Developing countries are characterized by lower income generation than developed countries. They have a relatively low standard of living compared to developed countries, inadequate infrastructure, a low rate of production and a struggling labor market, a low level of education, insecurity, a high level of corruption and access limited to health services. These characteristics nullify the motivations for having a government in place. The roles of governments include the social, economic and environmental development of the people through effective management of man-made and natural resources and provision of basic infrastructure for the people. The main objective of any government is to provide an environment conducive to the well-being of the people by ensuring that there is adequate security, giving hope to the oppressed and providing assistance to the vulnerable.
The government is the body that is constituted or authorized to be in office by the people to provide an equal playing field for every resident. The main objective of government is to ensure that everyone can live in safety and comfort, regardless of class or sex, without aggression or oppression by any third party (The Constitution of the Federal Republic of Nigeria 1999, Chapter 2, Section 14, Subsection 2b). It is therefore not out of place for governments around the world to control state land resources and manage them effectively for the benefit of all people. One of the reasons for the formation of governments is the reduction of poverty and this because urbanization, modernism and globalism which are daily phenomena in the world, bring with them the negative characteristics of enlarging the gap between rich and poor. This wide gap, if maintained, will lead to abject poverty!
Abject poverty is a condition of severe deprivation of basic human needs. Abject poverty in England led to the Poor Relief Act 1601 (Elizabethan Act) which led to all property taxes. When the Poor Relief Tax (later the Dwelling Rate) could not pay for the expenses of restoration for the poor, the government introduced the Inheritance Tax (now called the Inheritance Tax) in 1760. The innovations did not have not stopped.
The role of governments in reducing, as much as possible, the dichotomy between rich and poor in society should not discourage innovation, efficiency and industry among talented and hard-working residents. It must also seek ways to totally eradicate abject poverty. Land and its dependencies are controlled by governments because they are essential for the creation of wealth and are considered by everyone as a basic need. It is the support that generates other basic human needs: food, housing and clothing and it is the basis for other life activities, social interaction, education, transport, health, etc
For equity and fair distribution of land resources, governments are charged and supported by laws, in constitutions, edicts and deeds, to be in charge of the administration and management of land resources. Examples are the Land Use Act 1978 and the Lagos Land Use Charges Act 2014. Effective and efficient management of any nation’s land resources will dramatically close the gap between the poor and the rich and ensure decency in the land! Property taxes are the fees, fines, duties, charges, levies and rates paid on land, whether developed or undeveloped, to governments for the generation of revenue, the redistribution of wealth and as a form of governmental control over land assets. It is the responsibility of landowners to pay taxes on them and it is the duty of governments to collect taxes on lands and appurtenances as they come due. All states capable of effectively managing their resources will prosper.
In Nigeria, in practice, land taxes are hardly defined due to several considerations of tradition, law, politics 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 focus on taxing a portion of the new land value created by the introduction of infrastructure or its improvements, and ; Land royalties, based on the traffic generated by each parcel of land. The land taxes that can be exploited in Nigeria are (keeping in mind the avoidance of multiple taxation): Land Rates (Ground Rents), Land Value Tax, Road Tax, Improvement Tax wards, occupancy rate, split rate property tax, community safety levy (or community policing levy), development levy, waste management levy and environmental pollution levy.
Environmental charges on waste are levied through the “polluter pays system” or a “community tax”. Researchers have shown that the community levy is more effective than the first. The others are: withholding tax levied on real estate transactions, sale or rental and stamp duty paid in order to notarize payment receipts or contractual agreement, building plan approval fees (payable to the Ministry of Territorial Planning and the Territory), property development costs, inheritance tax. capital transfer tax/tax, capital gains tax. The benefits of property taxes include, primarily, effective management and administration of land and, secondarily, job creation, redistribution of wealth and revenue for governments. Through property taxes, governments will be able to monitor and control physical developments in their jurisdictions, create jobs, prevent abandoned properties, redistribute wealth, ensure equitable developments and generate revenue.
Human beings are generally greedy and are the only animals to show multi-territoriality; i.e. the trait of having control over more than one personal residence at a time. Without control, human beings are oppressive and will have more than they can use or need if they have the resources. This is why there are minimum and maximum standards in housing estates in most countries, including the UK, Egypt and Rwanda. The level of efficiency in collecting property taxes is correlated to the level of civilization of governments. While the collection success percentage in countries like the United States of America, the United Kingdom, and Singapore is above 85%, it is below 3% in Nigeria. Lagos State has a pass rate below 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% in December 2021.
Lack of capacity to collect property taxes by local governments due to unqualified staff and the cost of collection, as well as litigation resulting from disagreements with payers, are their main challenges, although laws empower them to be in office (see Section 7 (4th Schedule) of the 1999 Constitution of the Federal Republic of Nigeria); and Taxes and Levies (Approved List of Levies) Act No. 21 of 1998). An example of a lengthy property tax dispute is the Attorney General of Lagos State v Airtel Nigeria Limited. This is an original subpoena dispute in 2011 stemming from Airtel’s refusal to pay charges on its private car park on Victoria Island. It was decided in 2021 in favor of Lagos State. Governments must hire professional surveyors and appraisers if they want to improve the efficiency of property taxation. For example, some properties are entitled to pay capital gains tax based on the principle of “corner lot valuation” and governments do not know this.
Stamp duty payments are also not collected adequately after NIPOST stamps are no longer used for the deal, and inheritance tax (formerly capital transfer tax until 1986) is not effective as most heirs and beneficiaries of inherited properties do not receive the “letter of administration” from the Probate Registry of High Courts. The primary purpose of property taxes is not just to generate revenue, but to control land use and real estate development and to give back to the land that generates wealth. Property taxes are a real tool for state development, revenue generation, wealth redistribution and control of physical development. Efficient property taxation can encourage the dynamism of the property market (a function of supply and demand) and reduce the cost of housing.
OLUFEMI ADEDAMOLA OYEDELE
Olufemi Adedamola Oyedele, MPhil. Construction Management, Managing Director/CEO, Fame Oyster & Co. Nigeria, is a Property Investment Expert, Registered Property Surveyor and Appraiser and an experienced Construction Project Manager. He can be reached at +2348137564200 (sms only) or [email protected]
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