Property tax: Reasons government is considering voluntary compliance
Generally, tax is a civic duty and responsibility of citizens of a state or country. In advanced societies, people pay tax voluntarily and willingly because they know it is a thing they must do. But in less developed countries, particularly in Nigeria, the rate of tax compliance and payment is very low.
Taxes are paid in order to fund development projects. Therefore, tax and development go hand in hand. In most African countries, however, the rate of default and unwillingness to pay tax is high. It is even higher in Nigeria, the continent’s largest economy and the reasons are not far-fetched.
Development is hardly seen no matter which area one is looking at. There is no infrastructure; no good roads, rail system, well equipped ed schools, hospitals; no electricity, water etc. The assumption then is that tax proceeds are not utilized for the purpose they are meant, leading to apathy and lack of interest in the tax system.
The same thing applies in property tax. Generally, property owners lack both the moral and unwillingness to pay tax on their property. That intrinsic motivation of fulfilling what should be their civic duty is not there.
But analysts say the reasons for this apathy are not difficult to see in a society where owning a property is a huge project because, “you are literally your own government who has to provide your own water, electricity, and in some cases, your own road; and you must have paid so much to acquire the land, perfect the titles, and secure approvals from the same government that will collect tax from you”.
“We are a responsible citizen; we pay our taxes to the last kobo, but we are not getting as much from government in return; infrastructure is still a huge problem”, said Paul Onwunibe, CEO, Landmark Group in an interview with BusinessDay.
Landmark, a property development and investment company with strong footprints in seven African countries, does not stop at just paying its tax, Onwuanibe said they also build and maintains roads infrastructure in their host community. The road leading to their Lagos head office is a typical example.
The Lagos State government, well aware that compliance rates for property taxes are low when compared with developed nations, is moving to engender a culture of voluntary compliance and to prosecute defaulters for improved compliance.
The state recognizes that the greatest failing of property tax is the unwillingness of government to enforce it as there are many high net-worth individuals in the society who own big properties but do not pay tax on them, hence the need for a strong institutional support to improve compliance.
The implication of this, according to the state government, is that the entire community suffers because there will be no money to carry out development projects that will impact on the lives of the people.
Analysts have expressed reservations with the idea of voluntary compliance, saying that it has over 80 percent chances of increasing default rate which is already high, unless government gives payers good cause to comply by reciprocating the payment with critical infrastructure development.
Reasons for the high default rate could be traced to some administrative challenges which the state government is grappling with. These include inaccurate assessment of property, wrong classification, large number of un-assessed properties as a result of lack of capacity.
Other challenges have to do with inability to do a periodic valuation as a property may appreciate or depreciate; distribution problems, and inability to correctly identify who owns which property, all translating into poor coverage, valuation and wrong data collection.
This is where professionals like estate surveyors and valuers who are also known as land economists should come in and play their role. They are the ones with the professional expertise and capacity to calculate the land use charge and the average market value of properties.
As part of the lessons learnt from the ill-advised Land Use Charge (LUC) 2018, the state now allows individual property owners to do independent valuation of their property, using professional valuers and, thereafter, calculate their LUC payment. Those contesting the assessed value of their property can assess same for the purpose of filing their own counter assessment which will then be considered by the state’s commissioner for finance.
CHUKA UROKO