LAGOS LAND USE CHARGE LAW 2001

1. UNCONSTITUTIONAL
2. UNCONSCIONABLE 

 (Published in THISDAY Newspaper, 3rd September 2002)

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UNDOUBTEDLY, there are sound social, economic and political reasons for a state government to seek revenue through stiff taxes on land within its territory. Lagos State Commissioner Alake in public notices published recently in National Newspapers gave some of these. Governor Tinubu himself, in a recent speech publicized the irksome fact that a mere 150,000 people own 90% of the land in Lagos. This is outrageous. It is trite, that this type of concentration of land ownership signals injustice and extremes of wealth and poverty. It is also true, that prosperity is most widely distributed in countries where land ownership is most widely diffused. Assuming therefore, that high social and political ideals are the paramount motive of our government in championing this law, a responsible commentator must approach analysis with caution. In 1782, Professor William Ogilvie postulated in his seminal article “An Essay on the Right of Property in Land” that “ The municipal laws of every country are not only observed as a rule of conduct, but by the bulk of the people they are regarded as the standard of right and of wrong, in all matters to which their regulations are extended. In this prejudice, however natural to the crowd, and however salutary it may be deemed, men of enlarged and inquisitive minds are bound by no ties to acquiesce without enquiry”. This inquisitive commentator concludes (carefully and cautiously) that the law in question is “too clever by half”, and that it is impeachable on logical, legal and economic grounds.

The legal validity of the law was challenged recently at the High Court of Lagos, in Shell Petroleum Development Company & Anor –v- Governor of Lagos State, Attorney General of Laos State and Eti-Osa Local Government  (Suit No. M/721/2001). The Lagos State government has celebrated the decision of Justice B. Rhodes-Vivour to uphold this law in his 31st May 2002 judgment. Before they can rest however the reasoning must survive scrutiny by at least eight more judges in the hierarchy.

The learned Judge answered the questions framed inter alia, by holding that the power to assess and levy rates on private property in Lagos State was validly and properly delegated to the Commissioner of Finance by the Land Use Charge Law No. 11 of 2001.  According to the Learned Judge, Article 9 of Part 2 of Schedule 2 of the Constitution gives a State Assembly, liberty to confer on a Local Government Authority the function of collecting a tax, fee or rate including all these stated in Section 22 of Law 11 of 2001’’. Dealing with a distinct issue in the same breath, His Lordship concludes that what has been delegated in fact, is “the executive functions of tax assessment and collection, which are not legislative functions” and that this delegation does not offend the constitution. Finally, the power was validly delegated by “written agreement”, which was not produced in court.

The summary of this potentially dangerous reasoning is as follows: “The Constitution did not mandatorily confer powers for rating and levying of assessment on local government. Rather it empowered the state assembly with liberty to do so. That liberty may be exercised in any manner so far as it purports to conform to the constitution. In reality, the state assembly can override the constitution and confer this valuable power on the State Commissioner of Finance.” Respectfully, this reasoning is not supported by the Constitution, and it is contrary to settled law. A more acute danger is that under this liberal scheme of interpretation, almost every provision of the Constitution can be side stepped. What is most curious for a lawyer, is that in reaching this decision, the learned Judge did not find it necessary to carefully consider and distinguish the case of Knight Frank & Rutley Nigeria –v- Attorney-General of Kano State 1998 7 NWLR Pt 556, 1, which was cited to him.

In the Knight Frank case a powerful Panel of the Supreme Court of Nigeria (Uwais CJN, Wali, Kutigi, Ogbuegbu and Ogundare JSC), held clearly that a state government cannot under any law assume (or usurp) functions conferred expressly on the third tier of government by Section 7 and Schedule 4 of the Constitution of Nigeria 1979, which is in pari materia to Section 7 and Schedule 4 of the current 1999 Constitution. The Kano State Commissioner of Finance had purported to enter into a contract with Knight Frank to “prepare a valuation list of all rateable hereditaments for the collection of property rates ……”. An exercise far less radical than that ceded wholesale to the Lagos State Commissioner for Finance by the law under discussion. At page 19A-D, Uwais CJN said “ The powers exercisable by the Federal, State and Local governments have been clearly identified under the 1979 Constitution. With the exception of items under the Concurrent Legislative List each of the three tiers of Government exercises exclusive power over the subject under its control …….. it is clear … that only Local Government Councils have power to assess and impose rates on privately owned property.”. At 26 B Ogbuegbu JSC said that “The House of Assembly may by law prescribe the type of rates to be levied on such privately owned houses or tenements. The assessment and collection of such rates are exclusively the function of the Local Government as guaranteed by the Constitution and not by the State Legislature. Paragraph 1(j) of the fourth Schedule to the Constitution is clear and unambiguous, the State Legislature or the Military Administrator during the present dispensation has no business in the assessment and collection of rates in respect of the premises stated in the said schedule. It will amount to a usurpation of the power of the local government council for the State Government to carry out such exercise or engage any person or authority to do so on its behalf ….. The word “shall” in Section 7(5) of the Constitution is mandatory and the State Legislature or the Military Administrator has no discretion in it.” (Underlining Mine)  Now this view was unanimous, since even Justice Ogundare who dissented only did so on a question as to the effect of the contract itself. He added his own support for the general principle thus as page 35G: “ What I believe the State Government cannot do is to, itself, assess and collect rates”.

This important case considered the very same words relied upon by Rhodes-Vivour J in the Shell Case, and appears also to have conclusively and clearly refuted the rather tenuous distinction, which the learned Judge draws between delegation of executive and legislative functions. The Schedule that the Learned Judge relies upon deals with legislative power and how it is to be exercised, but the substantive part of the Constitution, which the Schedules are meant to support, clearly confers functions and powers on Local Government for the matters now assumed by the Lagos State Commissioner of Finance. The key inquiry is as to what powers are being exercised, and whether a Law of the State House of Assembly can wrest these notwithstanding clear prescription in the Constitution. The power to levy and assess and collect property rates has been conferred on Local Government. The legislative power of State Assemblies to prescribe a legislative environment for bringing the constitutional direction into effect does not authorise them to deprive Local Government of this power by sophistry and clever language. That, however, appears to have been the exact intention of the Lagos Land Use Charges Law.

The Long Title is “A law to make provision for the Consolidation of all Property and Land Based Rates and Charges payable under the Land Rates Law, The Neighborhood Improvement Charge Law and Tenement Rates Law in Lagos State into a new Land Based Charge, to be called Property Land Use Charge, to make provision for Levying and Collection of the Charge and For Connected Purposes.” A simpler and more honest formulation would be: “A Law to Transfer to the Lagos State Government, the Power given to Local Governments by the Constitution in respect of Land Rates and Charges”. Section 1 (2), pays lip service to the Constitution by providing that Local Government shall be the “collecting authority” to Levy and Collect Land Use Charges. The impatience of the draftsman to get to the real intention is palpable however, when in the very next sub-section, the Local Government is abruptly “allowed” to “delegate to the State” its functions. This Subsection directly overrides Section 7 and Schedule 4 of the Constitution in no less dramatic a fashion to that in which Rhodes-Vivour J overrides the Supreme Court decision in the Knight Frank & Rutley case by simply ignoring it! That section is the last time that any reference is made to Local Government. The fact is that under this law, the entire functions are directly conferred on the Commissioner of Finance without even pretence that they are intended primarily for the Local Government. The purported delegation in Section 1(3) is a complete ruse. While clearly all Local Councils in Lagos today are on the same party with the Governor, it may not always be so. Any Local Government that decides in future for example, that it will not agree to delegate, will not be able to function under this law, because only the Commissioner of Finance has power and responsibility under it. If it was genuinely intended that Local Governments would have an option, then they are the ones who would have powers under the Law and they would have something to delegate. Under this law, they have nothing to delegate. This is the clearest indication of the object of the law.

There are other legal and economic problems with this law. The formula for assessment of taxes in Section 5, targets development on the land rather than merely the land itself, in other words, the investment of capital on land. Item BA taxes developed floor area. Item PCR confers on the Commissioner for Finance a magic power, to prescribe a special rate for particular buildings based on the degree of completion of construction. This formula is in itself idiosyncratic and prone to abuse and there is no provision to challenge it. The Commissioner is not obliged to give reasons or to explain the basis of his assessment, and a person affected has therefore limited opportunity to mount a challenge within the limited times provided in the law. It is a fundamental principle of administrative law that an administrative or quasi-judicial body (such as the Commissioner in this regard) must give reasons, or his decision is inherently bad.

The policy of taxing developments on land rather than the land itself implements a social and political ideology that is beyond the scope of Local Government. Governments all over the world (except perhaps in the few remaining communist countries) adhere to roles and functions of government recognised by economic theory for fiscal purposes. The rational basis for land tax is the benefit received rather than the ability to pay. Under this principle revenue raising is not taxation of wealth, for in any community the “legitimate generation of income and wealth through labor, skill and enterprise should be encouraged rather than penalized”. The revenue mechanism ought to allow Local Government to recover the cost of benefits it confers on land as directly as possible from those who benefit from them, and also therefore to ensure that these benefits can be provided at “a uniformly reasonable standard throughout the community”. This law targets wealth and is presently only being levied in so-called “high brow” areas. The targeting and the rates applied are aimed less at developing the economy and providing social amenities in the subject areas than with the redistribution of wealth and the punishment of wealth creation.

Section 7 deals with exceptions. The Commissioner can grant or withhold exception for undisclosed reasons. For example, Item 7(1)(c) refers to “recognised and registered institutions or educational institutes certified by the commissioner of Finance to be Non-Profit making” The question is registered and recognised by whom? Why should the Commissioner have an un-reviewable say. Section 10 authorizes the Commissioner to appoint “any person” an agent of the owner and to recover the charge against him. This means that on the “say so” of the commissioner any person at all can be targeted and bankrupted with reference to any property, even if the property does not belong to him. Section 12 allows the Governor to appoint an Assessment Appeal Tribunal without any stated qualification for membership. A challenge to this body in the High Court is subject to the penalty of 50% payment in advance. This 50% will be distributed by the Commissioner within 10 days of the beginning of each month and will be unrecoverable even if you challenge the very vires of the assessment, or indeed of the law itself. You still cannot appeal unless the Commissioner confirms that your bank payment receipt is “valid”. You can go to jail for “inciting” non-payment by another person (whatever that means) and the tax bears interest that can only be described fairly as usurious.  Although Section 17 allows the Commissioner to apply to court to recover sums levied, and he ought to do so before purporting to expropriate property, Section 20 appears to confer upon him power to expropriate by appointing a Receiver outside of court. The want of due process inherent in this presumed power would offend existing Federal law in many cases and the Constitutional protection against expropriation without due process in all. It is quite clear, that notwithstanding any provision in the law, the appointment of a receiver is an expropriation of property rights contrary to Section 43 and 44 of the Constitution. What is offensive in the power attributed to the Commissioner in this regard is want of due process. In addition, the law offends both against the Constitution and general legal theory because it is a law that does not apply generally, but is targeted by definition and also by operation against an indiscriminately small group. Finally, the Commissioner (not Local Government) has legislative power in the making of further regulations under Section 21.

CONCLUSION

This law is far-reaching and potentially disruptive of genuine economic activity. Regardless of any high minded purpose, or otherwise, the Lagos State Government ought to re-examine this law. The exercise of power under it, calls for caution, careful inquiry and the highest judicial authority.

For the interested parties, two things are clear to an inquisitive commentator. The first is, that in any action, the Commissioner of Finance (not just the Attorney-General) ought to be a primary party to any litigation. The second, is that at an early time the court should be requested to state a reference on the Constitutional issues to the Court of Appeal.

It can reasonably be expected that the Government of Lagos State (under advise of its very distinguished and upstanding Attorney-General Osinbajo) will tread carefully while the many interested parties seek clarifications on this law.

Adeyemi Candide-Johnson
August 2002