Lagos is the economic capital of the Federal Republic of Nigeria. If you are doing business in Nigeria and you are not yet in Lagos, then you are seen as unserious. However, the recent multiple levies and arbitrary changes in taxes and levies in this metropolitan city has began to push businesses to neighbouring States, especially Ogun State, being the biggest beneficiary of the rascality of the Lagos State Government.
The current governor of Lagos, Akinwunmi Ambode, is from the ruling party, APC. He is seen as a godson of Senator Bola Ahmed Tinubu, a former governor of the State and the leader of the ruling party. Ambode’s 4-year term will expire in 2019 and he will be seeking re-election in 2019. However, in a desperate move to raise government revenue to close the huge infrastructural deficit in Lagos State and achieve the economic and societal status of Wakanda, there has been several arbitrary fiddling with some laws and regulations in the past two years. However, such revenue generation drive should not be at the expense of the well being of the individual and corporate citizens of the State. These actions may also become a sour point for Ambode during the next electioneering season.
In February 2018, the Lagos State Government repealed its 2001 Land Use Charge Law, and replaced it with a new Land Use Charge Law, 2018. Based on this new law, demand notices based on the new rates were issued from the same month. These recently announced changes to the Land Use Charge law will make property owners to face between 100-500% increases in their land use charges. This astronomical increase is due to the adoption of the government-determined market value, and not just rate increases alone. Depending on whether the property is residential or commercial, the newly approved land use charge rates goes as high as 0.76% (previous maximum rate was about 0.39%) and is charged on the basis of a government determined market value of the property without any benefit of an independent valuation. In the UK, the high end properties attracts land use charges in the region of 0.32%, less than half being charged by the Lagos State Government, a metropolitan city with inadequate and dilapidated government infrastructures when compared with the UK.
These increases in the property tax rates and charges will have an adverse effect on the costs of doing business in Lagos. Property owners may seek to optimise the payback period of their property investments, which includes the building costs and related annual property taxes, by indirectly transferring a substantial part of such burdens to their customers. However, market forces of demand and supply will determine the extent to which landlords can transfer such burdens to their tenants. Due to the huge impact on properties being used for commercial purposes (both residential and office uses) by these draconian increases in rates and charges, both SMEs and large businesses are significantly impacted. As a result, several companies, under the auspices of the National Employers Consultative Assembly (NECA), Manufacturers Association of Nigeria (MAN) and the Organised Private Sector (OPS) have been spitting fire on this issue. However, businesses are encouraged to ensure full compliance with the law to avoid any disruption to their businesses by Alpha-Beta and its agents, unless a company is a party to a court action against this obnoxious law.
Apart from the high rates being introduced by the Lagos State Government and the unfair full and exclusive powers to derive the market valuation of a property, the new law have several other obnoxious provisions. Penalties for delayed payments ranges from 25%-100%. If the land use charge is not settled within 135 calendar days, a penalty of 100% shall become payable. Where the charge is not settled after 135 calendar days, the State could appoint a Receiver/Manager to administer the property until all outstanding levies and penalties are paid. How will this apply to owner-occupied properties? Will the State eject the owners to secure tenants from whom rental revenue can be derived to pay up the outstanding charges? Secondly, since the revised law now also applies to undeveloped lands, how will the receiver/manager generate revenue to pay up the outstanding charges?
There has also been a strong outcry as to the fact that these changes are being made for the benefit of cronies, political godfathers and political jobbers. For example, the Lagos Land Use Act is even now more controversial with the recent discovery that the public law contains a clause which has expressly and exclusively reserve the implementation of the law to Alpha-Beta, a company that has been linked to Bola Ahmed Tinubu. The clause in the executive bill reads “Alpha Beta or any other designated person(s) or corporate body who has the responsibility of monitoring the incoming revenue of the State through the collecting banks, shall provide a report to the Accountant-General of the State”. This law gives full protection to Alpha-Beta to monitor Land Use Charge collection on behalf of the government into perpetuity or until the law is amended.
The use of laws for personal benefits is not new in Nigeria. Lee Kuan Yew, the first Prime Minister of Singapore, in his autobiography, narrated an encounter with Chief Festus Okotie-Eboh, Nigeria’s Minister of Finance in the First Republic. Chief Okotie-Eboh told the Prime Minister that certain regulations in his country has been changed to restrict shoe importations because he was planning to set up a shoe factory. Lee Kuan Yew could not believe that anyone would do such a thing – to cause laws to be changed for strictly personal benefits. In his book, he mentioned “he went to bed that night convinced that they (Nigerians) were a different people playing to a different set of rules”. In 2018, the story has not changed.
This is, however, not the first time the State will pass a law that will specifically benefit a private company. In a recent environmental law, a company, “VisionScape” was specifically mentioned. The environmental law projects VisionScape as a monopoly in the management of waste disposal in the Lagos metropolis. Few months after the implementation of this law, the company has been unable to handle the waste management in Lagos State. In addition to its lack of capacity, there has been fierce confrontation with previous waste management companies that were hurriedly disengaged by Lagos State.
The above two instances clearly evidences the weak governance models of the Ambode’s administration in Lagos State. Several leading professionals in Lagos has asserted that the insertion of the Clean Lagos Initiative, a pay off for VisionScape, in the environmental law, and the insertion of Alpha-Beta in the Land Use Charge law is clearly repugnant to the globally accepted principle of overriding public interest as these defective laws no longer meet the social contract tests of public policy and regulations. This social irresponsibility is an indictment on the Ambode’s administration.
The above acts are also anathema to Section 90 of PITA empowers the Local Government Revenue Committee (LGRC) to be responsible for the assessment and collection of all taxes, fines and rates under the jurisdiction of the local government. This is on the basis that tenement rates, the precursor of the land use charge, is under the exclusive list of taxes to be collected by local governments based on the Taxes and Levies (Approved List for Collection) Law No 21 of 1998. In the event that the local governments elect to outsource their responsibilities to the State Government, section 87 of the Personal Income Tax Act (PITA) expects that the Lagos State Inland Revenue Services should be responsible for the collection and accounting for all taxes and penalties due to the State government under relevant laws. Therefore, why is Lagos State opting to collect taxes and levies using Alpha-Beta instead of its tax agencies?
In a recent article, Yomi Fawehinmi, a development expert, also raised strong issues relating to the illegality of the process that created the Land Use Charge law. He opined that the Lagos State Government probably does not have constitutional powers to enact such laws. Fawehinmi based his argument on a decided case – Grinaker LTA Limited v Board of Internal Revenue. In that case, Grinaker LTA Limited, a Rivers State- based an oil servicing company was served a demand notice for property tax by the Rivers State Board of Internal Revenue. The company objected to this and approached the courts to seek a resolution. In the case, Grinaker argued that certain sections of the law enacted by the Rivers State Government attempt to vest the power to assess, levy and collect property tax in respect of privately owned houses and tenements in the Rivers State government, the Rivers State Board Internal Revenue (RSBIR) or their agents, rather than to the local government councils as required by Section 7(5), Paragraphs 9 and 10 of Part II of Schedule 2 and Paragraph 1(j) of Schedule 4 of the Nigerian Constitution.
In this case, the court held that by the provisions of the Constitution, only Local Government Councils have the exclusive power to assess and impose rates on privately owned property. The court therefore upheld Grinaker’s claim, and declared that those sections of the Rivers States Property Tax Law that vest the powers relating to charging and collection of property taxes on the RSBIR were unconstitutional, null and void because it’s in variance to the Nigerian constitution. This is consistent with the Supreme Court’s decision in Knight Frank Rutley Nigeria v Attorney General of Kano State. The judgment however upheld the right of state houses of assembly to make laws establishing the chargeable rates and the procedure to be adopted in assessing and collecting the rates charged by each local government council.
The above cases as illustrated by Yomi Fawehinmi are consistent with the long held position in Nigerian law that such legislation ad hominem is unconstitutional as enshrined in the case of E.A Lakanmi V. Attorney – General, Western Region (1970) 6 N.S.C.C. 143.
So, the “30 Billion Dollar” question is – has the Lagos State Government usurp the powers of Local Government in its attempt to assess, levy and collect property tax on privately owned houses and tenements?
These rascal and socially irresponsible behaviours of the Ambode administration have no place in good governance, as these behaviours further suggests that the government is not in sync with the already harsh business environment for businesses in Lagos as a result of the already existing multiplicity of taxes and levies in Lagos State. However, will these draconian laws spell doom for Ambode’s 2019 electoral chances? Time will tell.