Hedging dwindling oil revenue: The Lagos example

The dwindling oil revenue to the Federal Government arising from falling crude oil price in the international market means the state governments no longer have the luxury of bloated monthly federal allocation with which some governors do whatever pleased them. Once again, the nation is in for austere time which places on the leaders a moral burden and the challenge to look inwards for ways and means of running and sustaining governance without oil windfall.

In its characteristic pace-setting disposition, Lagos State government has come out proactively with a landmark land tax policy that will see it riding the economic tempest which the national economy is to face in the months and years ahead if the slide in the oil price is not contained. Lagos, as Nigeria’s economic nerve centre, the nation’s ethnic melting pot bursting at its seams with a large and growing population, is where all factors of production, especially land, command great value.

Recently, the state set a good example of how to hedge dwindling oil revenue by leveraging available resources in which it has high comparative advantage as a commercial city with investment potential. The state governor, Babatunde Fashola, signed an executive order cutting taxes on land transactions in the state by 10 percent, down from 13 percent, and 15 percent in some cases. By this order, which takes immediate effect, according to the governor, Consent Fees charge has dropped from 6 percent to 1.5 percent, while Capital Gains Tax has been brought down from 2 percent to 0.5 percent. Other cuts contained in the order are the Stamp Duty which has dropped from 2 percent to 0.5 percent, and Registration Fee which is now 0.5 percent, down from 3 percent.

10 percent drop in the cost of land transaction in Lagos is not only significant but also phenomenal and, for us, this is Fashola’s best parting gift to his successor, the state’s economy and the residents. We welcome it warmly for all it represents. This is a state where over 80 percent of sold properties are dead assets because they are not registered. It is not because the owners are not willing and ready to register such properties, but because the cost is too high and unaffordable.

There are a lot of informal land transactions going on in the state and it is estimated that such transactions constitute over 30 percent revenue loss to the state because those who cannot afford government approved rates cut corners and get their property registered anyhow.

Fashola explained at the signing of the order that it is aimed “to ensure that land transactions are carried out with minimal difficulty, especially in payment of taxes, rates and legitimate levies charged under the enabling law”, adding that it was also meant to attract and improve investments which would, in return, impact positively on the state economy.

Lagos is one of the most expensive cities for registering property and also for setting up business, all because of the high land charges and this has scared many investors to neighbouring states. We see the state government raking in more revenue than it could possibly imagine because here is a state where a lot of people would like to buy land and build their own homes but are generally discouraged by the high land charges. Also, a good number of housing estate projects are delayed by cost of land registration.

We, therefore, share in government’s reasoning that it would impact positively on its revenue because more people would now pay to the government and get formal and genuine land documents than go through faceless individuals who work for their private pockets.

It is instructive to note, however, that Lagos is a state of laws and policies without enforcement and implementation and this is why we advise that this order should be given all it needs to work. We also caution that no effort should be spared to ensure that this good motive is not hijacked by entrenched systems in the state’s civil service which may, through their ‘settle’ mentality, frustrate genuine intentions to pay and increase government’s revenue.