This blog is based on a diagnostic report compiled by the African Centre for Tax and Governance (ACTG) with support from the Local Government Revenue Initiative (LoGRI).
Home to a current estimated population of over 230 million, which is projected to nearly double by 2050, Nigeria, like many developing countries, faces a growing demand for improved public services and urban infrastructure, despite significant economic challenges following recent economic reforms by its new government. Investments in public services are costly undertakings, raising the question of how to best finance them.
In recent years, property tax has emerged as an ideal source of revenue generation for local governments. As properties are immovable and highly visible, the tax is difficult to evade and can act as a progressive approach to taxing wealth. However, in developing countries such as Nigeria, property taxes have gone largely underutilized and contribute less than 0.1% of their Gross Domestic Product (GDP) on average. Developed economies, by contrast, often collect property taxes close to 2% of their GDP.
What explains the underperformance of property taxes in Nigeria? Drawing on the findings of a diagnostic report prepared by LoGRI and the ACTG, the blog identifies key challenges and opportunities for reform in three Nigerian states – Ekiti, Kaduna, and Niger State.
An Overview of Nigeria’s Property Tax Administration
The foundation of Nigeria’s property tax system is the 1978 Land Use Act, which nationalized all land in the country and vested ownership in the State. Under this system, landholders are granted a “right of occupancy”, rather than full ownership and formal property rights. Property owners are expected to register their properties and obtain rights of occupancy or leases through the issuance of a Certificate of Occupancy (C-of-O) from the State Governor.
Until recently, property taxes in Nigeria were not a unified tax, but a series of land and property-related levies. Over the past 10 years, certain Nigerian states including Ekiti and Kaduna, introduced legislation to consolidate these fees into a single ‘Land Use Charge’ (LUC). By law, the LUC is chargeable to the owner listed on the C-of-O. However, in practice, obtaining a C-of-O can be a highly expensive and time-consuming process, and most residents do not obtain the Certificate, but are taxed regardless. While Niger State passed similar legislation in 2022, it has yet to collect the LUC as a single tax.
Across states, local governments are then responsible for assessing the value of properties, issuing bills, and collecting property taxes from their residents. However, many local governments have devolved these responsibilities to the state government, in exchange for a revenue sharing agreement, to help surmount internal capacity constraints.
Binding Constraints on Improved Performance
As previously mentioned, Nigeria falls short of its property tax potential. Illustratively, Ekiti generated 47 million NGN (around USD 29,000) in property tax revenues in 2023. Since Ekiti’s GDP is approximately 2.35 trillion NGN (USD 5.82 billion), property tax collection amounts to 0.000005% of GDP. With a population of nearly 3.82 million people, collection per capita is less than 1% per person. Niger fared a bit better than Ekiti, raising 236 million NGN (USD 144,000) in 2023. With a GDP of 4.6 trillion NGN (USD 11.34 billion) and a population of 6.58 million, property tax collection constitutes around 0.000013% of GDP and around 2.2% per person. These fall well below regional the comparable of about 0.2 – 0.4% of GDP from property taxes on average.
Incomplete Property Discovery
Perhaps the largest barrier to improved revenue performance in each state is incomplete and out-of-date property registers. Incomplete property registers reduce the state’s revenue potential and the overall fairness of the system, as a small number of taxpayers are forced to shoulder a larger share of the tax burden.
Seeking to overcome this barrier, Ekiti hired an external consultant to map the state. However, prohibitively high costs have placed the project on hold, leaving only two of the 16 local government areas in Ekiti enumerated, accounting for about 48% of the property in the state.
In Kaduna, property identification is a shared responsibility between the Kaduna Geographic Information System (KADGIS) and local government councils. KADGIS identifies and maps properties within a 50-kilometre radius of the capital, while local government councils are responsible for the identification of those outside of KADGIS’ radius.
However, capacity constraints and data gaps have limited the ability of local government councils to maintain an up-to-date property register. Given these difficulties, only about 60% of properties have been mapped in Kaduna.
Most dramatically, only about 8% of properties in Niger State have been formally mapped. The state still relies on manual property identification methods and has been slow to deploy modern GIS technology. Lack of technical capacity among staff and insufficient funds have also exacerbated these data gaps.
Inconsistent Valuation
While the legislation permits both expert-led market based and points-based valuation methodologies, there is a clear preference for market-based valuations. However, highly incomplete property registers combined with a lack of readily available market data, and a shortage of professional valuers has meant that these valuations are often based on faulty or incomplete information, leading to inaccurate assessments and undermining revenue collection and equity.
The specific situation in Ekiti is even more peculiar. Contradicting the stated laws, tax liabilities are not based on market value or surface area – but are fixed sums based on the property’s location and use. Setting an absolute amount for property owners creates serious inequities and defeats the purpose of property tax as a progressive wealth capture.
Weak Intergovernmental Cooperation
Another key barrier to improved revenue performance in Nigeria is weak intergovernmental cooperation. Infrequent data sharing and weak inter-agency and intergovernmental collaboration have exacerbated information gaps, led to duplication of work, and delayed reconciliation of payments.
While there are 60:40 revenue sharing agreements, in favour of the local governments, in Kaduna and Niger, no such provision exists in Ekiti, creating a potential conflict between local and state governments. Granted, this is not the current situation, owing to aligned political interests between the state and local government leadership. In Kaduna, the local government is entitled to its share of the revenues within 10 days of meeting with the State Joint Local Government Account Committee. While these meetings are supposed to occur monthly, they do not occur as frequently as required, leading to significant delays in fund dispersion and service delivery.
Inadequate Taxpayer Sensitization
A general lack of taxpayer education and public outreach has also meant that taxpayers are not aware of their obligations, how their rates are calculated, how to make payments, or their right to appeal. Incomplete and uneven digitalization has also meant that even if taxpayers are aware of their liabilities, they sometimes do not have the tools or digital literacy to comply. Taxes are already unpopular, and this complexity and opacity of this process further erodes voluntary compliance. In fact, compliance rates are less than 50% in Ekiti and Niger, and less than 25% in Kaduna.
A Way Forward
Since property tax contributes less than 1% of internally generated revenue in each of the study states, there are immense opportunities for growth. To build a strong foundation for reform, each state should take steps to build broad based political support for property tax reform. Given the incredibly low levels of collection, creating and sustaining the political will necessary to conduct reform is essential. Reform champions should be nurtured in the state and federal governments.
From here, Ekiti, Kaduna, and Niger state should leverage Geographic Information Systems (GIS) and digital tools to map and identify all properties within their jurisdictions, and consider shifting from market-based to points-based valuation systems. Specifically, Ekiti should dissolve the current flat rate system, in favour of a more progressive points-based methodology. These reforms would help states expand their tax base and assess properties in a more systemic and objective manner, improving revenue collection in ways that promote transparency and equity.
These technical developments should also be paired with efforts to strengthen intergovernmental cooperation. Roles and responsibilities between agencies and levels of government should be clarified to help streamline tax administration and reduce redundancies. Ekiti should also specify the revenue sharing agreement between the local and state governments, while Kaduna should also commit to holding revenue reconciliation meetings more frequently. This would help local governments access the funds needed to finance their development, enhancing their fiscal autonomy and ability to respond to residents’ needs.
The ongoing national tax reforms presents an opportunity to mainstream the property taxation reforms into the broader country wide fiscal transformation. The Presidential Fiscal Policy and Tax Reforms Committee set up in 2023 emphasizes harmonization, digitalization, and improved coordination between federal, state and local governments. Leveraging the national reforms efforts will assist towards addressing major weaknesses identified in the property tax system.
Finally, the states should each embark on a comprehensive taxpayer sensitization campaign, while simultaneously taking steps to strengthen the link between taxes paid and services delivered. If citizens understand why they are being asked to pay a certain amount and trust the government to use these revenues for the intended purpose, they are more likely to comply with their tax obligations. Engaging with key stakeholders, such as traditional leaders and civil society organizations, can also help build grassroots support for reform.
Taken together, these reforms could strengthen the efficacy, efficiency, and integrity of Ekiti, Kaduna, and Niger’s property tax systems. Improved property tax revenue collection makes way for improved service delivery and infrastructure, which will face higher demand as the population swells.
To learn more about the case of Kaduna state, check out Policy Brief 10 “Diagnostic Assessment of Property Tax in Nigeria – The Case of Kaduna State.”
Photo credit to Abdulrahman Abubakar/Pexels