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Property Tax in Nigeria-Do You Pay Your Tax

Property Tax in Nigeria- Do You Pay Your Tax.

Paying tax doesn’t only concern your business or employment but also your property needs to be paid off. In a country like Nigeria where on a regular basis new issues or govt decrees are being made, you have to be ready.

Property Tax

But what is property tax and its rate in Nigeria?

What Is Property Tax?

Property tax is a tax paid on property owned by an individual or other legal entity, such as a corporation. Most commonly, property tax is calculated by a local government where the property is located and paid by the owner of the property.

Note: Usually when you pay tax to the government i’s used to improve and maintain public infrastructure, including the roads we travel on, and fund public services, such as schools, emergency services, and welfare programs.

The tax is usually based on the value of the owned property, including land. Property taxation as a source of government revenue in Nigeria and other countries is not novel.

Property Tax Rate In Nigeria

Property tax rate in Nigeria is annually is 0.3% for recreational property, 0.4% for residential property, 0.6% for commercial property and 0.7% for others. 

Types of Property Taxes In Nigeria

Neighborhood Improvement Charges.

Tenement Rates and Ground Rent.

Please Note: In Lagos State, these taxes have been consolidated into the Land Use Charge (LUC).

When was Land Use Charge (LUC) Introduced in Lagos State?

The LUC was first introduced by the Land Use Charge Law of Lagos State (LUCL or the law) in 2001 which was recently replaced by a new LUCL that was enacted on 8 February 2018, with an upward review of the LUC rates. The LUC takes effect from the date of enactment.

According to the State Government, the review became critical because of the huge infrastructure deficit in the State as well as the need for an increase in internally generated revenue.

The recent re-enactment of the LUCL has encountered stiff resistance from affected stakeholders. Apart from the increase in rates, other reasons for the resistance include the validity of the delegation of powers by the Local Government to the State and the discriminatory rates applied to owner-occupiers versus tenants of residential premises.

Some of the concerns raised are being considered as the Lagos State House of Assembly is working on a Bill to amend the LUCL (i.e. LUCL Amendment Bill) which was subjected to a Public Hearing on 27 March 2018.

Although the rates in the LUCL have now been reviewed, stakeholder dissatisfactions still linger, particularly in relation to the issue of accountability for the use of funds.

In spite of the imposition of taxes, residents of Lagos State maintain that they still have to provide basic social infrastructures such as electricity, security, and waste management for themselves.


1. Power to impose LUC: The LUCL does not contain any express provision as to which tier of government is empowered to impose and collect the LUC. However, the wordings of the LUCL suggest that the State Government is responsible for the assessment and collection of the LUC.

For example, Section 6 of the LUCL provides that “the Commissioner [of Finance] may appoint consultants to carry out property assessments and levying of the Land Use Charge”.

Section 27 of the LUCL also empowers the Commissioner of Finance (the Commissioner) to establish and maintain a fund to be known as the Land Use Charge Collection Fund, consisting of all LUC payments deposited in designated banks.

The Section further provides that the Commissioner shall pay to each Local Government its share of the LUC Collection within 10 days after the beginning of each month.

On a separate note, Section 2(2) of the LUCL affirms the constitutional powers of the Local Government to levy and collect Tenement Rates in line with Section 7(5) and the fourth schedule to the Constitution of the Federal Republic of Nigeria, 1999.

However, Section 2(3) of the LUCL provides that a Local Government may, by a written agreement, delegate its functions with respect to the assessment of privately owned houses or tenements for the purpose of levying and collection of such rates as may be prescribed under the LUCL.

Notwithstanding, it would appear that the powers of the Local Government to collect Tenement Rates have already been usurped by the State Government given that the Tenement Rates have been consolidated with other charges to form the LUC. In addition, since the Commissioner is statutorily empowered to maintain the Land Use Charge Collection Fund and appoint consultants to assess and levy the LUC, any powers of the Local Government regarding assessment, levying, and collection of Tenement rates appear to have been undermined regardless of the provisions of Section 2(2) of the LUCL.

It should also be noted that the right of the State Government to usurp the Local Governments’ functions of assessment and collection of Tenement rates has been contested in various cases. In the case between Knight, Frank & Rutley v A.G of Kano State the Supreme Court affirmed the decision of the Court of Appeal that it will amount to a usurpation of the power of the Local Government Council for the State Government to carry out the functions of the Local Government or engage any person or authority to do so on its behalf. The Rivers State High Court relied on this decision of the Supreme Court in the case between Grinaker LTA Limited v Board of Internal Revenue.

In this case, the Court held that the Rivers State Government cannot enact a law that makes the State Government usurp the powers of Local Government to levy and collect property tax on privately owned houses and tenements. Based on the foregoing, the question on the validity of Section 2(3) of the LUCL or whether the provisions of the LUCL amount to usurpation of the powers of the Local Governments may continue to generate debates until the courts have an opportunity to rule on the constitutionality.

2. Calculation of the LUC:

Based on Section 10 of the LUCL, the LUC shall be calculated using the prescribed formula below:

(Land Value + Building Development Value) × Relief

Rate × Charge Rate.

By virtue of Sections 5 & 6 of the LUCL, the Commissioner is required to assess or appoint property identification officers, professional valuers, and other necessary persons for the purpose of assessment of such chargeable properties. Based on the LUCL, the land value and building development value rates of a property (which constitute the Market Value) shall be reviewed at least once every five years on the basis of the information made available by professional valuers and consultants. Based on the recent LUCL Amendment Bill which is currently before the Lagos State House of Assembly for deliberation and subsequent enactment, the LUCL may be amended to replace the word “Market Value” with “Value” wherever it appears in the LUCL. This appears to be a response to varying concerns regarding the definition and the mode of determination of the “Market Value”. However, this move may only create further uncertainty as to what really constitutes the basis for the determination of the LUC.

The LUCL also provides that pending such periodic reviews, the land value and building development value rates may be increased by the Commissioner in line with the rate of inflation.

Since the Commissioner is empowered to assess or appoint valuers to assess chargeable properties, the independence of the valuation process is questionable as there is no provision that empowers stakeholders to contest the basis of valuations. It is also important to note that the power of the Commissioner to increase the LUC rates in line with the rate of inflation is rather arbitrary as the basis for determining the proposed inflationary adjustments is not provided in the LUCL.

3. Persons liable to pay LUC:

Based on Section 9 of the LUCL, the owner or the occupier of a property is directly liable to pay LUC in the case of a lease for less than 10 years. Section 9(2) of the LUCL further provides that where a lease is for a period above 10 years, the occupier holding the lease is liable to pay LUC. It is noteworthy that the LUCL defines an occupier to include lawful and unlawful occupants of taxable property. The liability of the occupier to the LUC is a clear deviation from the provisions under the LUCL that were enacted in 2001 which provided that the only persons liable to pay LUC are the owners of properties.

Given that there are no standard rental charges for specific locations in Lagos State and since the landlord of a rented accommodation usually has an edge in rent bargaining, there is a risk that the landlord of any premises, whether residential, commercial, or industrial can readily transfer the burden of the LUC to the tenants. Thus, the transfer of LUC liability for premises leased for a period exceeding 10 years, from the lessor to the lessee appears to be a redundant provision. In the same vein, the provision of Section 15 which empowers the LUC Collecting Authority to appoint an occupier of taxable property as an agent of the property owner for the purposes of collection and payment of the LUC may not change the individual who bears the burden for the LUC. Although, the LUCL permits the agent to claim indemnity from the landlord for all LUC payments made on behalf of the property owner, the practical application of such an indemnity is uncertain given the peculiar relationship between landlords and tenants.

4. Penalties:

Section 31 of the LUCL provides that the charge payable, in the event of default in payment within the period in the demand notice, shall be increased by the percentages below:

a) Between 45 & 75 days – 25%

b) Between 75 & 105 days – 50%

c) Between 105 & 135 days – 100%

Furthermore, the law provides that the assessed property shall be liable to enforcement under the LUCL if payment is not made after 135 days. In this regard, civil action can be instituted against the owner, occupier, or authorized agent in order to recover the accrued LUC or to obtain an order of the court for distraint of the property or other consequential orders.

The Commissioner has also announced a waiver of these penalties and a provision for payment of LUC in installments.

5. Exempted properties:

The LUCL expressly exempts the following properties from payment of LUC:

• Properties owned by religious bodies exclusively used as places of worship or religious education and registered in the corporate name of the religious body;

• Properties used as public cemeteries;

• Educational institutions certified by the Commissioner to be non-profit-making;

• Public or private libraries certified by the Commissioner to be non-profit making;

• Any Property specifically exempted by the Executive Governor by notice published in the State Official Gazette; and

• All palaces of recognized Obas and Chiefs in the State.

An exempted property shall forfeit its exemption status when it is leased out to private entities for revenue generation. Owner-occupied pensioner’s property as well as Lagos State Government properties are also exempted from the LUC.

Also, the Commissioner may grant partial relief for a property that is occupied by a non-profit making organization used solely for community games or similar recreational activities and used for a charitable or benevolent purpose for the benefit of the general public.

7. Right of Appeal:

Similar to the LUCL that was enacted in 2001, the recent LUCL establishes the Assessment Appeal Tribunal (Tribunal). The Chairman and members of the Tribunal shall be appointed by the Governor upon the recommendation of the Commissioner. The fairness or otherwise of the appeal process is questionable given that the Commissioner is responsible for both the assessment of LUC and the recommendation of members of the Tribunal.

The LUCL does not provide a timeline for the establishment of the Tribunals in each Division of the State. However, the LUCL Amendment Bill seeks to remedy this by introducing a sub-section stating that “the Tribunals so established under the provisions of the Law shall be set up and commence operation within one month of the commencement of this Law”.

Section 17(2) of the LUCL provides that the time allowed for an appeal to the Tribunal is 30 days after the date of delivery of the demand notice. The conditions of appeal also include a deposit of 25% of the amount of the assessed LUC being disputed. However, the law is silent on the treatment of the already deposited LUC in the event that the correct assessment is less than 25% of the disputed assessment. It would be safe to presume that excess amounts paid in LUC would be imputed as credit to be set off against future liabilities of affected persons, based on the Public Statement of the Commissioner.

Nonetheless, it may be more efficient and transparent to pay the undisputed amount based on self-assessment and keep the payment of the disputed difference in abeyance, pending the outcome of an appeal.

Conclusion & Recommendations

The need to increase the internally generated revenue of Lagos State in order to finance development and run the government is well appreciated. However, the government needs to make an effort to ensure that in the attempt to generate revenue, they do not cause hardship on the citizens.

A minimal increment is justifiable, but tripling the LUC in the face of a challenging economy, the multiplicity of taxes, relatively high inflation, and falling income levels is unreasonable. It is also recommended that the concerns of taxpayers should be seriously considered with regard the LUCL 2018 and that whenever the government wants to increase the tax burden of taxpayers, it should do so conscientiously, after deliberating and engaging with stakeholders.

Finally, the LUCL 2018 should be amended so as to ensure that the State government does not continue to usurp the Local Government Councils’ constitutionally vested function of assessing, levying, and collecting property tax. The Local governments should be encouraged and supported to assess and collect property tax so as generate income and satisfactorily perform their functions.

Please leave a comment below if you find this post useful. You can also share your experience with us on property tax.

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