Property Taxation in Real Estate
It might be interesting to trace the origins of taxation –that much hated aspect of our lives but one that we cannot
do without for our continued, collective societal and economic growth and development. No exact records exists as to when taxation was introduced but somewhere in the bible – Luke 2:1 it states that a “… decree from Caesar was sent out, that all the world should be taxed”.
Long before then men began to impose levies on themselves to raise finances / funds to wage war or defend themselves from unfriendly rampaging tribes. This in itself was a form of taxation. However as man evolved and leadership and existence took a formal nature, taxation – became a means by which governments finance their expenditure by imposing charges on citizens and corporate entities. For our purposes today, we are referring in particular to property taxation in relation with Real Estate.
Property Taxation is defined to include land in use and land covered by water; and building or structure situated thereon including machinery, installations and equipment affixed to a building, a mobile home, a bulk storage tank and any supply pipelines connected therewith, and any wireless pole, pipe, tower, equipment or structures forming part of a television or radio broadcasting transmitter including a cable television system, telephone, electric light or any electric power distribution system.
Certain properties are exempted from the tax including properties owned and occupied by a religious body and used exclusively for religious purposes, real property owned by any person and used as a non-profit making cemetery or burying ground, but where such property is not immediately required for interment of the dead it shall not be exempt. This is to prevent land owners from designating their properties as cemetery just for the purpose of claiming exemption. Other properties exempted include properties designated and used for public purposes including public institution of learning, or for official or residential purposes by diplomats, palaces of recognized traditional rulers, property owned and used for social welfare services by NGOs. The tax will be administered by the FCT Property Tax Agency to be headed by a Managing Director appointed by the FCT Minister. The Agency is responsible for tax appraisal, assessment and collection. The Agency is required to appraise all taxable real property at least once in every 5 years. The value at which properties are to be appraised is the market value as of January 1st in the year of appraisal. The Agency revises the appraisal of all real property to reflect the current market value by multiplying the appraised value with an adjustment multiplier which must factor in the rate of inflation and other factors that may affect the value of property in the FCT. The rate at which tax is payable annually is 0.3% for recreational property, 0.4% for residential property,
0.6% for commercial property and 0.7% for others. It is important to compare the rates proposed for the FCT with other rates in Nigeria and similar countries globally. For the purpose of property tax, properties are assessed based on the physical appearance, aesthetic features and age and the usage and status of occupation. Under the Land Use Charge Act in Lagos State, properties are classified under three broad categories as Commercial, Industrial and Residential. Commercial properties attract a rate of
0.394% of the assessed value, industrial properties at 0.132%. Assessments of residential properties are categorised under three scenarios which attract different rates. A property solely occupied by the owner for residential purpose is charged at a rate of 0.0394%, while a similar property occupied by the property owner and tenant(s) or third parties is charged at a rate of 0.132%. The third scenario/category is an investment property fully occupied by tenants or third parties for revenue generation, charged at a rate of 0.394% Under the FCT proposed property tax regime, an assessment must be done within 30 days of appraisal in the name of the beneficial owner of the property even if it belongs to an infant. A demand notice is to be delivered by March 31st in each year or soon thereafter as is practicable for the Agency. The notice may be delivered to the occupier of the real property if the Agency is unable to ascertain the address of the beneficial owner. Where there is no occupier the Assessor can effect delivery by posting the notice on the real property and publishing same in any newspaper circulating nationwide and such posting and publication shall be sufficient delivery of the notice. Any demand notice unpaid after 30 days will attract interest at the rate to be prescribed by regulations issued by the FCT Minister. The tax due together with any interest thereon constitute a lien on the property and has priority over every claim, lien, privilege or encumbrance of any person and does not require registration or filing to preserve its validity of priority.
Where taxes are overdue and unpaid the Agency shall not later than 24 months levy a notice that the property is liable to be sold by the Agency. If still unpaid 12 months after (that is, 36 months in total), the
Agency is empowered to sell the property within 60 days and apply the proceeds towards the overdue tax, capital gains tax and any balance to the beneficial owner. Any objection by a taxpayer must be made within 30 days to the Managing Director of the Agency but such persons may be required to pay a deposit of 50% pending the determination of the objection.
Property tax takes different forms in many countries around the world but generally at affordable rates which are progressive and designed to achieve desired economic development goals.