‘Land Use Charge To Balance Social Inequalities’

Stories by RAJI ADEBAYO

The decision of the Lagos State Government to commence the implementation of the Land Use Charge which was conceived in year 2000 and passed into law in 2001 by the state House of Assembly has been generating confusion in some quarters. To correct some of the objectives of this vital income generating instrument of the government, the Lagos State Government through the Ministry of Finance which is in charge of the Land Use Charge headed by the Commissioner for Finance, Mr.Rotimi Oyekan, and other top government officials including Permanent Secretary of the ministry, Mrs. Oluseyi Williams and Special Adviser to Governor Raji Fashola on Taxation and Revenue Issue, Mr. Ade Ipaye spoke with journalists on the issue.
Justification and the future of Land Use Charge
The key to taxation is compliance to number of the people that accept it. Another major consideration in taxation is the cost of compliance. Any government exists with the singular object of providing for those who are less privileged in the society and regulate the activities of the super rich and over privileged. The essence of tax, apart from generating money for the government is to correct social dislocations, taxes are meant to be progressive. Government will tax people and entity that have more resources relative to those who don't have.
Essentially, taxes are measures by which government balances the social inequalities, I think it is very important to us to understand these small but still significant perspective. The Land Use Charge is designed and imposed on property to reduce the cost of compliance on tax and at the same time provide an equitable measure for the use and sustenance of land in Lagos.
Origin, law and experience of Land Use Charge
Land Use Charge law was conceived as far back as 1999/2000 and after much preparatory work the law was passed in 2001. This law is law of 2001, not a law of yesterday or a year before.
Why this law
Before 2001, we had tenement law under which people  paid rate on their real properties; building tenement and all land in Lagos State is held by the governor entrust for people. On that account, people also were obliged to pay what is called ground rent if you have Certificate of Occupancy (C of O). While you pay tenement rate to the local government, you pay ground rate to the state government.
In addition, there are other property taxes such as neighbourhood improvement charge which is also back by law in Lagos State payable to the state government. As at 2001, the tenement rate had become outdated, if people were still paying N800, N1,500 and so on then, that was the valuation made in the 70s or 80s.
As at 2000, valuation has gone up and really the money being generated from tenement rate was not too significant. However, the tenement rate law provided for five years term review for re-evaluation of the property. Instead of re-evaluate tenement rate, ground rent and neighbourhood improvement charge, why not consolidate all these taxes so that the property owners paid a single charge on a yearly basis.
Sharing formular between the state and local governments
It is up to the state government and its local government councils to agree on a sharing formular, how much of that amount belongs to me as the state government, how much will go to my local government councils. This is exactly what we proposed then and submitted to the House of Assembly. After much deliberation, it was passed into the law we are operating now as Land Use Charge.
That law also recognizes that you cannot evaluate all the properties in Lagos State over night and say everyone should start paying Land Use Charge but it stated that you continue to pay whatever you are paying before whether it is tenement rate, ground rate or neighbourhood improvement charge until your property has been enumerated and evaluated for Land Use Charge and immediately you get bill for Land Use Charge, you stop paying the other ones.
It was an attempt on the part of the state to consolidate all the property taxes and to address the problem of multiple taxations. Instead of going to the state today and local government tomorrow. That structure was accepted by the House of Assembly and the law came into existence.
Charges rate and exceptional property
In late 2001 and 2002 there were lots of opposition to the Land Use Charge, some people went to court, we as government decided to address the problem. A special committee was set up, all of the organized private sector, prominent individual property owners were all represented in the committee meeting with the government representatives. We took up all the complains and at the end we decided to do two major things by way of concession.
We decided to reduce the valuation we had them and I can assure you that we are not doing more than half the valuation we are suppose doing, we reduced the valuation cancelled all the pending bills as at the time of the agreement and re-evaluated the properties using lower or lesser values as a major concession.
Secondly, the rate prescribed by the law at the time was reduced on a commercial property the old rate was 1.75 percent while new rate is 0.375 percent, residential property commercial initially was 0.65 percent and reduced to 0.125 percent. On Industrial premises of manufacturing initially 0.50 percent while new rate is 0.125 percent, owner occupied residential property previously was 0.15 percent but reduced to 0.375 per cent while owner occupied pensioner's property and family compound were exempted, without any charges.
These percentage in a property worth N30million translates that owner occupier will pay N11,250, residential property commercial will pay N37,500 while fully commercialise property will pay N112, 500 and no payment for Pensioner's occupied and family compound properties.
The rate were substantially reduced while exemption were also made to ensure that people are able to comply with this charges and the consequent of the agreement was that all the cases that were pending in the court were withdrawn by consent, and we also agreed that the charges will not be review for period of seven years from 2002.
On Federal Government Property
There is a section of the land use charge law that allows anyone may be a property owns by non profitable organization to apply for exception. They will apply to the commissioner of finance, there is no blanket relief. Like FESTAC, they are liable to land use charge because they are tenement in Lagos they are liable to tenement rate, they are also liable to land use change. Partial relief can be apply for all the applicant need to do is bring all the relevant documents relying upon to the office of the commissioner of finance. They will be evaluated and once it is approved, you get your relief but it is not automatic except those that have been mentioned earlier.