PROPERTY RATING AS A SOURCE OF REVENUE TO LOCAL GOVERNMENT

PROPERTY RATING AS A SOURCE OF REVENUE TO LOCAL GOVERNMENT

                                                             BY

                                                   KUYE OLUSEGUN

                             HND, M.Sc, ANIVS, RSV (February 22, 2006)

ABSTRACT

The need for effective rating practice cannot be overemphasised in the light of ever- declining Federal and State Governments’ grants to local governments. To achieve the much talked about rural and urban infrastructural development, local governments need to overhaul all sources of internal revenue with particular emphasis on tenement rate, and the administration of this revenue source must be handled with relevant expertise. If this is done, there is enormous revenue that could be derived to finance Local Government activities. This paper focused on the purpose of property rating and its justification without leaving out its effective administration including the reasons for the current low level of revenue to the local governments from this veritable source. Recognising the fact that property rating is one of the most reliable sources of Local Government revenue, suggestions were made as regards way by which the Local Councils can derive maximum revenue from its stock of real estate assets.

INTRODUCTION

Local government has been considered as an essential instrument of a national or State for the performance of certain basic intimate knowledge of the needs, conditions and peculiarities of areas concerned. Local Government as defined in the Advanced Learner’s Dictionary (……………), is a district government which is further seen as the set of people to whom the power to govern is entrusted in a district either by way of constitutional arrangement, popular consensus or by any other means for the common good of all in the district. The perceptions of various authors as to the meaning and definition of Local Government are highlighted below:

• Emil (1975) defined Local Government as “a political subdivision of a nation or state, which is constituted by law and has substantial control of local affairs. The governing body of such an entity is elected or otherwise locally selected. These definitions however, neglect their ability to raise funds.
• Humes & Gilean (1961) also defines Local Government as infra-sovereign nation or quasi- sovereign state. They include provinces and other intermediate units as well as municipalities and other basic units.
• Finally, the definition given by the Federal Military Government, while introducing the National Guidelines for a Reform of Local Government in Nigeria in 1976 stated thus: “Government at local level exercised through representative councils established by law to exercise specific powers within defined area. These powers should give the council:
  • substantial control over local affairs as well as the staff, institutional and financial powers to initiate and direct the provision of services;
  • the ability to determine and implement projects so as to complement the activities of the State and Federal Governments in their area;
  • to ensure that, through devolution of functions to these councils and the active participation of the people and their traditional institutions, local initiative, response to local needs and conditions are maximized.

Simply put, local government can be referred to as government at local level and this enables local people to govern themselves in certain specific areas. It is said that the central government cannot possibly attend to every detail of local administration; hence, it delegates local functions to Local Governments. Like all units of government, Local Government units have a defined area, a population, a continuing organisation, the authority to undertake, and the power to carry out public activities. Many of them are legal persons, which mean that they can sue, be sued, and enter into contracts. Some may levy taxes and most have independent budget. The main distinguishing characteristic of local government is that they are infra sovereign, which is, they do not have any aspects of sovereignty.

Local government administration in various parts of Nigeria predates the founding of Nigeria itself. These local government areas were communities with similar socio-cultural, linguistic and religious similarities. They had, therefore, something binding them together under a recognised ruler who administered the area through recognised subordinates. In the North, the recognised ruler could be the “Emir”; in the South, “Obi” or “Oba”. In the North between 1900 and 1914, the local governments were referred to, as Native Authority or Native Administration.

According to Tukur (1980) in his article titled, “Role of Local Government in Social and Economic Development” in the New Nigerian, he said, “Territorially, these local governments coincided with the Emirates, most but not all, of which had existed before the imposition of British colonial domination on the Sokoto, Kano and Borno. In the South, Kingdoms gave way to province; from the Yoruba Kingdom, we have the Egba province, Ijebu province etc. The Egba province had its provincial headquarters at Abeokuta. These provinces had smaller units called divisions.

The divisional headquarters like Osogbo, Ilesa, Akure, Abeokuta, Ijebu-Ode, etc, were administrative divisional headquarters. Divisional Officers administered the division and were responsible to Ibadan the Regional headquarters. Regionalisation of the country in the 1950’s evolved the then Northern Region, Eastern Region, Mid-western Region and Western Region. Local government law was introduced in the Western Region in 1957. These local government areas were as the areas of the divisions. The creation of twelve states in 1967 and nineteen states in 1976 and recently to thirty-six states restructured the geographical boundaries of various local governments.

Local government areas were thus administrative units derived from divisional boundaries. Being grass-roots form of administration, it is easy to harness all the local resources towards prompting the physical, social, cultural and economic growth of the area. Local needs and problems are quickly identified and solutions found. However, the above described system has been out-dated by current local government guidelines and reforms as stated by Brigadier Sheu Yar’adua in his forward to “guidelines for Local Government Reform” said, “The Federal Military Government has, therefore, decided to recognise local government as a third-tier of governmental activity in the nation. Local governments should do precisely what the word government implies i.e., governing at grass roots or local levels.

FUNCTIONS OF LOCAL GOVERNMENTS

The Fourth Schedule of the 1999 Constitution and further corroborated by Sections 26 and 27 of the Local Government (Basic Constitutional and Transitional Provisions) Decree of 1998 outlined the main functions of Local Governments as follows:

1. (a) the consideration and the making of recommendations to a State commission on economic planning or any similar body on –

• the economic development of the State, particularly in so far as the areas of authority of the council and of the state are affected, and
• proposals made by the said commission or body,

(b) collection of rates, radio and television licences;

(c) establishment and maintenance of cemeteries, burial grounds and homes for the destitute or infirm;

(d) licensing of bicycles, trucks (other than mechanically propelled trucks), canoes, wheel barrows and carts;

(e) establishment, maintenance and regulation of slaughter houses, slaughter slabs, highways, parks, gardens, open spaces, or such public facilities as may be prescribed from time to time by the House of Assembly of a State;

(f) naming of roads and streets and numbering of houses;

(g) provision and maintenance of public conveniences, sewage and refuse disposal;

(h) registration of all births, deaths and marriages;

(i) assessment of privately owned houses or tenements for the purpose of levying such rates as may be prescribed by the House of Assembly of State; and

(j) control and regulation of-

• out-door advertising and hoarding,
• movement and keeping of pets of all description,
• shops and kiosks,
• restaurants, bakeries and other places for sale of food to the public
• laundries, and
• licensing, regulation and control of the sale of liquor.

2. The functions of a Local Government Council shall include participation of such council in the Government of a State as respects the following matters:-

(a) the provision and maintenance of primary, adult and vocational education;

(b) the development of agriculture and natural resources, other than the exploitation of minerals;

(c) the provision and maintenance of health services, and

(d) such other functions as may be conferred on a Local Government Council by the House of Assembly of the State.

SOURCES OF REVENUE TO LOCAL GOVERNMENTS

The local sources of revenue envisioned by the 1976 reform included: personal tax, property tax, flat rate/community taxes, income from fees and services, nationally derived revenue, and loans from municipal parks. The rates are to be derived from properties while fees are derivable from various types of licenses issued, timber felling, motor parks, markets, etc.

• Local Fees and Fines: Local governments collect fees from vehicle owners, traders, patients, etc., making use of public motor parks, markets, clinics, etc. to defray the cost of their establishment and maintenance. Fines are levies imposed as penalties for committing offences such as loading and of-loading of passengers outside the motor parks.
• Rents on Local Government Properties where such Local Governments are permitted to engage in the development of properties for residential, commercial and industrial purposes for their staff and the general public.
• Earnings from Commercial Undertakings: Many Local Governments derive resources from the operation of commercial undertakings such as printing press, pottery work, mass transit services, hotels, guest houses, etc.
• Interest on Dividend and Fixed Deposit Accounts: Local Governments subscribe to the purchase of shares in private and public sector investments thereby earning dividends from such purchases. Some operate fixed deposit account and earn interest from them. Substantial interest also comes from the mandatory stabilization account they maintain.
• Fees and other Charges: There exist other miscellaneous sources of internal revenue derivable from building plans, registration of marriages, birth, and death certificates, hire of agricultural plants, machinery or equipment, etc. To meet the set target of development, most Local Governments also approve the payment of Development Levy by all taxable adults resident in or carrying out business within Local Government Areas.
• Grants: These are given to Local Government for many reasons for special projects which cannot be considered purely Local Government responsibilities such as in the area of road construction or housing.
• Nationally Derived Revenue/Statutory Allocation: This is the allocation given to Local Governments for their various projects undertaken. Section 7 subsection 6 of the 1999 Constitution provides as follows:

“Subject to the provisions of this Constitution: (a) the National Assembly shall make provisions for statutory allocation of public revenue to Local Government Councils in the Federation; and (b) the House of Assembly of a State shall make provisions for statutory allocation of public revenue to local government councils within the State”.

Furthermore, Section 162 subsection 3 of the Nigeria 1999 Constitution states that “Any amount standing to the credit of the Federal Account shall be distributed among the Federal, States and Local Government Councils in each State on such terms and in such manner as may be prescribed by the National Assembly. Other relevant subsections of section 162 are:

1. The Federation shall maintain a special account to e called “the Federation Account” into which shall be paid all revenues collected by the Government of the Federation, except the proceeds from the personal income tax of the personnel of the armed forces of the Federation, the Nigeria Police Force, the Ministry or department of government charged with responsibility for Foreign Affairs and the residents of the Federal Capital Territory, Abuja.

2. The President, upon the receipt of advice from the Revenue Mobilisation Allocation and Fiscal Commission, shall table before the National Assembly proposals for revenue allocation form the Federation Account, and in determining the formula the National Assembly shall take into account, the allocation principles especially those of population, equality of States, internal revenue generation, land mass, terrain as well as population density: Provided that the principle of derivation shall be constantly reflected in any approved formula as being not less than thirteen per cent of the revenue accruing to the Federation Account directly from any natural resources.

3. Any amount standing to the credit of the Federation Account shall be distributed among the Federal and State Governments and the local government councils in each State on such terms and in such manner as may be prescribed by the National Assembly.

4. Any amount standing to the credit of the States in the Federation Account shall be distributed among the States on such terms and in such manner as may be prescribed by the National

5.The amount standing to the credit of Local Government Councils in the Federation Account shall also be allocated to the States for the benefit of their local government councils on such terms and in such manner as may be prescribed by the National Assembly.

6. Each State shall maintain a special account to be called “State Joint Local Government Account” into which shall be paid all allocations to the local government councils of the State from the Federation Account and from the Government of the State.

7. Each State shall pay to Local Government Councils in its area of jurisdiction such proportion of its total revenue on such terms and in such manner as may be prescribed by the National Assembly.

8. The amount standing to the credit of local government councils of a State shall be distributed among the local government councils of that State on such terms and in such manner as may be prescribed by the House of Assembly on the State.

9. For the purposes of subsection (1) of this section, “revenue” means any income or return accruing to or derived by the Government of the Federation from any source and includes-

• any receipt, however described, arising from the operation of any low;
• any return, however described, arising from or in respect of any property held by the Government of the Federation;
• any return by way of interest on loans and dividends in respect of shares or interest held by the Government of the Federation in any company or statutory body.

Section 4 of the Local Government (Basic Constitutional and Transitional Provisions) Decree of 1998 also dwelt on the statutory of funds to the Local Governments. See Appendix 1 for details.

To this end, the Federal Government at any point in time usually disburses a specified percentage of its retained revenue to all the Local Governments in the country based on equality among the local governments and on population capacity of each Local Government. Where the anticipated grants and revenue allocation to local government could not be released has often led to a number of Local Government projects being abandoned by contractors. It is this type of situation that compelled Meyer (1956) to regard financial autonomy for local governments as something of a spinal cord in these words:

“The backbone of local government is financial autonomy. As long as Local Government has to live on income derived primarily from the central government… the future of Local Government does not seem bright”.

Therefore, whether Local Governments’ future will be bright or bleak depend on their ability to generate revenue from such sources as property rates, licenses and fees, court fines and fees, most especially during this period of dwindling economy.

See Appendices II and III for details of the various type of taxes and levies collectible by the Local Government

PROPERTY RATING: A VERITABLE SOURCE OF INCOME TO LOCAL GOVERNMENT

Rating is the process of assessing and fixing a rate. Thus, property rating is the act of fixing a rate that a prospective occupier of a property will pay. It is a process of scientifically assessing the rateable value of a hereditament using the appropriate basis of rating and applying a stipulated percentage at rateable value to determining the appropriate rate for the hereditament. Property rate is not a tax on person measured by their worth, rather it is a tax on property, and the tax liability is measured by the annual worth of the hereditament.

Property rating is the imposition of tenement/property rate. Adi (1991) defined it as “a process of scientifically assessing the rateable value of hereditament using the appropriate basis of rating and applying a stipulated percentage of reteable value for determining the appropriate rate for the hereditament”. This rate is a local tax imposed on owners or occupiers of landed properties in respect of the rateable properties owned or occupied by them. Olowu (1987) identified property rates as taxes levied on all immovable property by a local government authority. Such properties may only be land, building and/or both. In Nigeria, rating is only on tenement, that is, buildings occupied only (OYSN, 1995). According to Adebanjo (1997), property rating starts from preliminary commissioning of the Estate Surveyors and Valuers’ through to the production of valuation lists, the determination of actual rate payable and the collection of it.

Property rating involves two distinct operations; the first is rating valuation and the other is rating administration. The various stages of these two operations are as follows:

• Reconnaissance survey to identify all items of rateability.
• Actual valuation of each hereditament to identity their annual values.
• Determination of the rate chargeable arrived at by dividing the aggregate value of all hereditament by the amount expected by the Local Government authority.
• Charging of each owner/occupier according to the annual value of his property.

Property rate is a source of revenue to the Local Government meant to defray the cost of providing and maintaining social services and amenities to the owners and occupiers of properties within that area. These services and amenities include the construction and maintenance of roads, drainages; refuse disposal, provision of markets, public conveniences, slaughter- houses, burial grounds, maintenance of primary schools, maternity, clinics etc. The tax has been historically the most important source of revenue to Local Government especially in advanced countries (Ostrum & Ostrum, 1988). The United States Bureau of the Census (1982) for example documented that property tax was 77.2% of all tax revenue for countries, 93.7% for township, 96.8% for school districts, 79.6% for special districts and 52.8% for municipalities.

The case was however different in developing countries like Nigeria. Property rating as known and practiced is of recent origin except in Lagos city, where it was established in 1915 and limited to tenement. Besides Lagos, it was started in the West (Oyo, Ogun, Ondo, Ekiti, Osun States) in 1974, Bendel (now Edo and Delta) in 1987; Lagos State in general in 1972; and Kwara in 1987 (Olowu, 1987; Bello-Imam, 1990).

The 1976, Local Government Reforms made property rating as one of the common sources of revenue for all the Local Governments in the country. The statutory assignment of property rating exclusively to Local Government received a constitutional guarantee as from the Second Republic. The same position is maintained in the 1989 and 1999 Constitutions.

Property rate, which is tax imposed on occupiers of landed properties, is popular in financing Local Government projects for a good number of reasons (Olusegun, 1986):

• Because of the location of properties within the local government jurisdiction, the Federal and State Governments do not concern themselves with obtaining revenue from this source.
• Tax evasion on properties is almost impossible as landed properties cannot be physically moved from one location to the other.
• Tax accruing from properties is expended in improving the various services of the areas where such property rates are collected; hence, the expenditure is visible to every person.
• The rate is flexible; hence, it could be used to offset increasing expenses incurred on social service.
• The yield is usually non-fluctuating; hence, it is useful in balancing the income-expenditure budget of the Local Government concerned.

A distinguishing feature of this type of local tax lies in the approach of the rating authority (i.e. the Local Government) to the problem of raising revenue. With this type of taxation, the amount of revenue required from tenement rating is first of all decided upon and this total revenue expectation is then distributed among the ratepayers according to the net annual rental value of their properties.

The basis of assessment of property for rating is the rateable value, severally known also as assessed or annual value. Rateable value is defined as “the value at which the tenement is for the time being, being rated”. The amount of rates to be paid by an individual is calculated by dividing the estimated income from tenement rates by the total net annual rental values of all the rateable tenements in the rating area. The resultant figure, known as the rate nairage, is used to multiply the assessed value of each tenement. For example, if a Local Government intends to realise the sum of N200,000.00 as property rates in a particular year, the total annual values of all the rateable tenements in its area should be N2,000,000.00, where the rate nairage of N0.1 or 10 kobo is used to multiply the assessed value of each tenement. It follows, therefore, that a tenement with an assessed value of N500.00 will pay a rate of N50.00 (i.e.N500.00 x N0.10).

Property rating deals less with ownership and more with occupation; that is why both owners and occupiers could be called upon to pay the tax or the reason a property that is not occupied should not be rated.

PURPOSE OF PROPERTY RATING

The main purpose of property rating is to raise revenue with which local government can prosecute most of their primary obligations. Consequently, proper rating assessment and administration is critical to the adequate provision of most local services and the survival (in terms of economic, health and social relevance) of local governments. Here in Lagos State, property rates constitute the major source of internally generated revenue to the Local Government Authority.

With continuous increase in population and sophistication in the society, there is a daily increased demand for Urban Services – improved road network, more schools, places of relaxation, and health facilities among others and to finance these activities, the Local Government Authorities must generate enough funds. The grants from the Federal and State Governments alone cannot finance all the expenditure of the Local Government. It then becomes necessary for the Local Government to fashion out other sources of revenue for the development of their areas. The most prominent of these sources is tenement rate. The revenue derivable from this source helps the Local Government in meeting its expenditure in the provision of services and facilities, like good drinking water, drainage, good road and its maintenance etc. Rating exercise is usually undertaken by the local authority for the purpose of revenue generation. This will make them less dependent on allocations from the State and Federal Governments.

Apart from the above, property rating also stands to achieve the following objectives:

• Re-distribution of income: Property rating like any other form of tax has been able to re- distribute wealth or income among the populace. This is possible because the rate charged is ADVALOREM in nature e. in proportion to the estimated value of the hereditament. This in effect means the properties of the rich, which are mostly built to taste, will pay more compared to the property of an average citizen.
• Provision of relief for the less privileged: Rates are mainly collected from the occupiers to provide services for the general society of which the poor and less privileged will benefit from.
• The payment of rates by the payer will make him to be more interested in the affairs of the local government, its programmes and its spending.

Tenement rate constitutes part of the total income requirements of Local Government Authorities. It is the responsibility of each Local Authority to decide the percentage of their total income requirement that should be derived from property rates. The decision is purely a political one but the proportion of income or revenue that ought to be derived from rates will depend on the total revenue requirement of that Local Government.

JUSTIFICATION FOR PROPERTY RATING

All human activities, be it social, economic, political, start and end in buildings. It is therefore, relevant and rational that this source of wealth should be taxed for social and economic reasons in order to raise revenue for the government who takes care of the physical environment of landed properties. Local government councils have, therefore, contributed immensely to the value of the properties within their jurisdiction by the provision of services and amenities. They have made social interaction within the local government jurisdiction possible and this has led to high property values. Among other functions, they provide good roads, drinking water, adequate drainage system; and they promote joint community programmes. In addition, those who could afford to own more than a building should be ready to pay tax; and finally, beneficiaries of those buildings, on the passing away of their owner, should be made to pay the arrears before obtaining letters of administration. This will in turn lead to improved services for people living in the neighbourhood.

1. The Federal and Sate Governments are presently encouraging Local Governments to intensify their internal revenue base. This is aimed at shifting their dependency from external sources of revenue. Despite the availability of several sources of internal revenue such as taxes, licenses, fees, fines, etc., experience has shown that Local Governments can hardly afford enough funds to perform their statutory functions.

Property rating has been under constant attack and criticisms since inception as critics failed to see its justification since they pay other types of taxes. Nevertheless, it is a viable source of internal revenue to the Local Authorities and its imposition and collection could be justified for the following reasons:

a. Property rating has been considered as the largest and most significant source of internal revenue to Local Governments. This is because tenement (where tax is imposed) is permanent in location and easily identifiable thereby making demand and collection easy. Planning and central budgeting are possible as the amount to be derived therefrom is predetermined.

b. To avoid the excessive control of Local Governments by the Central Government, Local Governments should be fairly independent financially. The ability to generate funds internally in the form of tenement rate, will, therefore, provide them with a considerable measure of political independence.

c. Apart from statutory allocation and grants, tenement rate provides the greatest source of steady revenue to Local Governments. It is elastic, as revenue from it increases in response to the prosperity of the Thus, with their enhanced financial position, they can budget boldly each financial year for the provision of new services and maintenance of existing ones.

d. Property rating contributes towards equitable income distribution, as the “haves” contribute for the benefit of the ‘have-nots’. Property is synonymous with wealth and the number of houses a person has or the nature of house a person builds reflects on his wealth directly. He should, therefore, contribute something to the Local Government according to his assessed wealth for the benefit of the less fortunate.

e. The close proximity of Local Governments to the people has made it incumbent on them to bring development and services to the grassroots. Since people who erect buildings need access roads, street-light, pipe-borne water, etc., it is therefore morally just that they should contribute a token fee towards the provision and maintenance of these facilities and services.

f. According to Hector Wilks of Wilks Head & Eve, London, land will only have subsistence value with community activity. Any value above subsistence level has been created by the community through the provision of roads, sewers, public utilities and the demand for housing, factories and the like. It is therefore fair and sensible that a token of the increase in value should be paid back to the community in the form of tax, i.e. tenement rates.

g. Property rating is suitable for local authority expenditure, because it is so easily levied on the land within the Local Government Area of jurisdiction, and relates to the kind of community activity which has in fact created the value in that area.

REASONS FOR THE LOW LEVEL OF REVENUE GENERATION FROM PROPERTY RATING BY LOCAL GOVERNMENTS

Some of the reasons that accounts for the non-performance of Local Governments are as follows:

• Corruption among council officials: Corruption, misappropriation of funds have compounded their financial problem of local governments. Many Council officers assigned to collect rates fail to account for money Often times, these Council officials usually strike deals with ratepayers by way of reducing the rate payable after receiving certain percentage of the total rate payable. These sharp practices greatly undermine the revenue generating drive of the Local Councils from property rating.
• Refusal to Ratepayers to pay especially when money cannot be accounted for and also for accusation of neglecting certain areas in the provision of public amenities.
• Lack of will-power to enforce Rating Edicts provisions on rate defaulters
• Myopic perception of revenue derivable from property rating: Many Local Governments unduly depend on Federal and State Governments statutory allocations and grants hence their failure to explore the possibility of revenue that could be generated from property rating.
• Lack of trained and efficient personnel: Except for few Local Government Councils, most Rating Authorities cannot boast of One (1) qualified Estate Surveyor and Valuer in its employment. This factor often hinders efficient rating system.

ESTATE SURVEYORS AND VALUERS AND PROPERTY RATING ADMINISTRATION

The Estate Surveyor as a trained land economist deals with the development, management, supervision, and the control of interests in landed properties with the aim of achieving optimum returns. In the urban areas, the Estate Surveyor is reputed for the management of residential, commercial and industrial properties, which are the predominant lands uses in these areas. One of the most important aspects of management is the collection and recording of revenue (income) from such properties on behalf of the property owners. It has, accordingly, become customary for all reputable estate firms to maintain standard Accounts Departments, that will ensure proper accounting and documentation of all monies derived from or expended on such properties.

The Estate Surveyors revenue collection services in certain areas of general agency practices have long been recognized and used. They include (Olusegun, 2002):

• The collection of property rates;
• The collection of water rates;
• The administration of markets and collection of stall rents;
• Sequestrations and liquidations;
• Receivership services on behalf of financial institutions; etc

The collection of revenue is thus an integral part of the general agency services which estate firms offer to the public, the government, institutions and organisations. The collection of revenue on behalf of the various tiers of government and their agencies by some estate firms in the country is further enhanced and relatively feasible because of the following factors:-

• The appointed firms may have, in the preceding years, carried out house enumeration and identification in their respective areas of operations;
• The firms may have at their disposal, the comprehensive register of housing units, including accommodation details and household units;
• The rates payable per property are based on information contained in (b) above

The benefits of using Estate Firms in the collection of rates

The advantages of using estate firms in the collection of revenue especially tenement rates are briefly summarised as follows:

a. Similar services: The Estate Surveyor and Valuer is involved in the collection of monies as part of his general agency This, therefore, makes revenue collection on behalf of the Local Governments, very easy and efficient.

b. Efficient operations: The Estate Surveyor and Valuer who accepts the job of revenue collection knows fully well that he is in business and his profit is based on how much he is able to collect for his client. Naturally, he is bound to evolve very effective and efficient procedures that would ensure optimum results.

c. Good public relations: The public image of most Local Councils has suffered greatly as a result of flaws in their operational techniques. It then becomes a problem for these councils to impose and collect any money, tenement rate inclusive. Whenever appointed, the estate firms always see the ratepayers as their clients whose positive response to the payment of rates on which their fees are The firms are, therefore, disposed to working assiduously to ensure that their clients’ objective of high revenue generation is achieved.

d. Accountability: By the provisions of Decree No. 24 of 1975, the Estate Surveyors and Valuers Registration Board of Nigeria sets out rules and measures for ensuring that Estate Surveying Practitioners conform to the acceptable standards of practice and codes of conduct. These provisions emphasize accountability as the final watch-ward.

e. Increased revenue: The cumulative advantage of the above is that the Council’s financial horizon brightens, as more revenue will be collected.

f. Public awareness: This kind of service is very beneficial to the profession as a whole as this enables the Estate Surveyor and Valuer to interact closely with a great number of the public, who until then may had little or no knowledge of the services which the Estate Surveyor offers. This service therefore, serves as a platform for mass education of the services which he offers to the public on regular basis.

The most obvious impact is the direct comparison of the rate collection prior to and after the appointment of Estate Surveyors and Valuers. For example, in the early 90’s, some Local Government Areas of Kaduna, Cross River and Rivers States, rate collection increased tremendously. The reasons for this success, according to Salako (1986), were because the Estate Surveyors and Valuers:

• have already established close contacts with property owners during the assessment period thus making contact at collection easier and less problematic.
• are in a better position as professionals to explain the method of assessment even to lay property owners making them to understand that what they are being asked to pay is equitable
• are in a position also to accept whatever errors or omissions in their valuation list and amend as may be necessary. Usually thereafter, ratepayers pay amounts due without fuss.
• manage some properties in the locality and in view of their dual role, more readily convince their clients to pay.
• even where they do not manage properties, know and have close association with a lot of people in the locality thereby making it easier for them to convince such property owners to pay rate.
• with an over-riding benefit of making reasonable income through collection, go all out to realize as much as possible on rate collection since commission is based on actual amount collected.

Other recognizable impacts being made by Estate Surveyors and Valuers as far as rating administration is concerned are further highlighted below:

i. Physical inspection and equitable assessment of hereditaments culminating in the preparation of rating list.

ii. Efficient rate collection machinery which hinges on prompt issuing of demand notices, prompt response to correspondence received and follow-ups on the demand notice through physical visits, reminding correspondences and telephone calls.

iii. Effective administrative system for treatment of complaints and objections, especially in the absence of Appeal Tribunals.

iv. Establishment of a solid base on which the Local Government can now operate, more so when some of their staff are trained by Estate Surveyors and Valuers in the course of the

v. Increase in the level of awareness of members of the

vi. Removal of sectionalism and party

vii. Cordial presentation and treatment of rating appeals by Estate Surveyors and Valuers representing the Rating Authority, as well as those representing ratepayers.

viii. Conviction of the public that we are not only “rent collectors” and the acceptance of Estate Surveyors and Valuers as the only authority on property values, which hitherto was not the

OBJECTIONS TO THE PRESENT RATING SYSTEM

There have been arguments and objections against the imposition and collection of tenement rate are as follows:

a. Ratepayers believed that rating authorities squander money; they believe that local staffs are overpaid and whereas they under-worked. Hector opined that these issues bothers on public image and it left for the rating authorities to put things right.

b. The rate of money has to come out of “money in the pocket”, whereas in the case of most taxes, payers do not feel the impact. For example, a tax on alcohol is part of the price of beer, and income tax is deducted at source. Whereas unless a tenant pays an inclusive rent, tenement rate come straight out of the pocket.

c. It does not reflect the ability to pay. The argument against this view is that tenement rate do reflect the ability to pay in that paupers do not live in palaces or high-brow residential places (like Ikoyi, Victoria Island, GRA’s, etc.) and rich men do not live slum areas.

d. The tax is regressive. This assertion may not be true because the various rating edicts have provisions for exemption and reliefs to take advantage of.

e. Not everybody pays it. A contrary argument is that directly or indirectly, everybody is paying his/her fair share. This is because every time one buys something in a shop, an element of price paid goes to the rates of the shop. Furthermore, the justification for a tax on land does not depend at all on everybody paying it rather it depends on the tax being levied on every parcel of land. All land should bear the tax, not all people. It is in its very essence, a tax on land.

f. It is a tax on improvements. This assertion may be true, but the imposition of tenement rates never inhibits improvements to property as the amount of tax paid represents only a fraction of the rental income derivable from such improvement.

THE WAY FORWARD

The above objections notwithstanding, the rate is one of the easiest taxes to administer as it is cheap to collect, difficult to avoid and it is certain in its yield – the essential features of good taxation. However, in order to ensure the continuity and acceptability of tenement rate as a veritable source of Local Government Revenue, the following suggestions could become useful.

• One of the basics of a land tax is that all land should be taxed. There might be a good reason to exclude places of worship and highways, but nothing else. There is no reason for the current long list of exemptions. The list of exemptions should therefore be studied and shortened. This way, the respective Local Governments will derive maximum benefits from their stock of real estate assets.
• It can be argued that the land should be taxed and not the buildings on it. The land is permanent, and holds the core of the value. The building is transient and does not owe its value to the community, but to the person who put it there. This measure may a veritable tool to fight land speculation.
• It can be argued that the owner should bear the tax and not the occupier. It is the owner who reaps the benefit of increased values as community activity progresses.
• The rates charged should not be excessive or punitive. It should be easy and economical to administer and pay, as well as being socially expedient and familiar to the citizenry. The rate of tax should never exceed N0.1 in the Naira or 10% on current rental values. Above that limit, it amounts to confiscation of capital. It might be raised on capital value, in which case the rate percent would have to vary with permitted use and never exceed the annual yield expected from that use.
• Frequent revaluations are essential and should be carried out at regular and reasonable intervals, say, every 5 years. This is to ensure that the changing economy is taken cognizance of and that the principle of ‘rebus sic stantibus’ is adopted.
• Steps must be taken to prevent rating authorities incurring wild expenditure. Those items, which are properly covered by the rate fund, should be well defined.
• The items to be covered by the rate fund could be restricted to those items, which are genuinely local.
• There should be accountability by the Authority on how the tenement rate collected is utilized. Projects executed with the funds should be clearly marked out for all to see. This will definitely build trust and confidence in the minds of the paying public.
• Definitional: The question of “what exactly property rate is” seems difficult to answer. Is it a tax on the property or on the occupiers for the services they enjoy? In another way, is it a tax on the expected or actual rent collected? In most of the Local Government, these questions can hardly be answered satisfactorily.
• Property rates in the developed countries could be traced to paying for local services. It thus becomes tied conceptually to moral duty of citizens to contribute to the cost of provision of public services. People responded very well to its payment since they are well serviced. Unfortunately, most Rating Authorities could not justify rate collection as services are either not there at all or exist at a less satisfactory level to the residents’ needs.
• The method of assessment must be clearly defined and understood by everybody and should take into consideration the general economic situation of the community and the income yielding ability of the hereditaments being assessed.
• Method of Collection and penalty for defaulters: It is paramount here to state without mincing words that the best rating system may fail to yield the desired revenue unless the collection system is efficient and effective. J. M. Drummond supported this in his book – “The Finance of Local Government” (Page 67) that “Equity in the field of collection is just as important as equity in the tax system itself“. The mode of collection currently in use in most local governments leaves much to be desired. It was discovered that much efforts are not made by the Local Governments to serve reminder notice to those people who had been served with demand notes to pay up. In this wise, it is recommended that the present method of collection be reviewed so as to allow for the service of demand notices on time and subsequent frequent reminders to be made possible.

CONCLUSION

Tenement rating is one of the major and reliable sources of local government finance and if effectively and adequately tapped could earn the Local Authority up to eighty percent (80%) of its revenue. Whatever the long-term intentions regarding tenement rating therefore, an immediate updating of values is essential. The rating system is not a bad system; the faults mainly arise from abuse of the system. It is the longest standing tax in this country and has always proved flexible enough in the past to meet changes in the social structure. It is still flexible and, if properly applied, will provide a just and fair form of taxation.

REFERENCES

Adebanjo, J. A. (1997). Problems and prospects of property rating in Kwara State: Case study of Ilorin West and Ilorin East Local Government Areas. Unpublished critical analysis/thesis submitted to the National Council of the Nigerian Institution of Estate Surveyors and Valuers in fulfillment of the Test of Professional Competence for admission into Corporate Membership of the Institution.

Adi, M. (1991). Property rating in Nigeria. Paper presented at a Seminar organized by the Kwara State Branch of the Nigerian Institution of Estate Surveyors and Valuers

Adedeji, A. & Rowland, L (1970). Local government finance in Nigeria- Problems and prospects.

University of Ife Press, Ile-Ife.

Afon, A. O. (2000). Problems and prospects of property rate collection in Ogbomoso North Local Government. Unpublished critical analysis/thesis submitted to the National Council of the Nigerian Institution of Estate Surveyors and Valuers in fulfillment of the Test of Professional Competence for admission into Corporate Membership of the Institution.

Apkpomerha E. A. (1989). Property rating administration. (A case study of Okpe and Ehiope Local Government Areas of Bendel State.). Unpublished critical analysis/thesis submitted to the National Council of the Nigerian Institution of Estate Surveyors and Valuers in fulfillment of the Test of Professional Competence for admission into Corporate Membership of the Institution.

Bello-Imam, I. B. (1990). Introduction. In Bello-Imam (ed.) Local Government finance in Nigeria, Nigerian Institute of Social and Economic Research, Ibadan. pp. 78 – 96.

Egunjobi, L. (1996). Framework for identification of urban local governments’ needs and priorities. Paper presented at a Workshop on Urban Management System organized by the Oyo State Government, Ibadan, Nigeria.

Emil J. S. (1975). Journal on improvement of local government administration for development purposes. Nelson-Hall Co.

Gboyega, Alex (1996): Property rating in Nigeria – Problems and prospects. Paper presented at a Workshop on Urban Management System organized by the Oyo State Government, Ibadan, Nigeria.

Olowu, D. (1987). Prospects of the property rates as an additional revenue source for nigerian local government”. Research for Development, Vol. 4, No. 2 Pp 305 – 322.

Olusegun, K. (2002). Principles and practice of property rating. Lagos. Lagos: Olusegun Kuye & Associates.

Olusegun, K. (1999). Principles and practice of property rating. Lagos. Lagos: Olusegun Kuye & Associates.

Ostrum, V. B. & Ostrum E. (1988): Local Government in the United States, California ICS press Pp. 189 – 200.

Humes, S. & Gilean, M. M (1961). Structure of Local government throughout the world. The Library of Congress.

Tukur, N. M.(1980). The role of local government in social and economic development. New Nigerian Newspapers, Thursday, May 22 1980.

Udoudoh, Francis Pius. (1995): Tenement rating as a source of Local Government revenue (A case study of Akwa Ibom. Unpublished critical analysis/thesis submitted to the National Council of the Nigerian Institution of Estate Surveyors and Valuers in fulfillment of the Test of Professional Competence for admission into Corporate Membership of the Institution.

Umezuruike, N. O. (1986): Property taxation- An overview. Paper delivered at a National Workshop organized by the Ogun State Branch of the Nigerian Institution of Estate Surveyors and Valuers.

Whittam, R. H (1972). Taxation of urban land and buildings in local government finance in Nigeria.

Editors: Adedeji and Rowland. University of Ife Press.

STATUTES:

Cap. 15 and 16, Laws of the Federation of Nigeria and Lagos 1959.

Constitution of the Federal Republic of Nigeria: Fourth Schedule – Section (15): Functions of Local Government Councils (1999).

Cross River State of Nigeria. Tenement Rating Edict, No. 5 of 1984. Official Gazette No. 45, Vol. 17 of 19th September 1984.

Federal Republic of Nigeria (1976): “Guidelines for Local Government Reforms, Paragraph 45 & 51.

Federal Republic of Nigeria (1984) Federal Military Government of Nigeria Local Government (Report by the Committee on the Review of Local Administration in Nigeria); p.33.

Lagos State Government (1989): Tenement Rate Edict No. 10 of 1989 (Lagos State Government Printers, 1989).

Law of Federation of Nigeria (1998): Local Government (Basic Constitutional and Transitional Provisions) Decree No. 36 of 1998.

The Local Government Law 1980 Part XII Supplement to Bendel (now Edo State) State of Nigeria Gazette No. 7 Vol. 17, Section 106.

APPENDIX II

TAXES AND LEVIES (APPROVED LIST FOR COLLECTION) DECREE No. 21 OF 1998

Arrangement of Sections

1. Responsibility for collecting certain taxes and levies, etc.
2. Assessment and collection of taxes
3. Offences
4. Interpretation
5. Citation

30^th September 1998    Commencement

THE FEDERAL MILITARY GOVERNMENT hereby decrees as follows:

1. (a) Notwithstanding anything contained in the Constitution of the Federal Republic of Nigeria 1979, as amended, or in any enactment or law, the Federal Government, State Government and Local Government shall be responsible for collecting the taxes and levies listed in Part 1, Part 2 and Part 3 of the Schedule to this Decree, respectively.

    (b) The Minister of Finance may, on the advice of the Joint Tax Board and by Order published in the Gazette, amend the Schedule to this

2. (a) Notwithstanding anything contained in the Constitution of the Federal Republic of Nigeria 1979, as amended, or in any other enactment or law, no person, other than the appropriate tax authority, shall assess or collect, on behalf of the Government, any tax or levy listed in the Schedule to this Decree, and members of the Nigeria Police Force shall only be used in accordance with the provisions of the tax law.

    (b) No person, including a tax authority, shall mount a road block in any part of the Federation for the purpose of collecting any tax or levy.

3. A person who –

       (a) collects or levies any tax or levy; or

       (b) mounts a road block or causes a road block to be mounted for the purpose of collecting any tax or levy, in contravention of section 2 of this Decree, is guilty of an offence and liable on conviction to a fine of N50,000 or imprisonment for 2 years or to both such fine and imprisonment.

4. In this Decree, unless the context otherwise requires –

• “Government” means the Federal, State or Local Government;
• “Joint Tax Board” means the Joint Tax Board established under the provisions of Personal Income Tax Decree 1993.
• “Levy” includes any fee and charge; “tax authority” means –
• the Federal Board of Inland Revenue, the State Board of Internal Revenue or the Local Government Revenue Committee; or
• a Ministry, Government department or any other Government body charged with responsibility for assessing or collecting the particular tax.

5. This Decree may be cited as the Taxes and Levies (Approved List for collection) Decree

SCHEDULE

PART 1 – TAXES TO BE COLLETED BY THE FEDERAL GOVERNMENT

1. Companies income tax
2. Withholding tax on companies, residents of the Federal Capital Territory, Abuja and non- resident individuals.
3. Petroleum profits tax
4. Value added tax
5. Education tax
6. Capital gains tax on residents of the Federal Capital Territory, Abuja, bodies corporate and non-resident individuals.
7. Stamp duties on bodies corporate and residents of the Federal Capital Territory
8. Personal income tax in respect of –
   • members of the Armed Forces of the Federation;
   • members of the Nigeria Police Force;
   • Residents of the Federal Capital Territory, Abuja; and
   • Staff of the Ministry of Foreign Affairs and non-resident individuals.

PART 2 – TAXES AND LEVIES TO BE COLLECTED BY THE STATE GOVERNMENT

1. Personal Income Tax in respect of –

• • Pay-As-You-Earn (PAYE); and
  • Direct taxation (Self Assessment)

2. Withholding tax (individuals only).

3. Capital gains tax (individuals only).

4. Stamp duties on instruments executed by

5. Pools betting and lotteries, gaming and casino

6. Road

7. Business premises registration fee in respect of –

(a) urban areas as defined by each State, maximum of –

• N10,000 for registration, and
• N5,000 per annum for renewal of registration; and

(b) rural areas –

• N2,000 for registration, and
• N1,000 per annum for renewal of

8. Development levy (individuals only) not more than N100 per annum on all taxable individuals.

9. Naming of street registration fees in the State Capital

10. Right of Occupancy fees on lands owned by the State Government in urban areas of the State.

11. Market taxes and levies where State finance is involved.

PART 3 – TAXES AND LEVIES TO BE COLLECTED BY THE LOCAL GOVERNMENT

1. Shops and kiosks
2. Tenement
3. On and off Liquor Licence
4. Slaughter slab fees,
5. Marriage, birth and death registration
6. Naming of street registration fee, excluding any street in the State Capital.
7. Right of Occupancy fees on lands in rural areas, excluding those collectable by the Federal and State Governments.
8. Market taxes and levies excluding any market where State finance is involved.
9. Motor park
10. Domestic animal licence
11. Bicycle, truck, canoe, wheelbarrow and cart fees, other than a mechanically propelled
12. Cattle tax payable by cattle farmers
13. Merriment and road closure
14. Radio and television licence fees (other than radio and television transmitter).
15. Vehicle radio licence fees (to be imposed by the Local Government of the State in which the car is registered).
16. Wrong parking
17. Public convenience, sewage and refuse disposal fees.
18. Customary burial ground permit
19. Religious places establishment permit
20. Signboard and Advertisement permit

MADE at Abuja this 30^th day of September 1998. GENERAL ABDULSALAMI ALHAJI ABUBAKAR

Head of State, Commander-in-Chief of the

Armed Forces, Federal Republic of Nigeria

EXPLANATORY NOTE

(This note does not form part of the above Decree but is intended to explain its purport)

The Decree, among other things, lists the taxes and levies that should be collected by each tier of Government as announced in the 1997 and 1998 Budget Speeches to avoid multiplicity of taxes.

APPENDIX III

HARMONISATION OF LOCAL GOVERNMENT TAXES AND LEVIES

The 96^th Joint Tax Board (JTB) Meeting held at Asaba in Delta State, the Joint Tax Board gave approval to the following range of taxes and rates collectable by Local Governments throughout Nigeria. This was made to have come into effect on 1^st January 2001. All Chairmen and Chief Executives of States Board of Internal Revenue are to ensure that these rates are applicable in their various States as directed by the Board. This is in line with section 85 (9) (d) and (e) of the Personal Income Tax Decree 1993 as it affects Decree 21 of 1998.

Harmonisation of Local Government Taxes and Levies: JTB Approved Range of Rates

1. Revenue Title:- SHOPS & KIOSKS RATES Geo-political Zones

2. TENEMENT RATES

3. ON & OFF LIQUOR LICENCE FEES

4. SLAUGHTER SLAB FEES

5. MARRIAGE, BIRTH AND DEATH REGISTRATION FEES

6. NAMING OF STREET REGISTRATION FEE

7. RIGHT OF OCCUPANCY FEES on lands in rural areas excluding those collectable by the Federal and State Governments

8. MARKET/MOTOR PARK (excluding market where State Finance is involved)

9. DOMESTIC ANIMAL LICENCE FEES

 10. BICYCLE, TRUCKS, WHEEL BARROW AND CART FEES OTHER THAN MECHANICALLY PROPELLED TRUCKS

 11. CATTLE TAX PAYABLE BY CATTLE FARMERS ONLY

12. MERRIMENT AND ROAD CLOSURE LEVY

13. RADIO/TELEVISION LICENCE FEES (other than radio and television transmitter) Vehicle radio Licence Fees (to be imposed by the local Govt. of State in which vehicle is registered)

14. WRONG PARKING CHARGES

 15. PUBLIC CONVENIENCE, SEWAGE AND REFUSE DISPOSAL FEES

 16. CUSTOMARY BURIAL GROUND/RELIGIOUS PLACES ESTABLISHMENT PERMIT FEES

 17. SIGNBOARD AND ADVERTISEMENT PERMIT FEES

Composition of Geopolitical Zones

1. East:- Abia, Akwa-ibom, Anambra, Bayelsa, Cross River, Ebony, Enugu, Imo, Rivers
2. Middle Belt:- Benue, Kogi, Kwara, Nasarawa, Plateau, Taraba and FCT
3. North:- Adamawa, Bauchi, Borno, Gombe, Jigawa, Kano, Katsina Kebbi, Kaduna, Niger, Sokoto, Yobe, Zamfara
4. West:- Delta, Edo, Ekiti, Lagos, Ogun, Osun, Oyo, Ondo

Signed: E.N. Osemene FCTI Secretary,

Joint Tax Board

27^th March, 2001