Mr. Akinyemi Ashade is the Commissioner for Finance in Lagos State. Since coming on board, he has been finding it rough convincing the public, especially property owners, real estate investors and business owners, to embrace the re-enacted Land Use Charge Law in the state. In this interaction with journalists, he sheds more light on grey areas of the law with regards to increase in fee and reasons for market value formula for property valuation.DAYO AYEYEMI reports
The re-enacted Land Use Charge Law in Lagos State has been causing ripples. What is your take?
I will like to talk about what has happened in implementing the old law, where we are now and the grey areas that we need to clarify so that our citizens are well informed in order to remove wrong perception out there. We are introducing the re-enacted Land Use Charge because Governor Ambode of Lagos believes quite sincerely that Lagosians deserve the best in terms of infrastructure renewal and building of new ones.
The governor is very much concerned about security, infrastructure development and job creation. When we look at infrastructure, for the next five years, we will need to continue to renew them and build new ones, excluding housing, education and health.
We need to spend close to $50 billion yearly. With this, if we had to spend our entire budget without paying salary, but put everything in capital expenditure, it will take us up to 18 or 19 years to be able to fix infrastructure deficit that Lagos has.
Is Lagos State making revenue?
The answer is yes. Are we utilising the one we made in the past for things we need to do? The answer is yes. If we look at what the governor has done in the area of infrastructure renewal along Lekki axis – the traffic gridlock resolution and Ajah flyover, we need to scale up. We also have Abule Egba flyover, building of new bus rapid transit (BRT) lane that would come from the boundary of Ogun State to Oshodi, the Lagos Airport road being turned to 10-lane with different landmarks along the road and also the job creating initiatives. We are setting aside N25 billion as fund to be able to create jobs and help businesses. These are areas we believe quite sincerely that we need to scale up.
For instance, when we look at the deficit, where can we get it? We can borrow, but apparently when we borrow, we borrow at high interest rates and sometimes in the country of ours, at double digit. So, who will eventually pay the borrowed funds? It is all going to come from tax payers. So, what we are now saying is how long do we continue to renew our infrastructure, invest in new ones and still make life meaningful for Lagosians? We just need to go by way of progressive tax regime. That is what the re-enacted Land Use Charge is all about. It is a progressive tax regime because it is a property taxation system relying on property owners.
What is progressive about it?
It is progressive in terms of conception. You have to be a property owner before you pay. If you are not a property owner, you will not pay this tax. It is also progressive because there are different rates along the line. If you are a property owner and you are owner-occupier (you are living in your own property), your rate is quite different and the law provides for 0.076 per cent of the 60 per cent of valuation of your property.
If you are an owner-occupier and you still have tenant in your apartment, the rate is also different. It is 0.256 per cent of 60 per cent of the value of your property. If you are owner of property that you are essentially using for commercial purpose, either for business concerns or renting out completely, you are also liable to pay taxes in a progressive manner. Your rate will be 0.760 per cent of the 60 per cent of the value of your property.
What if this process is manipulated?
Well, I have heard that may be government is just ascribing values and valuation that do not reflect realities. What we just said to ourselves is that the law provides for a regime of self-assessors. All you need to do is to get a property valuer to do valuation of your property. The rates are available and the reliefs attached are also available. We want to bring standardisation to the whole process.
We want to make it easy for people to calculate themselves. If you know the value of your property, you know ab-initio that it is not the 100 per cent of that value that is assessed, it is 60 per cent. So, you enjoy 40 per cent relief and you know the charge rates.
It is far less and that is where we are in terms of how we value some of these properties. The kick-off problem is that the Ministry of Finance wants to implement this with a human face. We have strengthened our help desk and we have our agents in three senatorial districts and local government areas of the state. At the back of your bill, you will see the help desk’s number that you can call if you have a bill you feel you need to talk about and we are ready for dialogue.
Let me say that contrary to what some people may be thinking, the land use charge is not punitive because we don’t want to punish our citizens. We have a situation where people have changed the use of their property, the percentage will be different. If the property owner has been paying the full amount of N1,200 under the old regime, maybe the property has been demolished and now built a mall, he cannot continue to pay same amount on the property because the feature is different. The charge is based on a percentage that reflects the development that has taken place on the property.
How do you explain the situation where the public currently believe and say the charge is a 400 per cent increment? Don’t you think this is much?
People have been saying it is 400 per cent, but the first question to ask them is ‘how much have they been paying?’ People should be able to come out and say I was paying ‘X’ amount. Your property in Ikoyi and Ikorodu, even if they were built the same day, will never attract same amount due to locations and market valuation.
We want people to get to a situation where they can annually, without waiting for their bill, to know what they have to pay Lagos State Government. This is what this new law is trying to institute. We need to be transparent and in terms of ease of doing business, we have to put it out there that land use charge is a consolidation of three taxes: tenement rate, ground rent and neighbourhood improvement charges. All these taxes have been consolidated into one.
The law is now standardised that you now have a situation where you can do it on your own. You can do self-assessment. Once you know your personal identification number (PIN) and property identification number you’ve already been using consistently, you can calculate it on your own. You don’t need to wait for our bill. That is the kind of transparency we want to engender under this present regime.
What should be the age of pensioners qualified for relief under the law?
Let me take you through the regime of reliefs that we have to answer this question. The first relief we have is 40 per cent across board. You don’t need to apply for it. Immediately you have the valuation of your property, 40 per cent of it is off; it is only 60 per cent that is chargeable under the new regime of land use charge.
In addition, if you are a pensioner, the relief moves from 40 per cent to 100 per cent. This is defined under the law. The relief you get is 100 per cent. That is, you are not paying anything at all. That is the safety net that has been provided by the law. Pensioners under this law are people that have been retired at 60 years and above. You have to be in your own property and not rented apartment to enjoy this relief. If your house is more than 25 years, you also enjoy 10 per cent. There is also a regime of five per cent additional relief for people that the law has categorised as having long occupation. There is a general relief that is 40 per cent.
This regime is transparent, as it allows us to engage, it allows us to dialogue so that we get to the right conclusion. Taxation is personal. The law says ‘define who is chargeable?’ They are property owners and holders of long-lease of 10 years and above.
How do you compensate your consultants to prevent them from manipulating the process?
This law recognises that some people are very strategic in determining the market value. These are the professionals. They will be going from house to house for the next six months to do valuation so that we can improve our database and get more property into the database. So, on that basis, we are not going to remunerate them based on the valuation of your property. The valuation expense is going to be borne by government and it is not contingent on the value of any property at all. We have a fix remuneration agreement with them. That is what we are committed to do.
In the event of default by property owners and government’s resolution to seal the property, what happens to the tenants?
The law is not focusing on tenants. The law says that property owner should pay. It is property owners’ responsibility to pay Land Use Charge. So, if we now get to a situation where you have property owners that are not paying and get to situation where we are now sealing or enforcing, we will do it with human face. Government is meant to address people’s concerns and make life easy. It is not as if we are not going to enforce, but the enforcement will not be in a way that our citizens will be worse-off. We are not going to throw our citizens to the streets without recourse to where they can lay their heads. That is not going to happen under this regime.
If the tenant now comes and pays, it can be taken off his/her rent. The law makes provision for that and the Lagos Tenancy Law also made provision for protection of tenants in this arrangement.
Why are you not basing Land Use Charge’s formula on rental income from the property rather than market value?
The law made provision for market value, professionally determined by estate valuers. They are the professionals. I have read it that they have five different ways of determining this. The law specifies one. The law allows us to just determine the market value.
You may ask ‘why the market value? It is just standardisation. For example, you have two properties with same specifications in Ikoyi and Ikorodu at the same cost. If I am using that cost, it is not a full reflection of the valuation of that property. That is why market valuation has come to the rescue.
We even recognise that when you do market valuation, it is not the total market value that is chargeable under the Land Use Charge Law, it is only 60 per cent of it. Market value is a leveler for everybody. It provides standardisation. We are using market value because we want everybody to be armed with nitty-gritty of how to calculate the charge.
Don’t you think the rate is still high?
Well, I just want to put it into perspective so that you can understand this. I will paint a certain scenario using different matrix. The first one I will use is owner-occupier, owner-occupier with third party (you are owner-occupier and still rent part of the property), and then house that is 100 per cent rented out (commercial building).
The first scenario is a property that the value is N15 million, without giving you additional specific relief. Let’s say you enjoy the 40 per cent relief for everybody, the assessable value of the property is N9 million. So, ab initio we have taken our 40 per cent. For the N9 million, if you are owner-occupier, your charge rate is 0.076 per cent. In this hypothetical case now, the amount payable as tax comes to N6,840 per annum – that is N570 per month. That is what the Lagos State Government is asking a property owner with a valuation of N15 million to pay.
The second one is a scenario where you have rented out that N15 million-valued apartment for commercial purpose. The rate is 0.76 per cent. Under this category and at 60 per cent valuation, you enjoy a relief of 40 per cent, you have N9 million left.
You will only pay N68,400 per annum as land use charge, which is N5,700 per month. The third scenario under the same category is that you have N15 million valued property and you are owner-occupier, renting part of the house (you are co-habiting with a tenant), the rate is also quite different. Your charge rate is 0.256 per cent. That will amount to N23,000 per annum, which is N1,920 per month. That is the tax under N15 million valued property put into three categories of use.
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