Lagos proves Africa’s Property Tax potential
Since Nigeria returned to civilian rule in 1999, Lagos State government has reformed taxes on business and property which have provided revenue for sustained improvements in local services and infrastructure.
Fashola and his colleagues pursued all property owners, regardless of status or role in society, for payment of the land use charge
Reform has been driven by two successive governors, Bola Tinubu (May 1999-May 2007) and Babatunde Fashola (May 2007-present).
As documented in a new report, “Governing Lagos: The Politics of Reform”, the state was able to increase its income from tax receipts from US$190 million in 1999 to over US$1 billion in 2011 – funds which were reinvested in improving refuse collection, sanitation, public transport and roads.
When he took office, Governor Tinubu was quick to recognise the failure of tax farming in Lagos, whereby the private sector was contracted to collect levies for a percentage cut.
Tinubu established a technocratic enclave within the state bureaucracy that helped to professionalise the administration of business tax collection. With sufficient political backing, this was able to bring both the formal and informal sectors into the tax net.
In 2001, Tinubu simplified the administration of property tax by consolidating three rates into a single land use charge, collected by the state government. His successor, Fashola, went further by ordering an inventory of every property in Lagos State. This enlarged the tax registry fourteen-fold between 2007 and 2010.
Lagos State can now draw on an electronic database which includes pictures of buildings, property ID numbers, value assessments, and a history of payment.
Digitising property tax records enabled the automation of billing, leading to an increase in annual revenue from the land use charge from 1.72 billion naira in 2008 to 7.13 billion naira in 2013.
More professional tax assessment and collection was accompanied by public outreach, educating Lagosians about the benefits of compliance. Signage at public works reminded drivers waiting in “go-slows” to pay their taxes.
This created a link in the mind of taxpayers between their contributions and improvements to local services and infrastructure.
The experience of being taxed more efficiently enraged – then engaged – residents, incentivising them to ensure that their contributions were well-spent.
Vociferous campaigning for transparency in expenditure strengthened the State House of Assembly and local civil society groups, but also provided the governor with an opportunity to secure taxpayer compliance in exchange for a role in determining tax policy.
In a sustained demonstration of political will, Fashola and his colleagues pursued all property owners, regardless of status or role in society, for payment of the land use charge.
Persuading powerful figures to buy into the idea of Lagos’s potential to be a modern “megacity” was instrumental. The begrudging support of landlords helped to finance improvements to waste collection, street lighting and roads, that benefited their properties and stimulated economic growth.
Another new report, “How property tax would benefit Africa” further illustrates how taxing land and buildings can underpin local political and economic development.
The authors, Dr Nara Monkam from the African Tax Administration Forum, and Mick Moore, founder of the International Centre for Tax and Development, cite reforms in Bo (Sierra Leone) and Niamey (Niger) where property tax reforms have provided local authorities with the opportunity to establish relations of mutual dependence with taxpayers, spurring improvements in policymaking and service delivery.
Property tax has long been regarded as the ideal source of income for municipal government given the association between taxes raised locally and the delivery of proximate services and infrastructure.
Yet, across the continent, revenue from property tax has remained low due to complex assessment methods and limited state capacity or determination.
Levies on land and buildings are estimated to account for only 0.5% of GDP in sub-Saharan Africa. Local governments everywhere are missing out on a predictable and potentially lucrative stream of income.
The recipe for reform is straightforward: local authorities need to simplify the assessment of rates, educate taxpayers about what they get in return for compliance, and address political resistance from wealthy property owners.
Where developed property markets and bureaucratic capacity are absent, local governments should reject complex capital or rental value models and adopt a simple means of assessing property value based on plot area and location. This is both transparent and easy to administer.
Where compliance is a problematic, local authorities need to show that taxes lead to tangible benefits.
Surveys in Lagos suggest that increased compliance was driven by a greater belief among taxpayers that their contributions have been well used – evidence of a nascent “social contract” between citizen and state.
When local elites prove resistant, prosecution for non-payment, the enforcement of judgments, and removing opportunities for discretion regarding liabilities can be used.
Evidence of successful reforms demonstrates that modest investments and determination can lead to dramatic improvements in tax collection and service delivery.
While taxation is never popular anywhere in the world, it is an essential component of consensual and representative government.