Property tax seen driving emerging, low-income economies

Property tax has the potential to enable emerging and low-income economies like Nigeria and many others in Africa to shore up their revenue with which they can improve their citizens’ welfare.

Economists are of the view that property tax can be a game-changer for low-income countries, especially with the right policies and technology in place, stressing that satellites, drones, and the right policies can help countries increase revenue by up to 10 times at the local level.

Martin Grote and others, in a recent International Monetary Fund (IMF) report, point out that the world’s governments must raise an additional $3 trillion to achieve sustainable and inclusive economic growth goals this decade.

According to them, the cost of raising this fund in emerging markets equals four percent of gross domestic product (GDP) while it is as high as 16 percent for low-income countries, noting that raising such a price tag is a huge challenge.

But, according to the report, Lagos, Nigeria’s commercial nerve centre and a major economic hub in Africa, alongside Delhi in India, show a way forward. In other words, the two cities have proved that taxing property more efficiently can play a meaningful role in raising revenue at the local level, allowing countries to invest more in their people.

Lagos, for instance, has evolved a thriving property tax it calls Land Use Charge (LUC) with which it extracts a form of yearly tax from all property owners in the state. This is an initiative of a former governor of the state, Akinwunmi Ambode.

Through this initiative, property owners are liable to pay tax in respect of any taxable property. It categorises properties into residential, commercial and industrial. Under the residential, property owners who live in their properties as landlords without tenants (owner-occupiers), are charged 0.076 percent of the value of the property.

Officials of the state government explained that, for this category of property owners, the annual fee is 60 percent of the house value multiplied by 0.076 percent.

“This means that for a house that is valued at N20 million, the fee is 60 percent of N20 million which gives N12 million. When this is divided by 0.076 percent (0.076 percent of N12 million), it gives N9, 120 per annum which is further divided by 12 to give N760.00 per month,” they explained further.

From this local tax, the state generates substantial revenue. In the first four months of 2024, the state announced that it generated N300 million revenue. Ope George, the state’s commissioner for economic planning and budget, disclosed this while presenting the scorecard of his ministry.

With this, George hoped that the N700 million projection from LUC in the state’s 2024 budget was achievable.

But the IMF report notes there are political challenges that follow taxes of this nature as was experienced when former Governor Ambode introduced the LUC. It was greeted by wild controversies that nearly drowned its essence.

“More efficient real estate taxes have an advantage in this regard,” the report says, explaining that, by being locally collected and spent, these taxes may be politically less challenging than increases in broad-base national taxes.

“Recurrent taxes on immovable property could help local governments capture the wealth generated through construction-intensive urbanization. Generating such revenue fairly is especially important given the difficulty in developing countries of taxing income and wealth,” the report says.

Chudi Ubosi, principal partner at Ubosi Eleh + Co, shares this view, pointing out that property taxation has remained a revenue head that is largely under-tapped, listing capital gains tax, withholding tax, stamp duty, consent fees, registration fee, development charges/levy, land use tax, estate duties as types of property tax in Nigeria.

“In terms of property taxation, government at various levels in Nigeria have not taken it as seriously as they should and this is because easy money from the federal government is a major challenge to property taxation in the country,” Ubosi noted

He mentioned inadequate data on properties, wrong valuation, under/over assessment, poor publicity, increase in property value, disincentive to property development and high tax/rates as set-backs to unlocking property taxation.