REAL PROPERTY RATING AS A SOURCE OF LOCAL GOVERNMENT REVENUE ABSTRACT
Real
property rating as a source of local government revenue. chapter one
introduction of local creation of the state government from which also they
derive their power in the law established these local government as well as the
four schedule of the constitution of the federal republic of Nigeria spelled
out of the function they are to perform some of these functions are:
establishment and maintenance of countries and home destitute,. Establishment,
maintenance and regulation of market meter. Packs and public conveniences while the chapter two is
the literature review of the real property rating as a source of local
government revenue, chapter three finding recommendation and conclusion.
Chapter One
1.0 Introduction
The problem of raising revenue by local government to
meet the requirement and commitment depend on property rating as source of income
in land which the available resources is taxed in various ways by the
government and rating on real property because of it fixity in nature and
substantial revenue is generated from it property, rating is a form of tax
levied on real property of the local level for raising the requirement revenue
to carryout special development project. (Oyegbile 1996) has been found to be
one of the most dependable revenue generating scheme for local government it
tend to be more reliable, steady and productive. Hence it enable rating
authority to predict the amount to be released with the instability of the price
of crude oil witnessed in the world commodity market over the last decades
different tiers of government in the country which has been complacent about
diversifying its forces of revenue are now annual grants to state and local
government from the federal account which is largely funded by oil revenue, had
been dwindling rapidly (Ogbuefi, 2002) it has therefore become increasingly
difficult for local government being the thither of government activity in this wintry to
adequately finance the rapidly growing requirement for municipal expenditure
they now saddle with many responsibility such as provision of schools, market,
rehabilitation of roads, provision of community halls, refuse disposal systems,
water supply, drainage system, street light other local development projects,
property rating therefore seen as the
most valuable alternative source of revenue generated and a positive
development approach towards the realization of feasible and valuable economic
and social objectives inspect of the glaring advantage of these source of
revenue to local government evidence has shown that its effective exploitation
has not been made due to a number of factors.
This project will therefore seen to examine the real
property rating as a source of local government revenue.
1.1 Aim and Objectives
The aim of this project is to examine the real property
rating as source of local government revenue with a view to proffering useful
recommendations.
To achieve the above aim the following objectives will
have to be pursued.
1.
Review of literature on
property rating assessment in Nigeria
local government.
2.
To identity valuation methods
of carrying out rating assessment.
3.
To examine the procedures for embarking
on rating exercise.
4.
To identify special terms and their
uses in rating exercise.
5.
To identify the problems
marking against affective rating exercise in Nigeria.
1.2 Statement of Problem
Evidence shows that property rating is not in existence
in some local government while in some local government it has not being fully exploited
due to variety of problems (Fuanekw, 2006) what most have been the possible
cause for this situation, it is against the background that this research work
is taking to examine some factors militating against effective implementation
of property rating in Nigeria and local government.
1.3 Significance of Study
This project is a critical attempt to identify the
factors affecting property rating as a source of local government councils of
Nigeria with the view of proffering useful recommendation provided here will be
of great benefit to the local government and to those that has not adopted
property rating as a veritable tools for revenue mobilization to do so in order
to achieve the social and economic goals. Other researchers will also find the material
in this project useful as it will serve as a guide for researchers.
Methodology
Since the work is purely a review
of literature in the subject matter, the source of data was basically the
secondary source which included the use of textbooks, conference papers,
seminar papers and electronic materials.
Chapter
Two
2.0
Definition of Terms
Property
Rating
Property rating according to the
Ogbuefi (2002) is a direct tax levied on the owner or occupier of a building or
undeveloped piece of land. it is a tax on the ownership of property. The rate
are based essentially on the size, structure and location of this tax, the
local government readers services to the occupant of landed properties
including refuse collection, water supply construction and maintenance of road
and drainages.
Oyegbile (1996) define rating as “a
form of tax levied on a real property and its normal charge at local level
raising the required revenue to carryout specific development project. He
mentioned that the aim of property rating is to promote the tots well being of
the inhabitants of the local community.
Emengy and Wilts (1972) defines
property rating as “the practice of imposing local taxes on either property
owners or occupier depending on the country in the area concerned and should
therefore be paid by them.
Rating Authority
This are bridge that have the power
to make the level rates on the basis of assessment in respect of the net annual
value of tenement in its rating area to achieve certain government objective,
this includes the control of inflation and deflation all for the purpose of
applying the processed there of to local purpose of a public nature.
Tenement
Means land with building which is
held or occupied as a district or separate holding or tenancy or storage space
occupied for project or business but does not include land without building
(sec 1 (2) Cross River of Nigeria Tenement rating edict No 5 of 1984).
Assessed Value
This means that value at which a
tenement is worth for at the time been assessed.
Net Annual Value
This means that open market rent at
which it is estimated the tenement might reasonably be expected to be let from
year to year as at the date of valuation without any collateral or other than
economic consideration being given taken or promised less reasonable allowance
for the cost of repairs and outgoing necessary to maintain the tenement can
notes rights and interest over a unit of rentable property (Lawal 2015). The
term property rating and tenement rating have been regarded as being synonymous
and have been used interchangeably in this project.
2.1 Origin of Property Rating
The genesis of tenement is from the
British who happen to be our colonial masters in the past it was originally
started about six centuries ago in British as some of charity organization to
assist the poor mainly by monasteries.
It was later taken over by the
state which later culminated into what was called poor relief act of 150. this
taxation continued until the enactment of what was then district and poor rates
into general rate with the act of bedrock of rating was laid in London through the country
municipal urban and rural brought. In Nigeria, the first rating laws were
introduced by British in 1915 and came into free with the assessment ordinance
on Lagos CAP 154 of May 1915 and since then there have been a lot of amendment.
It was there after introduced to the western region through Lagos by way of assessment ordinance CAP 154
of 1954 called. It is also believed to have been introduced to some part of the
North and cast as far backs as 1954 and 1955 out in a different way initially
this kind of local government taxation and called “Development Levy” and later
“Emir Welfare Levy” this levy was charged on owners and occupiers of shops,
hostels, residential accommodation, offices and private schools / hospitals.
This was arbitrarily fixed and collection was unaccounted for in modern Nigeria
it gained importance with the 1976 local government edict. With this edict
place, few state of the federation enacted their own laws.
2.2
Objectives of Property Rating
Some of the objectives of tenement
/ property included among others the following:
1. Property rating as a means of raising revenue
when one look at the among that has been made over the years since tenement
rating commercial in Abuja about 1992, one will agree that it is a major source
of income for the local government or municipal as the case may be. It helps in
the funding of maintenance and sustenance of public infrastructure like access
roads, drainage, refuse disposal, market and public convenience, slaughter
houses, cemeteries, schools, health center
and motor parts. As a matter of facts the Nigerian 1996 local government
reforms or guidelines as in this case noted that rate is the only source of
local government revenue, which can be made yield larger sums.
2. Property rating as a means of developing
control tenement rating could be used as planning control tool. More often than
not, people convert their properties in uses other than those they were
approved for but when such property are rated on commercial basis the owner or
occupier then found at the bill. This type of situation would ensure that
landlord enforce their tenants to keep to the approved use thereby controlling
development.
3. Rate as a tool of redistribution of income:
Tenement rating today remains relevant in our society as fiscal instrument for
redistribution of wealth and income when properties are rated based on the
annual value of the hereditament. It implies that some properties would be rated
higher than the other and this is used for the provision of services in general
this way income derived from the wealthy is transferred serviced to the poor.
4. Rating as a instrument for resources
allocation: Land taxation has the ability to effect on location of financial
and natural resources of the society. It can be used not only to shift
resources from private works and construction to public ones and in this way
also assists in the private sector. In this regard, it can be used to encourage
or discourage a certain types of development levels.
5. Rating as capital formation: if we look at our
economy in this country, one will discover that it is actually starved of high
class industrial and commercial investment which hither would have been ready
source of revenue for financing capital project. It is also important to note
that the propensity of consumer goods in very high owing to low standard of
living. Therefore real estate being one of the investments generally patronized
by the wealthy has significant contribution towards the achievement of national
capital formation through fiscal policy (Estate Digest).
2.3
Principles of Property Rating Assessment
The principle of assessment in
property rating is not different from applied in valuation generally. The basis
of rating valuation in the annual of the hereditament to be assessed. What then
is annual value? Annual value can either be the gross or net annual value. By
definition gross annual value is defined in section 19 (6) of the general rate
act of 1967 as “the rent at which hereditament might reasonably be expected to
left from year to year, if the tenant undertook to pay all usual tenant rates
and taxes and the landlord undertook to bear all cost of the repair insurance
and other expenses if necessary to maintain the hereditament a state to command
that rent”. And net annual equal to the rent at which it is estimated the
hereditament might reasonably be expected to leave from year to year if the
tenant undertook to pay usual. The tenant rate and taxes and also to bear the
cost of repairs, insurance and other expenses if necessary to maintain the
hereditament in a state to command such result. Looking closely at the two
definition, the appear the same except that in net annual value, the tenant
instead of the landlord is assumed to be responsible for repairs, maintenance
and all expenses necessary to keep the hereditament in a state to command that
rent. The following guiding principles as matter of necessity should be
observed in carrying out rating valuation.
I.
The
property been assessed must be deemed to vacant and ready to be let. The reason
for this assumption is to allow all hereditament to be assessed that is the
property is assessed mused be considered with all circumstances actually
existing at the time of assessment.
II.
Secondly
the surveyor has to figure out the bid of a hypothetical tenant. It is possible
the landlord occupies that property for his won particular purpose or it has
been let many years back. The rent actually passing may therefore not be the
true rental value of the property other reason why this might be so include:
a. Payment premium during the last lease
arrangement.
b. Special relationship which might have existed
between the landlord and the tenant or
c. The changing economic situation, which possibly
caused a change in rental value.
III.
Attention
should be paints to whatever the property is in single or multiple occupations.
This is necessary especially in cases where occupiers are ones rated where the
same occupier occupies premises for ancillary purpose it has been decided by
court that such occupation is single even if they are not contiguous to
another. The properties do not have to form a single geographical unit it can
be multiple occupations. Building single occupied like case of block of plats
constitute separate hereditament since they are exclusive occupation by
different users.
IV.
Every hereditament
must be valued rebus – sic – stantibus, that is to say the valuer has to value
the hereditament “in circumstances which they finds it in order words, the hereditament
must be valued in the physical state in which it stands and as if it cannot be
altered. However minor changes of non-structural nature may be assumed.
2.4
Economic Effect of Rating
The modern government saddled with
the responsibility of providing adequate services like roads, water,
electricity, refuses collection, education, market etc. in order to enhance
social which has not been able to accomplished these responsibilities due to
lack of funds. That is not to say that the funds are lacking in the real sense
but because the government has failed to effectively tap the sources of
generating the fund.
Umeh (1972) noted that property
rating as a form of fiscal policy could help the government to achieve a number
of objective which include: revenue raising, social justices, income
redistribution, resources allocation, capital formation, planning development
and economic stabilization.
According to him land has been
taxed for public revenue in many societies and at different level of the
economic throughout history and both sacred authorities and institutions in
various part of the word have exploited it yielding potential. He also observed
that the suitability of land as a source of revenue depends on economic, ethic
practical and other factors. The extent of man’s ownership of land is an
adequate measure of his opulence and ability to features of real estate in an
unearned increment on land value which real estate owners enjoy not because of
their action or government investment but because of government with their actions such as construction of
roads, drainage or the sitting and execution of a major project in the
neighborhood or because of government with their actions or decision such as
zoning a particular area for residential, industrial, commercial or
agricultural purposes.
IT is this unearned increment that
should be paid for. This is done through property taxation. In some circle
where ownership of land is seen as a surplus store of wealth, social justice
demands that such owners be taxed for benefit of the public. By so doing it
will help in the redistribution of income as well as bridging the widening gap
between the rich and the poor. The reasons for using real property as a good
and reliable revenue base cannot be over emphasized.
Oyegbile (1996) pointed out that
real property satisfy the requirement of being a good and reliable revenue base
on the following reasons.
a. Real property is responsible for economic
growth. In many economic of the world, this has been found to be one of the
most enduring characteristic of land. it serves as a good hedge against
inflation. However, it should be noted that in a period of great depression
(when property values are unstable and some true declining) property tax does
not serve as a good source of raising revenue.
b. Property tax is a predictable term that yields
this attributes which makes planning and protection possible.
c. Administration or property tax relates easier
when compared with other forms of taxes especially personal income tax.
d. The cost of collection has always been known to
be cheap unlike other forms of tax the return from collection is usually more
than the cost incurred. This no doubt is a good primary test of any policy
Umeh (1972) justified the
promulgation of property rating edict and its implementation by maintaining
that property rating is the key to the success and advancement of the
government in the development and the advancement of an efficient and
democratic system of local government. This will be well understood if one
appreciates the facts that local government strictly a third arm of the
government with which is entrusted with the responsibilities and power to
perform defined foundation both inherent and ascribed to the people at the
grass roots. It definitely need more steady funds to meet the demands of local
government services. According to him, no government at whatever level can be
founded well without funds. He further argues that the more a local government
is funded the more effective it becomes.
2.5 Factors That Leads To
Ineffective Implementation of Property Rating In Local Government
Based on the finding, the factors
that lead to this is basically lack of political intervention to embark on
rating exercise. Below are some of the problems:
a.
Lack of Rating Department: The research indicated that most local
governments have no rating department to effectively implement rating exercise
in the local government area.
b.
Instability in Government Policy: Research findings indicate that intermittent
charges in government affects the effective implementation of property rating
in most local government. These changes do not create a room for the
formulation and effective implementation of policies. Every administration
wants to experiment organization system but failed because of instability in
the government and economic changes.
c. Lack
of Technical Staff: Information
gathered from questionnaires served to some staffs of the local government
reveals that there are no sufficient technical staffs that are knowledgeable in
the art and science of valuation administration, low taxation and other aspects
of estate managers to carryout property rating exercise effectively.
d.
The Population of the Area: This involves the population of the people in
the rating area. This is because people lay in buildings and the larger the
number of people the likely the number of buildings and the more the
reliability.
e.
Transport Problem: A successful implementation of property rating
must involve the notification to owners of tenement for their assessment. This
is achieved through the insurance of demand notices, which also indicates areas
of payment due to be paid and the centre for collection. Lack of functional
vehicles and inability of the government to hire private commuters due to lack
of fund for the exercise affects the implementation of property rating.
In a state to command and rent
payable there it is founded that where a tenement is affected by rent control
legislation, the annual value shall be equal to the maximum rent payable in
respect of that tenement under legislation.
Valuation List
Is the authentic record of tenement
assessed in a rating area. It contains particulars of all tenement in a rating
area such as; street name, ward code number, page number, assessment code, address
of property, size of accommodation provided, user, and basis of assessment,
assessed value and remark.
Demand Dote
Are the records which describe the
amount assessed and the rate liability of a rate payer to pay. It carries the
official stamp of the rating authority and/or the agent and address of the rate
collection centre.
Hereditament
Hereditament is property which is
or may become liable to rate, being a unit of such property which would fall to
be shown as a separate item in the valuation list. It is the objective or
rating which may be viewed from tow angles, physical and legal aspect.
2.6 The
Prospects of Property Rating In Local Government
The importance of property rating
as a political source of revenue for financing the local government expenditure
in our present day economy can hardly be over emphasized local government area
for a long order to achieve their social and economic objectives. Yet the
effective implementation of the veritable source of revenue has not been due to
a variety of problems earlier discussed in this project. How is the future
going to be for densely populated local government with a lot of statutory
responsibilities for its population.
Now that allocation been granted to
local government are dwindled due to fall in prices of crude oil in the world
market, where would such local government get sufficient fund? How can mean
project emphasized upon at the grass level?
However, the researcher is of the
candid opinion that if the recommendations proffered in this project are
implemented, property rating will come to stay in Nigerian local government
areas as a whole with the vast development in the area, property rating will
play a prominent role in financing the rapidly growing requirement for the
government expenditures in the nearest future.
Chapter Three
3.0 Summary of Finding, Recommendations and
Conclusion.
3.1 Summary Findings
Based on the assessment of real property rating as a
source of local government revenue, the following observation were made.
i.
There is no rating department
in most local government to ensure the effective implementation and administration
of property rating exercise.
ii.
The in internal change in
government does not allow for specialization to ensure that the desired out put
is achieved from property rating.
iii.
There is the general failure to
the proceeds from the services provided for visible community project.
iv.
There is insufficient technical
staff for the effective implementation of property rating in most local
government.
v.
A will is no demarcation
committee to define the boundaries of the local government to ensure effective
implementation of property rating exercise in the area.
vi.
There is little or no awareness
on the part of the ownership/ occupiers on what property rating is hence the
poor reason on property rating.
3.2 Recommendation
Having studied the real property rating as a source of
local government revenue, researcher has proffered meaningful solution which is
effectively implemented; with enhance the revenue of the local government so as
to achieve their objectives the measures on effective implementation of the
rating exercise are elaborately discussed
here under.
1. Establishment of Rating Department
The local government should establish a rating
department, which should be headed by senior valuation officer preferably, an
estate surveyor and values. The government should employ rating attendant and
assistance that have acquired knowledge in the field of estate management this
will reduce their over dependence on ground rent and the local government.
2. Placement of
Target
Even though property rating barely practiced in most
local government areas, it can enhance efficiency and productivity.
A.
Hard working staff should
reward accordingly by the way of
promoting increase in steps industrial trainings or cash award.
B.
Where a collection failed to
collect revenue due to the local government as a result of negligence, appropriate
disciplinary should be taken.
3. Application of
Computer
Considered the nature and ride variety of information
required for successful implementation of property rating which involves lager
numbers of comparable and dissimilar hereditament it becomes property to apply the computer for analysis of field data
valuation processing data storage and retrieval with the aid of computer
information such as the name of the owner or occupier, his address, property
location, the gross retrieved with ease and within a very short time.
3.3 Conclusion
The prominent role which property rating play in
financing the rapidly growing requirement for the expenditures in local
government areas, the study has show that most local government area are to
effectively exploit this variable source of revenue due to a number of factors.
A major contribution factor which ugly situation lies in the lack of effective
implementation of property rating.
The researcher is of the firm belief that if the recommendation in this write up are
implementation, local government in Nigeria will realize their revenue
target on property rating in no distance time. Indeed the prospect of property
rating in Nigeria
will be bright as most of the factors affecting the effective administration of
property rating will be overcome.
Most infrastructural facilities as wee as other public
service well be provided in Nigeria
local government area, the most needed developments which rating revenue will
finance include the grading and maintenance of existing road sinking of boreholes
especially in the villages. Provisions of efficient refuse disposal system and
drainage and a lot more
References
Umeh J.A Viability
and Feasibility of Property Rating
Ogbuefi J.V (2012) Comparative
Property Rating and Taxation. Enugu Institute for Developer Studio
Oyegbile S.O (1996)
Principle
of Property Rating and Taxation. Mina Jameson Graphics Publish
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