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Expanding Property Tax Base through Regeneration: Nexus between Property Tax and Urban Regeneration

Utchay A. Okorji, Timothy O. Nubi, Warebi G. Brisibe*

Department of Architecture, Rivers State University, Port-Harcourt, Nigeria

Abstract: This paper examines the adverse effects which slums have on revenue generation through property taxation, with a focus on the Lagos Metropolis. Nigeria is ranked as one of the countries with high slum prevalence. The proliferation of shanty dwellings, squatter settlements and slums in most of our cities in Nigeria is a cause for serious concern. The concept of regeneration is brought forward as a panacea towards curbing the slum formation and expansion process, as well as expanding the property tax base in the process. After a brief look at selected slums in Lagos and property taxation systems, the paper puts forward the idea that through urban regeneration of slums, slum residents experience higher standards of living, with the attendant effect of more money which can be utilized to give properties a face-lift, thereby increasing the ratable value of the properties. With better infrastructure in slum areas, tax assessors are also able to capture more properties in the tax net than, thereby expanding the property tax base resulting in more revenue to the government and with good governance, making more money available for regeneration and the eventual extinction of slums.

Keywords: slum, urban regeneration, tax, tax base, Lagos state

Received February 14, 2021; Revised March 17, 2021; Accepted March 22, 2021

Citation: Utchay A. Okorji, Timothy O. Nubi, Warebi G. Brisibe, Expanding Property Tax Base through Regeneration: Nexus between Property Tax and Urban Regeneration. Journal of City and Development, 3 (1). 31-36. January 2021. doi:10.12691/jcd-3-1-4

1. Introduction

Slums are home to the poorest of urban populations in Africa. The houses inhabited by slum dwellers are mostly decrepit, overcrowded, in neighborhoods that are prone to flooding and beset with poor sanitation and shortage of potable water. Nigeria's mega city Lagos is urbanizing at a fast rate of 6.1% per year as at 2003 like Dhaka in Bangladesh (6.2% p.a); Delhi (4.1% p.a.) [1], It is estimated that more than one billion of the world‘s residents live in an inadequate housing and unpleasant environment, mostly in the sprawling slums and squatter settlements in developing countries [2]. In Africa slum population accounts for about 54 out of every 100 city residents [3]. Poor housing is characterized by dilapidated housing structures with poor ventilation, acute overcrowding, faulty alignment of streets, inadequate lighting, paucity of safe water, water logging during rains, absence of sanitary facilities and non-availability of basic physical and social services [4].

The importance of providing adequate and quality housing in any country cannot be overstated nor disputed in spatio-temporal terms, being a stimulant to the national economy [5]. This informs the need for urban regeneration. Urban regeneration has been known to improve the living conditions of beneficiaries, thus utilizing urbanization to drive national growth. This paper seeks to examine the nexus between urban regeneration and property taxation; it is the position of this paper that improved slum conditions will necessarily lead to higher living standards of slum dwellers, which will provide them with the means to improve their accommodations thus increasing the rateable value of the properties; thereby enabling tax assessors enumerate and capture more rateable properties.

2. Urban Regeneration and City Development

Urban regeneration is a term closely used interchangeably with other terms such as urban revitalization, urban renewal as well as gentrification. Urban regeneration is a deliberate effort to change the urban environment through planned large-scale adjustment of existing city areas to present and future requirements for urban living and working, [6]. It is a “comprehensive and integrated vision and action which leads to resolution of urban problems and seeks to bring about improvement in the economic, physical, social and environmental condition of an area that has been subject to change” [7]. It follows therefore that urban regeneration is expected to be a state-sanctioned programme designed to achieve revitalization, improvement and redevelopment of areas that are deteriorated, unsafe, or poorly planned and as a collaborative tool for stimulating economic growth and national development through infrastructural development. In fact, sustainable growth and development often imply and demand consistent investment in infrastructure in countries at all stages of development.

Ejumudo however remarked that in Nigeria, the challenges of urban regeneration are changing rapidly in the same fashion as technical, economic and social conditions [8]. The realities of the different periods of economic boom, economic downturn and economic recovery as well as restoration is also worthy of note. Despite the changing economic realities, the demands for infrastructures and their expansion and revitalization that underpin and constitute the bottom-line of urban development, expansion and regeneration remain constant. In the face of this reality, urban regeneration efforts in Nigeria have been bedeviled with poor planning, commitment gaps, policy disconnection, corruption and general poor governance. For instance, laws form an integral part of the whole planning process and all expression and action of those who design and invest in urban revitalization are supposed to be within the limits prescribed by law [9].

3. Overview of the Slum Situation in Lagos State

There are several slums which can be found within the following areas in Lagos: Agege, Ajegunle, Amukoko, Badia, Bariga, Ijeshatedo/Itire, Ilaje, Iwaya, Makoko, Mushin, and Somolu.

Various expressions have described slum areas as congested district, characterized by deteriorating, unsanitary housing environments and noticeably poverty area [10]. A slum as defined by the United Nations agency UN-HABITAT, is a run-down area of a city characterized by substandard housing, squalor, and lacking in tenure security. It is estimated that about 66% of the population in Lagos live in slums, with a population estimated to be at about 17.5 million according to the Lagos State government [11]. Some of the slums are considered below:

Agege: Agege, is an area spanning about 54 hectares with a population of 70,000 [12].

Ajegunle: Ajegunle is located in the Ajeromi Ifelodun Local Government Area. The site is a major slum, often described as a ‘jungle city’ with a multi-ethnic population of about three million people. It is the most populated slum in Lagos State.

Amukoko: Amukoko is located in Ajeromi-Ifelodun local government area of Lagos state and has a geographical coordinates of latitude 7.2166667 and longitude 4.2500000. It is one of the five low income communities that make up the Local Government Area of Lagos State, Nigeria. It has a total population of approximate 120,000 within a land area of about 41 hectares and a population of about 50,000 people. It has a socio-cultural integration of Yoruba, Ibo, Ijaw, Hausa and some minority groups. The major occupation for both men and women is trading while few people are involved in white collar jobs. The study reveals that the community is dominated by male headed households, with female headed households constituting only 22 percent of the population [10].

Badia East Slum: Badia East Slum is in the southern fringe of metropolitan Lagos in Nigeria; a portion of Badia is in Apapa Local Government Area of Lagos State, spanning about 55.07 hectares with a population of about 40,000 people [13]. It is bounded in the east by railway line that runs parallel with Apapa Road. To the north of the study area is Lagos - Badagry Expressway. To the South is Gasikiya College Road and to the West is the other part of Badia which extends to Ojo.

Bariga: Ilaje-Bariga is a slum settlement within the Bariga community of Shomolu local government area in Lagos metropolis. The area of Ilaje Bariga community covers about 22 hectares of land with physical structures built on about 91% of the total land area, with open space and marshy spots accounting for the remaining 9% of the land area. Ilaje Bariga is home to an estimated population of 20,000 inhabitants [14].

Ijeshatedo/Itire: Ijeshatedo is located in Surulere local government area of Lagos state. Ijeshatedo is bounded by Asimowu canal and Ijesha road by the north, Jubril Martins road at the east and Apapa Oshodi express way to the west.

Iwaya: Iwaya is located in Lagos mainland local government area of Lagos state. It is a place with small population and has nearby towns such as Onike, Tatala, Onitiri and Ebute-metta. It has geographical coordinate of latitude 6°30' 15.0006" and Longitude 3°23'30.9984

Makoko: The riverside settlement of Makoko is located in Yaba local government area of Lagos metropolis. Makoko lies within the south-eastern part of Metropolitan Lagos. It is bounded on the North by Iwaya and University of Lagos, at the West by Ebute-Meta, South by the Third Mainland Bridge and East by the Lagos Lagoon. Makoko community sprang up in the early nineteenth century. The settlement is surrounded by mass of abundant Akoko trees, wild swamp vegetation and animals. The community is dominated by the Ilajes and Eguns, there are also Yorubas with few Igbos and other ethnic groups. Land ownership is vested in two families namely: the Oloto and Olaiye family. The residents of the area are confronted with severe flooding especially during the wet season [15]. The settlement which is partly on water and land has a shifting population of about 100,000 by estimation [16].

Mushin: Mushin is a Local Government Area in Lagos. It is located 10km off the city core, adjacent to the main road leading to Ikeja, and is largely a congested residential area with poor sanitation, inadequate / decaying infrastructure facilities, and low quality housing. This has resulted in the poor living conditions of the inhabitants of the area. It had a population of 633,009 inhabitants as at the 2006 Census. Some of the slum areas within Mushin include Idi-Araba, Idi-Oro, Eleja etc. Mushin is one of the most insecure neighbourhoods in Lagos and highly volatile as well.

Somolu: Somolu (or Shomolu) is a town north of Lagos city. It is a residential close to the popular busy Ikorodu Road Highway. The town is plagued by problems of overcrowding, poor housing, inadequate / decaying infrastructures, and inadequate sanitation. It is equally a highly volatile neighbourhood with regards to security of lives and properties. Somolu is close to Mushin.

According to 2006 Census, it has a population of about 1,025,123 inhabitants.

4. Urban Regeneration and Property Taxation

Revenue realization from real properties is propelled by the availability and accessibility of the tax base. However, the existence of the needed tax base upon which property taxes are levied depends largely on the growth and development of the area. It follows therefore that any attempt to improve the property tax base would be backed by the provision of infrastructure as well as urban regeneration. Expanding the property tax base of any particular municipality to cover deteriorated and derelict areas would only be possible through urban regeneration. Urban regeneration breeds growth and development in infrastructure and also attracts other forms of investments. In other words, it will be safe to say that the lifeblood of deteriorated neighbourhoods can only be revitalized through infrastructure provision and urban regeneration. Although most urban regeneration usually comes with high costs, its benefits in most cases surpass the cost implications. A well conducted urban regeneration would throw up prospects for various forms of land taxations such as Property rates, capital gains tax, withholding tax, value added tax amongst others. This however draws from the fact that increased infrastructure provision leads to increased investments in real properties which therefore creates room for revenue generation in the form of property taxes.

In Asia, China and India - the world’s most populous nations, have improved the lives of more slum dwellers than any other country, according to UN-HABITAT’s “State of the World Cities 2010/2011: Bridging the Urban Divide”. Collectively, they have lifted at least 125 million out of slums between 1990 and 2010. The report stated that China’s achievement has been the most impressive, with improvements to the daily conditions of 65.3 million urban residents who were previously deprived of shelter. Proportionally, China’s urban population living in slums fell almost 5% from 37.3% in 2000 to 28.2% in 2010. Furthermore in the report, despite growing inequality due to the country’s rapid economic advance, China has improved living conditions by embracing economic reforms and implementing modernization policies that have used urbanization to drive national growth. India has lifted 59.7 million people out of slum conditions since 2000 and slum prevalence fell about 12% from 41.5% in 1990 to 28.1% in 2010. The report noted that reducing poverty and improving conditions in slums are part of India’s urban development policy and it achieved this in four ways: first, by building the skills of the urban poor in their chosen businesses, and by providing them micro-credit; second, by providing basic services and development within slum settlements, thus improving living conditions; third, by providing security of tenure to poor families living in unauthorized settlements, improving their access to serviced low-cost housing and subsidized housing finance; and fourth, by encouraging the poor to take part in decision-making and community development efforts.

The report further stated that in South-East Asia, Indonesia improved the lives of 21.2 million slum dwellers, a 33% proportional decrease from 2000 to 2010 and in the same vein, Vietnam’s slum incidence dropped from 48% in 2000 to some 33.7% in 2010. This is commensurate with poverty reduction over the same period, and Vietnam has also made significant progress on most of the other Millennium Development Goals.

In Africa, Morocco has moved 2.4 million out of slum conditions over the past 10 years, a 45.8% reduction in slum prevalence due to strong political leadership, clear targets and adequate budget resources. In the same vein, Egypt reduced its proportion of slum dwellers by 39%; slum prevalence fell by 28.1% of the urban population in 2000 to some 17.1% in 2010: in absolute numbers, the Government of Egypt improved the living conditions of five million people.

4.1. Essential Elements in Property Taxes

Just like other forms of taxation, property taxation requires consideration of necessary elements of taxation which include the tax base and tax rate [17], as well as legal responsibility to impose and levy tax and the burden of taxation liability [18]. These essential elements need to be spelt out as each affects any property taxation framework. The tax base refers to the object upon which the tax is imposed and in property taxation, contentions on the appropriate tax base have been subject to cross jurisdictional debates. Aluko holds the view that in property taxation, the tax base upon which the tax rate is applied usually varies from country to country [18]. Major considerations with respect to this are whether land or improvements (buildings) or the both should be subject to tax. Notwithstanding this, there exist a proportionate relationship between the tax base and the amount of revenue generated from the tax, cetirus parisbus. A larger tax base is an indicator of larger revenue prospects and vice versa. However, Babawale observed that property tax has not been known to yield much in the way of revenue in any developing country [19]; partly due to defective property tax policy and mal-administration [20] and the dearth of records as well as availability of a definite tax base. In his opinion, Kelly emphasized that there are divergent views of the appropriate tax base that should be made available to governments [21]. The normative optimal tax prescription is for a broad base that leads to a lower tax rate. This theory assumes that for a given level of revenue that a broad base minimizes the excess burden of the tax system since it will raise the necessary revenue at lower rates. If however a broader base does not lead to sufficiently lower rates, then broad base tax structures could contribute to higher government expenditures.

The tax rate refers to the proportion or percentage of tax object that is to be paid as tax [17]. It is the actual rate liability borne by either the owner or occupier of real properties. Aluko however maintained that in principle, there is no right level of tax rate [18]. Nevertheless, if property is functioning as a price for municipal or local services, the right level is that which reflects local preferences. It follows therefore that local property taxes, thus, appeals directly to the quid pro quo principle as offering to the payer a more visible equivalent in services for the sacrifice involved. Furthermore, there are theoretical underpinnings on the effect of the tax rate on revenue realization. One of such theory was developed by Laffer [22]. A major postulation of this theory is that increasing tax rate beyond a certain point will become counterproductive in raising further tax revenue because of diminishing returns. It follows therefore that if the rates on real property become excessively high, the default tendencies tend to increase at the expense of the state or local authority’s revenue. Another theory that captures the effects of the tax rate is one developed by Ibn Khaldrun. This theory was explained in terms of two different effects that is the arithmetic effect and the economic effect which the tax rates have on revenues. The two effects have opposite results on revenue in case the rates are increased or decreased. According to the arithmetic effect, if tax rates are lowered, tax revenues will be lowered by the amount of the decrease in the rate. The reverse is true for an increase in tax rates. The economic effect however recognized the positive impact that lower tax rate have on work, output and employment and thereby the tax rate base is used in providing incentives to increase these activities whereas raising tax rates here the opposite economic effect is used by penalizing participation in the taxed activities. At a very high tax rate, negative economic effect dominates positive arithmetic effect, thereby, the tax revenue declines [23]. From the foregoing it is necessary to reiterate that efficient property taxation should take into consideration the effects of the expansion or contraction of the tax base, the level of the tax rate as well as the burden of the tax liability.

4.2. Property Taxation in Lagos

The major property tax in Lagos State is the Land Use Charge. The Land Use Charge Law (2001) came into force on 22nd June 2001 and has twenty-four sections. It established that a land-based charge is payable on real properties situate in Lagos State, Nigeria with each Local Government Council Area empowered to levy and collect the charge for its area of jurisdiction as the Collecting Authority. Each Collecting Authority may delegate to the State, by written agreement, its functions with respect to collection of rates and the assessment of privately-owned houses or tenement for the purpose of levying the rate.

The Commissioner of Finance is by Law empowered to undertake or cause to be undertaken an assessment of chargeable properties in such areas as may be designated, and appoint property identification officers, qualified assessors and other persons considered necessary. The payment of the Land Use Charge which is to be based on annual capital sum is to be paid by the owner. Oni et al [24] broke down the computation of the Land Use Charge as follows:

According to Section 5 (1) of the Law, the formula for determining the annual amount payable is:

LUC = M x {(LA x LV) + (BA x BV x PCR)} where,

LUC = annual amount of Land Use Charge in Naira;

M = the annual charge rate expressed as percentage of the assessed value of the property. The assessed value in this case may vary between owner-occupied residential and commercial properties at the discretion of the State Government. Commercial property refers to properties that are revenue-generating;

LA = the area of the land parcel in square metres;

LV = the average value of a land parcel in the neighbourhood, per square metre in Naira;

BA = the total developed floor area of building on the plot of land in square metres, or the total floor area of apartment unit in a building where apartment has a separate ownership title;

BV = the average value of medium quality buildings in the neighbourhood, per square metre in Naira;

PCR = the Property Code Rate for the building and which accounts for the building being of higher or lower value than the average buildings in the neighbourhood and which also accounts for the degree of completion of construction of the building.

In a nutshell, (LA x LV) + (BA x BV x PCR) in Eqn. 1 is the assessed value of the property.

4.3. A Perspective on the Administration of Property Taxation

There is no gainsaying the fact that property taxation is one of the vital revenue sources of the government. Hence, for the government to realize its benefits, there is the need for effective administration of the tax. Several authors have contended that central to the effective administration of property tax is land registration and the availability of a fiscal and legal cadastre denoting the land and property holding situation in the area [18,25,26]. This according to them is necessary so as to ensure that there is a constant source of revenue from property tax to either the central or local government. Hence the need for the tax base, which is the source of revenue to be secured and capable of serving as a revenue base in perpetuity. There however exists a multiplicity of land based or property taxation in both developing and developed countries of the world. In Nigeria, land based taxations vary from state to state and are imposed by Law and payable by individuals, Corporations and other bodies with respect of interests or estates in real or immoveable properties. Ogbuefi [27] highlighted that property taxation in Nigeria includes such taxes like property rating, capital gains tax, development charges, betterment charges, value added taxes, planning charges as well as special assessment taxes like the land use charge. These forms of taxes are either levied on the ownership, occupation, acquisition and disposition of real properties.

Ajayi [28] explained that the major form of property taxation that has been in the country is the property rate commonly known as tenement rates. This type of land taxation is often debated and pronounced as one of the major sources of local government revenue. Its administration varies from state to state and regulated by state laws. In their opinion, Nwachukwu and Emoh stressed that revenue from property rating in Owerri municipal council tends to be a major source of revenue compared to other sources of local government finance [29]. The revenue from property rating was said to account for about 15% of the total internal finance of the local government, and the revenue thus realized was used to defray the cost of projects in the council. Notwithstanding this fact, a study conducted by Olowu [30] highlighted that irrespective of the numerous benefits of property rating, many states and local governments in Nigeria are yet to establish a sound property rating system in their various areas. To him, very few local governments successfully introduced property taxes with strong support from the state government. According to him, property rate was only 0.3% in Port Harcourt (a large oil-city) but 44% in Ikeja (Lagos) in 1989, rising to 58.3% of the city’s revenue in 1994 in the latter city. The reason as reported by the author was that Lagos city was in a state that had a strong pro-property tax policy.

Babatunde and Sunday [31] in a study conducted in Minna, Niger state observed that the only land based tax levied in the state are stamp duty and business premises registration. They also reported that the problems of property tax in Minna are lack of political will on the part of government to support the authorities for assessment and collection of property taxes, the high level of poverty in the metropolis which hinders the implementation of property taxation and lack of funds/logistics for the collection of the taxes by the State Inland Revenue Office. Similarly, Babatunde [32] revealed that among the two property based taxes applicable in the state during the period under study, only withholding tax generated 0.07% of the internally generated revenue while nothing was received for stamp duty. He attributed this to the government’s inability to realize property based taxes as a reliable and dependable source of revenue.

Aluko [18] however remarked that the environment of property taxation is more difficult in developing nations than developed nations and this affects the overall administration of the tax. The reasons attributable to this is that the basic data on which the property tax is based is inaccessible or unreliable, base maps upon which property discovery and identification would be based are non-existent whilst the data on property ownership is inaccessible, either because ownership is disputed or because deeds registries are unable and unwilling to cooperate with tax authorities. Furthermore, the rapid growth of cities in developing countries exacerbates the difficulty in administering the property tax, as subdivisions and new constructions must be constantly discovered and incorporated if the tax base is to reflect the physical growth of the city. An equitable and realistic tax policy administered objectively and honestly would go a long way to ensure equity, encourage compliance and improved revenue yields. On the other hand, an inequitable, discriminatory tax policy, administered haphazardly and prejudicially would undermine civil responsibility and breed opposition and non-compliance. Property tax must, therefore, be fair, equitable, set in simple and clearly understandable language, be politically acceptable to the payers, and put into consideration the ability to pay based on income [27,33].

5. Conclusion

The study indicates the economic implications arising from the neglect of inner city development by successive government in Lagos state. Existing study settlements reveals the lack, or inadequacy of basic infrastructures such as roads, drainages, electricity, water, etc. These issues are further exacerbated by the absence of tradeable or secure property titles leading to the proliferation of substandard living conditions. Surprisingly, such settlements accommodate a large population inhabiting poorly built houses with little or no form of accessibility. These therefore creates a tax administration lacuna as most of these properties are not taxable. It has been established that the nature and condition of the existing tax base are germane in any form of taxation. With the derelict nature of the properties as well as public infrastructure gap, the realization of revenue through taxation becomes largely undermined. It follows therefore that there is the need for concerted efforts aimed at improving the living conditions of the inner city dwellers. Improvement in these informal areas through urban regeneration and secure titles would further improve the living conditions in the area as well as expand the tax base.

6. Recommendations

From the body of work studied, some facts have been established as it pertains to effective tax administration practices. In order to effectively increase the tax base in Lagos State, the following have to be put in place:

1. Land registration and the availability of a fiscal and legal cadastre denoting the land and property holding situation in the area [18].

2. Creating a better environment to aid taxation. Aluko [18] remarked that the basic data on which the property tax is based for the most part is inaccessible or unreliable, base maps upon which property discovery and identification would be based are non-existent; whilst the data on property ownership is inaccessible, and new constructions must be constantly discovered and incorporated if the tax base is to reflect the physical growth of the city.

These two major challenges hold very true in slum areas. There are largely no records as it relates to land registration for properties in slum areas, and developments continue to spring up haphazardly without development controls and infrastructure, making it difficult or nearly impossible for tax assessors to navigate their way around in order to enumerate properties for taxation purposes.

Urban regeneration presents a veritable tool out of this quagmire. The Bottom-Top Approach towards regeneration which is usually preferred by experts entails policies made and executed at the local and state levels.

At the local level, planning must be driven by public participation through regular consultations between slum inhabitants, state and local governments, stake holders, religious leaders, community groups and Non-Governmental Organizations (NGOs). Action plans for public/private partnerships in the delivery of essential infrastructure and facilities must be locally driven. Monitoring of new developments through effective development control is crucial at this level in order to prevent further uncontrolled spread of the slums [16].

At the state level, the policies should deal largely with regularizing the titles held by the slum dwellers and ensuring security of title to their properties. A process which will encourage inhabitants to register their properties with the state government in order to secure their title will also prove valuable in the enumeration of properties in the areas and as such will drag them into the tax net. With security of tenure, they are able to raise capital which will increase their quality of life and also increase value of their developments in the slums as they will be more willing to make improvements on their dwellings. Increased property values mean increased property taxes. Therefore, in addition to capturing more properties into the tax net, the increased values of the properties as a result of improvements will also increase the taxes collectable by the government; and the multiplier effect continues.

Urban regeneration is thus a win-win option for both inhabitants and the government. For the inhabitants in the area of improved quality of life, and for the government in the areas of better social welfare of the citizenry and increased revenue from taxation.

References

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