The Lagos State Government (“LASG”) first enacted its land use charge law in 2001 as a land use related tax to replace tenement rates, neighbourhood improvement charge, and ground rents in Lagos State of Nigeria. The LASG then stirred controversy in 2018, when it reenacted the law, which according to it was for modernizing the regime, provide clarity on the LUC formula and improve obsolete rates.
But land ownership is a big deal in a state like Lagos – which is home to over 22 million people, the most populated city in Sub-Saharan Africa. The allegations against the LASG are that it was by the LUC Law 2018 seeking to collect more revenue from property owners, especially commercial owners in a predominantly commercial city without commensurate economic buffers for the people who will eventually bear the cost.
Key Features of the LUC Law 2018
The key features of the LUC Law are as follows:
- The LUC charged on a landed property will be a function of 7 main indicators: the size of the land, the average market value of the land, size of building(s) on the land, average construction value of the building(s) on the land, an annual fixed-charge rate (depending on the category of the property), depreciation rate of the buildings and improvements on the land, and a rate of relief.
- The annual charge rate of properties range from 0.076% to 0.76%.
- The minimum chargeable LUC for any property of any category per annum, irrespective of applicable relief, is N5,000 ($14).
- Properties owned and occupied by pensioners of 60 years and above enjoy a 100% relief. As well, properties owned and occupied by religious bodies, public cemeteries, registered educational institutions certified to be non-profit making, public or private libraries; properties belonging to LASG, and all palaces of recognised Obas and Chiefs all enjoy total exemption from payment of the new LUC.
- Partial reliefs are available for other categories of property owners such as:
- 40% general LUC relief;
- 20% for properties owned by non-revenue generating FGN agencies;
- 20% for properties owned by non-profit making organizations;
- 10% relief for properties of disabled persons;
- 10% relief for properties of persons of 70 years and above;
- 10% for properties aged 25 years and above; and
- 5% for those 12 years and above.
- Any person who violates the LUC Law and is convicted will be fined N250,000 or imprisoned for 3 months, or both. This is different from interests where the payer does not pay.
The LUC Law has generated a lot of public furor due to a number of reasons. This is principally because the law increases applicable LUC for commercial properties in the State. Lagos being a commercial hub, properties used for business purposes are a significant number. The law was also enacted at a time when several other factors of production and economic activities are deemed to be skewed against the larger population of Lagos residents.
Importantly the law has raised some legal issues as to the power of the LASG to make a sweeping law binding on local governments, regulating rural areas, legislating on property development as against land use, double taxation, unclarity in drafting which may affect occupiers, enforcement by a private company, and more. These issues are not without constitutional undertones. One disturbing issue is the fact that the LASG had proceeded to enforce the law even before it was gazette by the LASG. Within the first two months of the law, there are at least two court actions challenging its constitutionality and validity.
Back-pedaling by the LASG
Unsurprisingly, by 15 March 2018, LASG announced that it was reducing the LUC rates as enacted. The LASG said it was reducing the rates and adjusting the rates as follows:
- For properties used for commercial purposes, the rates will be reduced by 50%.
- Owner-occupier properties, industrial properties, and properties used for manufacturing, the rates will be reduced by 25%.
- There will be an across-board waiver of all penalties as stipulated in the Law.
- Those who have already paid the rates as stated under the law would enjoy tax credit, with the excess payment transferred to next year, 2019.
- Payments by installments will be allowed.
For now, it is unclear when and how these reductions will begin to apply. In addition, to what extent can the Governor alter the rates that have been enacted by the State House of Assembly? It is doubtful that without an amendment to the LUC Law the backpedaling by the LASG would stand.