2018 Lagos Land Use Charge – our take

There are many discussions about the 2018 Lagos Land Use Charge which was signed into law on 8 February 2018. The general consensus from tax payers is that the current levy is very high and in some cases, impossible to pay as the said assets are not generating income although the owners continue to pay the finance costs levied by their financiers for the said development.

A brief background: The Lagos Land Use Charge was first enacted in 2001. It was a consolidation of the land based taxes such as the ground rent and tenement rate. All wrapped up into one under the umbrella of the Lagos Land Use Charge, this new tax was to provide for the improvement of Lagos, with particular focus on the provision of infrastructure/services in the different parts of the city.

The 2018 Land Use Charge Law which repealed the 2001 Land Use Charge Law still seeks the same purpose of infrastructure and services provision. However, the State Government (through the Commissioner of Finance) at an open discussion at the Lagos Chamber of Commerce and Industry held on 9 March, 2018; explained that the rate at which the tax was  previously charged needed to be reviewed to allow for inflation and quantum of work to be carried out, explaining further that leaving the tax at the same rate which was applicable 17 years ago is unrealistic.

Here’s our take:

While understanding the State Government’s perspective, we note that the increase in the Land Use Charge renders it unpayable by many. The economy is still recovering from a recession, oil prices are still below the 2013 marks of $100 per barrel and the real estate sector continues to contract as revealed by the 2017 full year report from the National Bureau of Statistics.

Therefore, rather than increase the tax on the property, it may be best to increase the tax paying base. Get more people involved in the contribution towards the infrastructure maintenance by reviewing the classification of properties to ensure that the use as recorded in the books is correct. If the number of taxable properties increases and the correct rates are applied to existing properties, then the amount collected as tax should increase also.

If after this is done and the Government still has a deficit for infrastructural development, then the rate of computation can be reviewed the next year, and even this should be done carefully. We are of the opinion that rather than impose an increase which amounts to anything above a 100% increase, the increase can be staggered over time to allow the tax payers adjust to the planned increase and make appropriate provisions for payment. What use is a tax levy that is impossible to pay?

Some problems of the Lagos Land Use Charge which were noted from its inception to date; which were carried on in the reviewed law: What is the method of the valuation carried out to which the charge rate is applied? Were the valuations carried out by registered Estate Surveyors and Valuers in accordance with the subsisting laws in Nigeria? What specific projects have the Land Use Charge addressed over the years and what projects are proposed for the reviewed charge?