations and has lately made concessions. Mr. Ambode, while addressing a high caliber meeting of the Organized Private Sector last week had hinted that government “was ready for dialogue” in response to the wave of criticism that had greeted the dissemination of demand notices for land use charge. Before then, he had explained the rationale for the increases especially against the backdrop of the infrastructure challenges that Lagos is beset with in the face of its rapidly growing population. The infrastructure gap in Lagos, Ambode explained, is in the region of $50billion. To put this in context, he explained that even if the entire 2018 budget for Lagos were to be deployed to infrastructure alone, it would take another 15 years of such regular investment for the infrastructure in Lagos to get up to speed (assuming of course, that the population growth is stagnated). He also explained that the tax regime was actually very pro-poor, highlighting the fact that it was imperative to deploy tax revenues gotten from such progressive taxation, to creating job opportunities for the poor to enhance social security.

The popular view, however, appeared to be that the taxes were on the high side and it is commendable that rather than refuse to bend, Ambode has chosen to engage the critics and give in to an extent, to their demands. According to today’s news reports, Land Use Charge payable for properties which are devoted to commercial activities has been reduced by half. This is very significant and should considerably reduce the antagonism from real estate professionals. What this translates to for instance is that for a property valued at N20m, which is used for commercial activity, instead of about N92,000 or so originally payable, such property would now only need to pay about N46,000 annually.

Another sore point was that the demand notices left a very short window for property owners to make payment. Those who were able to make payment during this short window would enjoy an additional discount of 15 percent. But not much longer thereafter, penalties of up to 200 percent would apply. Some Lagosians felt this was unfair especially as the majority only earn salaries monthly. There should at least be an opportunity for staggered payments, many canvassed. The new concessions granted by Ambode indicate that indeed, property owners will now be able to pay their Land Use Charge in installments if they so desire.

Of course, this concession also means that the penalties for late payments have now been waived. Another category of property is those that are dedicated to manufacturing or industrial activity. Such properties now have their land use charge further reduced by 25%. While those in which the owner-occupier also has part of his property deployed to commercial activity will also enjoy a similar discount of 25 percent.

The owner-occupier category is not left out and enjoys a further 15 percent discount on his land use charge payment, according to the revised land use charge law proposals. It is hoped however, that these revisions will take effect after they have been properly analysed and agreed to by the law makers who passed the law in the first place. It is a mark of civilized governance and kudos to our growing democracy that the Lagos Governor has chosen to listen to the people over whom he presides and accede to their request. As some discerning commentators have observed, Ambode showed considerable moral courage to implement a tax increase barely a year to the next gubernatorial elections. That act demonstrates that his motivation may indeed have been more about helping to actualize his vision for Lagos, a vision which he passionately advocated while addressing the business community last week.

It takes a statesman to subordinate his personal ambitions in preference for the common good, in the manner he did. Thankfully, his track-record so far in the area of infrastructure development in Lagos is huge. He can therefore, bank on the trust of citizens that revenues from taxes will be deployed prudently and in pursuit of the bridging of the state’s massive infrastructure gap. It is hoped that the various opposition groups including the Nigerian Employers Consultative Assembly, the real estate practitioners and others will positively appraise this move by the Lagos Government, sheathe their swords and help create the right environment for the state to move forward with implementation of these taxes.
• Odia, an economist and technopreneur, wrote from Surulere, Lagos