Abuja – November 16, 2023 – Viewpoint Housing. Our Stand (94)-
Recent and prevailing economic circumstances in Nigeria, especially the collapse of oil price on the international market, have led to revenue losses for federal, state and local governments, thereby compelling all levels of governments to seek alternative means to revenue generation, one of the ways that the government raises money is through property taxation.
The term “property taxation” simply refers to a wide range of government levies, fees, and charges associated with the processes involved in the delivery and construction of urban housing. Some instances of taxes connected to housing include those on housing income (personal income tax on residential rent), housing wealth (land titles, capital gains, value added tax on property sales and resale, property transfers, etc.), and housing-related services.
Property taxes like, fees related to the use, ownership, or transfer of property, are potentially seen as a potential source of domestic income in many nations around the globe. With the exception of Burkina Faso and the Seychelles, practically every country in Africa has some kind of property tax.
For authorities in Abuja, The Federal Capital Territory, Taxes within the cycle of housing production and consumption were thought to be the easiest to evade, Consequently, the government placed a strong emphasis on tax production.
In developing societies, the implementation of property taxation requires careful consideration. Research on the execution of property taxes, for example, shows that political will, economic research, and administrative improvements RESULT in a boom in property sector. Ensuring that organizations and regulations work toward enhancing the effectiveness and efficiency of the property taxation system should be the aim of the of stakeholders in the housing sector.
IMPACT OF PROPERTY TAXATION ON HOUSING
Property taxes have a direct influence on the creation of housing and, indirectly, its expansion.
In Nigeria, buying a house is mostly done through informal housing, potential homeowners must first get land, typically from customary owners, in order to begin the process of self-help. The land department of the local government council (LGC )will require certain paperwork for a change of ownership.
This often entails paying a fee equal to a particular percentage of the land’s purchase price. In addition, with the percentage charge, the land buyer must make certain unrecorded payments to traditional leaders, such as the head of the community, village, ward, and district, in order for the change of ownership paperwork to be stamped. Although these processes are just preliminary to a formal land title application, A significant amount of money must be also spent on the formal title application itself. All these expenses makes building a house becomes increasingly costly.
– As a result, Majority of prospective home owners would rather evade the fees and charges by building their houses on lands that are not secured by statutory titles. This can naturally impede the growth of formal housing system, that should offer the benefit of acquiring a house through mortgage.
– Secondly, even homes created through formal processes usually end up being too costly and out of reach for low-income populations. This is partially because obtaining construction licenses and land titling costs estate developers lots of money. To recover cost, developers will always add any expenses incurred on property taxes to the selling price of new houses, which automatically pushes cost beyond affordability levels.
– Thirdly, If developers and property owners are forced to pay high property taxes, they will definitely recover it by building it into the rent. This will push rents upward thereby making it difficult for low-income earners to find houses that are affordable to rent.
-Given that inflation is one of the factors that may affect the value of land, it will be necessary to equally consider the impact of inflation on the original cost of acquisition for Capital Gains Tax purposes perhaps through indexation.
There may be some merits to the proposed introduction of property tax in the FCT but the rates must be affordable and the administration must be convenient to make the new regime less cumbersome for businesses and individuals. In addition, property tax should not be considered in isolation but also from the perspective of the secondary implications that may arise as a result of the property tax.