UNILAG Wades into LUC Controversy, Recommends Rental, not Capital-based Property Assessment


The Department of Estate Management in the Faculty of Environmental Sciences, University of Lagos has volunteered to assist the Lagos State Government to enthrone sustainable Land Use Charge Administration to resolve the current impasse. This is in line with what the Vice Chancellor of the University, Professor Oluwatoyin Ogundipe described as desirable engagement between Town and Gown. Bennett Oghifo reports

The implementation of the new Land Use Charge of the Lagos State Government has, no doubt, hit a major dilemma. Regardless, the impasse, according to the University of Lagos, could be resolved if the government accepted its rich research-based findings on property tax.

The University made its honourable intentions known at ‘A Round Table/Expert Panel Discussion on Property Tax Reform: Towards Sustainable Land Use Charge Administration in Lagos State,’ organised by the Department of Estate Management,
Faculty of Environmental Sciences, University of Lagos, last week.

Setting a tone for discussions, the Vice Chancellor, Prof. Oluwatoyin Ogundipe said the expert panel set up by the Department was desirable because it was necessary to have quality engagement between Town and Gown to “make positive impact in the environment where we live.”

The VC, represented by the DVC, Management Services, Prof Emukufia Oghojafor, said it was very pleasing that the Department of Estate Management rose to the challenge posed by the controversial new Land Use Charge Law. He charged them to make the outcome of the roundtable available to the Lagos State government, Federal Ministry of Power, Works and Housing and to the University of Lagos.

In her presentation, the Head, Department of Estate Management, Prof. Modupe M. Omirin commended the state government for its desire to better the lot of residents, but observed that the reviewed Land Use Charge Law lacked key ingredients and thus counterproductive. The HOD, and other experts, who discussed the new law, also provided an alternative.

Prof. Modupe M. Omiri stated that the purposes of the Land Use Charge Law are quite laudable. But, “We are advocating a careful reconsideration of the key issues underlying the Law in order to ensure sustainable administration which, in addition to Adam Smith’s canons of taxation – certainty, equity, convenience and economy; will include acceptability; enforceability; affordability; legality or legitimacy; and transparency.

“A good property tax system and the Land Use charge for that matter must be seen to comply with the principles of good governance which also include inclusiveness, subsidiarity, accountability and efficiency. It is the seeming absence of evidence of some of these characteristics that has engendered so much of the negative reactions seen so far.”

She said there are some fine points in the new LUC Law, but that what is wrong with it is the “adoption of capital values as basis of assessment of all properties. Unlike annual rental values which are receivable by property owners and evidence of which is easier to obtain through market surveys and records of actual collection, Capital values are not realisable until a sale occurs. Their determination is not as clear and the fact that transactions that yield evidence of capital values are very infrequent and are subject to various influences make them suspect as a basis for an annual levy. Without gainsaying, the new tax regime may discourage real estate investments in an already depressed market plagued by a rising housing deficit.

“The 40% general relief on all assessed capital values does not in any way provide any relief for persons not in beneficial occupation of their properties. A recourse to the use of Annual rental value (or in the case of properties not let, the annual equivalent of the capital value) should be the basis because; It is more transparent and easier to achieve; The incidence will be on actual earnings from the property; There will be reduced need to adopt an arbitrary general relief rate; The potential inflationary effect of the LUC rate review will be better understood and dealt with; Assessment will be easier based on abundant actual evidence or comparables; Capital values are subjective and ‘unreal’ because they do not actually accrue to landlords until a sale occurs and may never do.”

Landlords, she said would shift the incidence of increased LUC by charging higher rents on residential, commercial and other types of property. “Tenants will in turn shift the incidence to goods sold, services rendered, thereby causing widespread inflation and hardship for all citizens. In an economy that is already seriously constrained this is a dangerous trend.”

Discussing an ‘Amicable Resolution to The Seeming Impasse
on the Lagos State Land Use Charge (Luc), 2018’, Dr. G.K. Babawale demonstrated why the rental and not the capital value should be used for property assessment.

He stated that “the rental value is generally considered more appropriate, pragmatic, objective, transparent, logical, equitable, cost-effective with higher potential for compliance and therefore revenue yield buoyancy. It is highly recommended for Lagos State.”

According to Babawale, “The LUC, 2018 valuation/assessment process, through a modified area-based mass valuation using the cost method complicates the tax system making it difficult both to understand and administer; it renders it a subject of conflicting interpretation and thereby opening the tax system to manipulation and abuse. It opens the door to endless disputes; makes collection cost excessively high; encourages tax delinquencies: and breeds corruption. All these have grave consequences on compliance and revenue yields.”

Prof. Abiola Sanni, Department of Commercial & Industrial Law, Faculty of Law, University of Lagos, in his presentation, recommended that “Property tax should be used to strengthen the local government system and make them accountable (of course under the supervision and monitoring of the State through the Commissioner of Finance and Local Government).”

The Professor of Taxation & Fiscal Matters, however, said there is Constitutional infraction in the LUC law. “Section 3 of the Land Use Charge Law will resuscitate the debate on conflict with the provision of section 7 Item 1(j) of the Fourth Schedule to the Constitution of the Federal Republic of Nigeria, 1999.  “Vesting the Commissioner with the power to “…undertake assessment” is also in conflict with section 7 Item 1(j) of the Fourth Schedule to the Constitution of the Federal Republic of Nigeria, 1999 which provides: “The main functions of a local government council are as follows: assessment of privately houses or tenements for the purpose of levying such rates as any be prescribed by the House of Assembly.” The Phrase “The Commissioner” in sections 5(1) & 6, he said should be substituted with “the Local Government Authority.”  He said there is also Conflict between section 9(1) and (2). Section 9(1) makes a leaseholder of less than 10 years liable which implies that a leaseholder of more than 10 years is not liable. Section 9(2) then goes further to make leaseholder of over 10 years liable. The combined reading of section 9 means that leaseholders are generally liable irrespective of year. If this is the intention, reference to 10 years is unnecessary.

M.J Fasona, Department of Geography, University of Lagos, in his presentation, ‘GIS and Remote Sensing for Sustainable Land-Use Charge Revenue Collection in Lagos State’ advised that “the LUC assessors need to work with credible GIS-based data for a progressive and inclusive LUC –:  that is  Geo-enabled governance.”