Why states are looking towards real estate to boost IGR

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Many governors are looking for ways to improve their Internally Generated Revenue (IGR). Amongst them is the Ogun State Governor, Prince Dapo Abiodun, who on November 4, gave what he called an amnesty period for people who built without building permits to get same before December 31. He said the amnesty was to enable home owners to regularise their documentation, having earlier waived the payment of penal fees in demonstration of his mantra of “Building Our Future Together” in the state. He is not alone; for Lagos, Edo, FCT and others, the real estate sector is an avenue to generate huge IGR and should be exploited, experts say. OKWY IROEGBU­CHIKEZIE reports.

Amid the cash crunch bedeviling states, many governors are thinking out of the box on how to raise their internally generated revenue. To this end, most of them have beamed their searchlight on real estate. This has made some governors to institute measures to liberalise the process of getting Governor’s Consent, permits, and legalising land and property documents

In Lagos State, for instance, where land is seen as its oil, the Commissioner of Physical Planning and Urban Development has been empowered to approve certain categories of permits to make it easier to acquire titles. The state offers generous discounts to sway people to regularise their papers. It has also made the processes less cumbersome and reduced the time as one could easily get the papers within six months.

For Ogun State, the governor instituted the Property Registration Programme to enable property/ land owners to acquire titles tfor their assets. In a statement made available to The Nation, it enjoined residents to take advantage of the extended period to regularise their illegal developments.

While some states can deploy certain strategies that convince the public to regularise their documents, others seem not to have an idea of what to do despite dwindling fortunes, to the extent that workers in such states are owed salaries running beyond 12 months, and pensioners even more. The only thing the helmsmen of such states do is to wait monthly to collect allocation from Abuja without thinking outside the box.

The scenario is that the federal, state and local governments, the authorities are unable to harness property tax to shore up their Internally Generated Revenues (IGR).

It is evident, however, that while many state governments have failed to adopt reform strategies to enjoy the full potential (fiscal and non-fiscal) of property tax for boosting IGR in the country, others have not taken the idea very seriously.

But some homeowners say there are too many taxes imposed by states on property. The taxes on properties include capital gains tax, land use charge, withholding tax, probate tax, consent tax, stamp duty, registration fee, ratification fees, regularisation fees and development charges.

According to them, the various taxes have made the acquisition of property very expensive, thereby reducing supply of housing and raising sale prices and rents.

Under the federal system, allocation of powers to tax is usually done in such a way that each level of government will have access to at least one broad-based inelastic tax handle for sustainable revenue.

Findings show that the constitutional framework for tenement has hindered some states’ attempt to redesign their property tax, coupled with lack of comprehensive law on property taxation and lack of jurisprudence. However, some experts don’t think so. They hinge it on lack of political will to drive the system.

In 2001, Lagos introduced various forms of property taxation including the Land Use Law, as a result of complaints by the public, real estate operators and professionals. It was later consolidated; part of the consideration for the charge are location of the property, purpose of the property and nature of the property. Retirees also pay certain level of taxes including the neighbourhood improvement charges and tenement rates laws.

The rates are as follows: owner-occupied residential property – 0.0394 per cent; industrial premises of manufacturing concerns – 0.132 per cent, residential property/private school (owner and third party) 0.132 per cent and residential property (without owner in residence) -0.394 per cent.

The Federal Capital Territory (FCT) has keyed into the property tax system. Owners of unoccupied houses now pay taxes. This FCT brand of property taxation has received accolades as operators believe that people who leave their mansions occupied for years no doubt may have used slush funds and should be made to pay.

The need for states to come up with taxes  was espoused by Chairman of the Independent Corrupt Practices and other related offences Commission (ICPC), Prof Bolaji Owasanoye,  a year ago when he revealed that the anti-graft agency recovered 301 houses from two civil servants in Abuja.

ICPC boss made the disclosure at the inauguration of the House of Representatives Ad-hoc Committee on Investigation of the Operations of Real Estate Developers last year.

He said while 241 buildings were retrieved from one of the suspects at different locations within the FCT, the remaining 60 were recovered on a large expanse of land at another location.

Owasanoye, who did not mention the names of the affected civil servants bemoaned the increasing rate at which corrupt public officers were using real estate investment as a vehicle for hiding ill-gotten wealth and money laundering in the country.

He, however, accused officials of the Federal Capital Development Authority (FCDA) as collaborators in the scam.

He said: “Public officers acquire estates in pseudonyms to conceal the illegal origin of funds. This is made possible by the absence of proper documentation, the registration of titles to land and estates in the country and the non-enforcement of beneficial ownership standards.

“A tour round Abuja, especially the metropolis and the Central Area, would show a lot of estates that are built up but empty. If they had been constructed with funds that were borrowed at market rates, I don’t think any investor would leave such properties empty.

“One way or the other they would put them to use. So it is suspected that some of those estates have been used to launder ill-gotten public funds.”

Owasanoye revealed that the agency recovered N53,968,158,974.64 after completing the task of the defunct Special Presidential Investigation Panel on recovery of public property of investigating some real estate developers who defaulted in remittance and payment of money due to the government.

He added that the agency had received a number of petitions from stakeholders in the real estate and housing sector, off-takers, prospective buyers and the general public regarding the behaviour and antics of real estate developers within and outside Abuja.

He said, “They border on forgery, the closing of land documents, double or multiple land allocations, allocation of land without the minister’s approval, revocation of land title without due process, non-delivery of projects, embezzlement of sourced capital, land racketeering, the use of land syndicates and speculators.”

In a prior interview an Estate Surveyor & Valuer, Sola Enitan, said for any country to grow economically, the fight against corruption and money laundering must be thorough; adding that money laundering’s effect on a nation’s economy was enormous.

He maintained that corruption was endemic in Nigeria, noting that over 80 per cent of all proceeds of corruption find their way into real estate, properties or building of assets.  He said it was evident in high brow areas of Lagos and Abuja where massive buildings remained unoccupied for years.

He said: “A high share of the population and businesses harbour un-official income. There is also the existence of a black market in the foreign exchange market, as if it has been legalized.  Corruption among state executives, law enforcement and judicial officers is rampant. Poor control of financial instruments such as shares and bonds, insufficient requirements for transparency of financial transactions and ownership of assets encourage money laundering.”

Enitan regretted that corrupt people found the sector a sure bet to hide their ill-gotten wealth. He pleaded with anti-graft agencies to apply the laws when there is an infraction.

Others in the sector believe that governments should explore indigenous property tax systems that combine cost effectiveness, transparency and peculiarity of the local market for improved revenue generation.

Another Estate Surveyor and lawyer, Offiong Samuel Ukpong, said property taxation included tenement rate, capital gain, capital transfer, withholding taxes, etc.

He said: “These taxes when and if properly managed can be a veritable means of boasting the IGR of any state if they look inward. These are real estate based taxes but its administration is left for persons with limited knowledge in their composition, functioning and operations. For instance tenement rate is a local government based tax and meant for refuse collection and street lighting, but like in Lagos State, it is lumped up with neighborhood charge and one other and levied as Land Use Charge.”

Ukpong said instead of basing the charge on annual income of the property, they now based same on capital value.

“If these taxes are well managed they have several advantages. Apart from income redistribution, they provide funds for infrastructure development and funds for environmental management like waste disposal, drainage cleaning, street lighting and other responsibilities assigned to the local government by the constitution. Unfortunately in Nigeria, no one is ready to do the right thing,” he stated.

Vice Chairman, Nigeria Institution of Estate Surveyors & Valuers, Lagos Branch, Gbenga  Ismail, said property tax is primarily a local tax and should not form part of central state revenue but local government’s revenue.

He said: “It is a total distortion of state fiscal budgetary projection and part of the issues creating revenue crisis for states. The centralisation of property tax at state Level is distorting the philosophy of property taxation. Reform must ensure local governments control tax raised within their councils.”

Ismail sai Property Tax helps local government manage infrastructure services within their locality; it helps provide the utility package that comes with community and neighbourhood development. It is this tax that provides hospital (primary) schools, Waste management etc” he stated.

He argued on the need for states to generate jobs to earn tax from the productive residents that live within them and also participate in more joint  ventures to promote commerce that would employ more people.’



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