Since the beginning of its implementation last month, the Land Use Charge (LUC), a revised Lagos State property tax law of 2018, has remained in public discourse. The LUC, a consolidation of ground rent, tenement rate, and neighbourhood improvement levy, is aimed at raising revenue for infrastructural development in the state. Notwithstanding the government’s intension, it has drawn criticisms from some sectors and polarised stakeholders in the real estate market. The Lagos State Commissioner for Finance, Mr. Akinyemi Ashade, in this interview with real estate reporters, explains the nitty-gritty of the LUC and how it will be implemented. MUYIWA LUCAS was there. Excerpts:
What is Land Use Charge (LUC) based on and why its introduction at this time?
The Land Use Charge(LUC) is not a new form of taxation.The Law backing it was first enacted in 2001. The LUC Law was repealed and re-enacted to address some identified challenges which include but not limited to lack of clarity on the LUC formula to support self assessment; obsolete rates which had not been reviewed in over a decade; need to improve LUC administration efficiency. The new LUC law also provides a robust legal and regulatory framework to support ongoing LUC administration reforms aimed at growing the state’s economy. LUC shall be payable in respect of all real estate property situated in Lagos State.
In what area of the economy will government plough the proceeds from the LUC to?
Governor Akinwunmi Ambode’s passion for infrastructure development has never been in doubt. His urban renewal, infrastructure development and employment drive requires humongous amount of money, not to mention healthcare delivery, housing, education, or security. Therefore, to meet the infrastructural challenges, occasioned by the ever-growing population, we would channel the proceeds of the new LUC to tackle $50 billion infrastructure deficit in Lagos within the next five years. To continue to renew our infrastructure and build new ones, we would need to spend $50 billion. With this reality, if we have to spend all our budget without doing any other thing, it would take 19 years to be able to fix the deficit and if the state government borrows money to meet the need, it would be at high interest rates. But who will even lend us such money? Therefore, the new tax regime is property taxation system.
There has been resentment with the public and interest groups calling for a return to status quo ante. How would you react to this?
Look, any sincere resident, especially property owners, would agree with the government that increase in the LUC was progressive because it collapsed three previous taxes into one. Besides, the previous LUC which became obsolete, was supposed to be reviewed every five years but was not updated for 16 years, hence the new LUC, which captured current economic realities. Also to reveal government’s consideration, openness and transparency of the new regime, it had different rates for property owners and relief of 40 percent on taxable property value across board. The state government will implement the new tax regime with human face. Lagosians must trust us with the tax; we are going to invest it in infrastructure judiciously.
How will the LUC affect businesses in the economy?
The new LUC was factored to facilitate ease of doing business. Under the new Land Use Charge Law, owners-occupiers would be expected to pay 0.076 percentage of the value of the assessed property. For example, the retirees and those with any disabilities would be exempted from any form of payment. There is also an assurance that the government would protect tenants whom landlords might want to exploit because of the LUC.
Do you share the position that the LUC may lead to reduction of investments in real estate sector?
How will that happen? To start with, is tax payment a statutory obligation or punitive legislation? If it’s part of civic responsibility of citizens to pay tax, where is the error in paying land use charge? What I think people should be talking about is fairness of valuation, whether it’s arbitrary or just. And if you look at what we have been saying, you’ll see the sincerity of purpose on the part of this government as far as land use charge issue is concerned.
So, how did you arrive at the percentage charged for LUC?
The formula that shall be used to determine the annual amount of LUC payable is the Land Value + Building Development Value multiplied by Relief Rate and Charge Rate. The formular is [(LA x LR) + (BA x BR x DR) x RR x CR], where LA= area of the land parcel in square metres; LR= average Market Value of a land parcel in the neighbourhood, on a per square metre basis in naira based on Market Value of the property as determined by professional valuers appointed by the Commissioner for Finance for that purpose.
What are the palliatives you have built into this LUC tax regime?
There is 40 percent relief for all property liable to LUC. Also, a 10 percent relief for owners and occupiers, including persons with disabilities; a 10 percent relief for owners and occupiers of 70 years old and above; a 10 percent relief for properties above 25 years; a five percent relief for properties occupied by their owners for over 12 years; a 20 percent relief for non-revenue generating federal and state government property, and 20 percent partial relief for non-profit making organisations. In addition, some properties are exempted from the LUC payment, such as properties used for public and religious activities; properties used as registered educational institutes and charitable activities; properties occupied and owned by pensioners of 60 years and above; public cemeteries and burial ground and all palaces of recognised Obas and Chiefs in the state.
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