Developing nations are characterised by lower income generation than developed countries. They have a comparatively poor standard of living compared to developed countries, inadequate infrastructure, low production rate and struggling labour market, low level of education, insecurity, high level of corruption and poor access to health services. These features negate the motives of having a government in place. The roles of governments include social, economic and environmental development of the people through efficient management of man-made and natural resources and the provision of basic infrastructure for the people. The primary aim of any government is to provide an enabling environment for the people to live well through ensuring that there is adequate security, giving hope to the downtrodden and providing succour to the vulnerable.
Government is the body that is constituted or allowed to be in office by the people to provide a level playing ground for every resident. The primary purpose of government is to make sure everybody can live safely and comfortably, irrespective of class or sex, without molestation and oppression by a third party (The Constitution of the Federal Republic of Nigeria1999, Chapter 2, Section 14, Sub-section 2b). It is, therefore, not out of tune for governments all over the world, to control the land-based resources of the states and manage them effectively for the benefits of the generality of the people. One of the raisons d’être for the formation of governments is poverty reduction and this is because urbanisation, modernism and globalism which are daily occurrences in the world, bring with them the negative features of widening the rich and the poor gap. This wide gap, if sustained, will lead to abject poverty!
Abject poverty is a condition of severe deprivation of basic human needs. Abject poverty in England led to Poor Relief Act 1601 (Elizabethan Act) which led to all land-based taxes. When Poor relief tax (later tenement rate) could not discharge the expenditure of catering for the poor, the government introduced estate duty (now called inheritance tax) in 1760. The innovations have not stopped.
Governments’ roles in reducing, as much as possible, the dichotomy between the rich and the poor in the society must not discourage innovativeness, efficiency and industry in talented and hardworking residents. It must also look into ways of eradicating abject poverty totally. Land and its appurtenances are controlled by governments because they are basic to wealth creation and are seen by everybody as a basic need. It is the medium that generates other basic needs of man: food, housing and clothing and it is the base for other living activities, social interaction, education, transport, health, etc.
For equity and fair distribution of land resources, governments are tasked and backed by laws, in the constitutions, edicts and acts, to be in charge of land resources’ administration and management. Examples are the Land Use Act 1978 and Lagos Land Use Charge Law 2014. Efficient and effective management of land resources of any nation will drastically bridge the poor and the rich gap and ensure decency in the land! Property taxes are the fees, fines, dues, charges, levies and rates paid on land, either developed or undeveloped, to governments for income generation, wealth redistribution and as a form of government control over land-based assets. It is the responsibility of property-owners to pay taxes on them and it is the duty of governments to collect taxes on land and its appurtenances, as at when due. All states which can efficiently manage their resources will be prosperous.
In Nigeria, in practice, property taxes are scarcely defined due to several considerations verging on tradition, law, policy and administrative incapacity. These property taxes include three forms: Property taxes; So-called “value capture” approaches such as tax increment financing and special assessments, which focuses on taxing some of the new land value that introduction of infrastructure or their improvements create, and; Land-use-based fees, based on the traffic generated by each parcel of land. The property taxes that can be exploited in Nigeria are (bearing in mind the avoidance of multiple-taxation): land rates (ground rents), land value tax, road tax, neighbourhood improvement levy, tenement rate, split rate property tax, community security levy (or community policing charge), development levy, waste management charge and environmental pollution charge.
Environmental waste charges are effected through ‘polluters pay system’ or through ‘community levy’. Researchers have shown that community levy is more successful than the former. Others are: withholding tax charged on property transactions, sale or rent and stamp duty fee paid in order to legalise receipts of payment or contractual agreement, building plan approval charge (payable to the Ministry of Land and Physical Planning), estate development charge, inheritance tax/capital transfer tax, capital gain tax. The benefits of land-based taxes include, primarily, efficient land management and administration and, secondarily, employment generation, wealth redistribution and revenue to the governments. Through land-based taxes, governments will be able to monitor and control physical developments within their jurisdictions, create employment, forestall abandoned properties, redistribute wealth, ensure even developments and generate income.
Human beings are generally greedy and are the only animals that exhibit multi-territoriality; that is, the trait of having control over more than one personal abode at a time. Without control, human beings are oppressive and will have more than what they can use or need if they have the resources. This is why there are minimum and maximum standards in housing developments in most countries, including the United Kingdom, Egypt and Rwanda. The level of efficiency of collection of land-based taxes is correlated to the level of civilization of governments. While the percentage of success of collection in countries like the United States of America, United Kingdom and Singapore is over 85%, it is less than 3% in Nigeria. Lagos State has success rate of less than 20%, Rivers has 15%, FCT has 12%, Ogun has 10%, Oyo has 8%, while states like Taraba, Yobe, Adamawa, Borno, Kebbi and Zamfara have less than 1% as at December, 2021.
Lack of capacity to collect land-based taxes by local governments because of the unqualified staff and cost of collection, and litigation from disagreements from payers, are their major challenges, though the laws empower them to be in charge (See Section 7 (4th Schedule) of the 1999 Constitution of the Federal Republic of Nigeria); and Taxes and Levies (Approved List of Collection) Act No. 21 of 1998). Example of long litigation on property taxation is Attorney General of Lagos State vs Airtel Nigeria Limited. This is a litigation with originating summon in 2011 arising due to the fact that Airtel disagreed to pay levies on its private parking lot in Victoria Island. It was decided in 2021 in favour of Lagos State. Governments must engage professional estate surveyors and valuers if they want to achieve efficiency in land-based taxation. For example, some properties are entitled to pay capital gain taxes based on the principle of “corner-lot valuation” and governments are not aware.
Stamp duties payments are also not adequately collected after NIPOST stamps are no longer used for agreement, and inheritance tax (formerly capital transfer tax until 1986) is not efficient because most inheritors and beneficiaries of inherited properties do not collect “Letter of Administration” from the Probate Registry of High Courts. The main purpose of land-based taxes is not only for income generation but to control land use and property development and give back to the land that generates the wealth. Land-based taxes are a veritable tool for state development, for income generation, wealth redistribution and physical development control. Effective property taxation can encourage property market dynamism (demand and supply function) and reduce cost of housing.
OLUFEMI ADEDAMOLA OYEDELE
Olufemi Adedamola Oyedele, MPhil. Construction Management, managing director/CEO, Fame Oyster & Co. Nigeria, is an expert in real estate investment, a registered estate surveyor and valuer, and an experienced construction project manager. He can be reached on +2348137564200 (text only) or email@example.com
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