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Property Rating Taxation An Efficient Internal Generation

Property Rating Taxation An Efficient Internal Generation by Local Government in Ekwusigo of Anambra State

An Overview of Property Rating and Taxation Principles

Property rating and taxation are very unpopular topics. It is unpopular because neither the rich nor the poor would like to hear anything about it. The general perception of the subject all over the world, Nigeria being no exception is that is an imposition by government.

In contrast, a good government uses taxation as an economic tool of raise revenue for the purpose of providing social services for the entire populace.

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Taxation should also be seen as an important fiscal instrument employed in every modern economy to promote economic activity and growth while it also ensured that there is some level of fairness in the ways all the actors are treated. Every government aims at channeling resources towards important project in the society through taxation, while attempts are also made to support the weak.

In the international arena, taxation is used to secure competitive advantages in an increasingly interdependent world. The thrust of a nation’s fiscal policy can be formulated by government to address the issue of competitiveness. The barometer commonly used in measuring economic activities in the measure stock markets throughout the world is usually influenced by changes in the fiscal policies of the countries concerned. It can therefore not be controverter that a good tax policy is an instrument, which can be used to attract foreign investments.

No wonder Adam Smith enunciated four commons of taxations in his book WEALTH OF NATION”

These are equality, certainty in convenience and economy. They are still very relevant in there administration today. To these could be added productivity and elasticity.

EQUALITY: The subject of every state Oath to contribute towards the support to government as nearly as possible in proportion to respective abilities in relation to income tax, for instance the payer’s ability to pay is measured by his income. But one income may differ considerably from another in the degree of permanence and also in nature of the demands made upon it. The man who derives his income from an investment in sound securities is in the nature of the demands made upon it. The man who derives his income from an investment in sound is in a better position than another who received the same amount in form of a salary, because in the former instance, the income is permanent, while in the latter sickness and other reasons may cause fluctuation if not actual termination.

Again a bachelor in receive of N10,000 a year should be better able to pay tax than a married man who receive the same N10,000 income who has to support a wife and three children out of it.

Nevertheless, a degree of equality is established by means of relief provided by the taxation laws-Taxes can be “Proportional or Progressive” it s proportional if a man with annual income of say N10,000 pays N1,000 tax, than a man with N20,000 pays N2,000 and it is progressive, if a man with N10,000 pays N1,000 i.e. 10%, N11,000 pays N1320 i.e. 12% and N15,000 pays N2,250 i.e. 15%.

Certainty: Taxation should be certain and not Arbitrary (without any plan). The form of payment, the manner of payment, the quality to be paid ought to all be clear and plain to the payer.

Convenience: Every tax ought to be levied at the time and in the manner in which it is most likely to be convenient for the payer to pay. E.g. the payee payable at the end of every month.

Economy: Every tax ought to be contrived so as to both take out and keep out of the pockets of the people as little as possible over and what it brings into the treasury of the state.

Productivity: Taxation should be productive without checking the growth of the fund from which future taxation is to come, it is axiomatic that the purpose of a particular tax must to some degree determine the principles underlying it imposition. For instance, the principles that taxation should be productive without checking the growth of the fund from which future taxation is to come, would not apply where the purpose of a particular tax was to hinder some undesirable form of consumers expenditure. Taxes imposed on alcohol to encourage sobriety would be a case in point. However, it is not intended to review the principles underlying all taxes, but refer only to those general principles that seem to underlying taxation as a whole.

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Elasticity: The yield from a tax should automatically increase in the prosperity of the community, and the rate of tax should be capable of adjustment without interfering with existing machinery of assessment and collection.

Limitation: It is preferable to have a limited number of high yielding tax instead of many with low yield. This permit for a more effective administration and a lower cost of collection.

PURPOSE OF PROPERTY RATING AND TAXATION

In the above sense, the purpose of taxation is to raise revenue. But it may also have a non-revenue purpose, namely; when used as an instrument of economic and social policy. To lessen inequality of incomes. The types of taxes to achieve the objectives are listed below steeply progressive income tax:

  1. Property tax
  2. Sur tax
  • Inheritance tax
  1. To fight inflation.

Taxation can be employed as an alternative to deflation to reduce the volume of purchasing power and so check inflation, through it can succeed only suppressing and not eliminating it. Income tax could be used. Tax on goods and services can be used. By this means purchases could be checked and encouraged or if purchases are made in spite of higher prices, to increase the states revenue.

  1. To check particular import.
  2. To protect infant industries and goods. But there is a danger in making infant industries less competitive.

DANGER OF OVER PROTECTION

There is however, a great danger in making home industries less competitive keen competition makes for efficiency and if infant (home) industries are over protected, there will be lack of improvement on the goods produced by such business houses since purchases will have no alternative and manufacturer will get the price they want.

BASIS OF VALUATION

The purpose of rating valuation, is to arrive at a figure known as an (assessed) value on which rates are levied on a rate payer at so much in the Naira in order to defray expenses of local government subsequently, a tenement rate is levied by a rating authority and (assessed) value which forms the basis of ultimate demand on rate payers together with all other prescribed details of assessment are recorded in the valuation list. A separate list is provided for each rating area and it is maintained and amended as necessary so that there is always an accurate records of each reteable property together with the assessment. No rates will be recovered from any rate payer unless there is an appropriate entry in the valuation list to support the assessed value shown on the demand note. Valuation list is therefore a genuine or authentic record of tenements and assessment within a rating area.

ANNUAL VALUE

The primary basis of trying valuation is therefore ANNUAL VALUE. Annual value is described in the ACT as “The rent at which any tenement might reasonably be expected to let, at the time of the valuation, from year to year, if the tenant undertook to pay all usual tenants rates and taxes and if the landlord undertook to pay the cost of repairs and insurance, with any other expenses necessary to maintain the tenement in a state to command the rent. Such annual value shall not include the value of any machinery in or upon the tenement”.

This annual value is usually calculated from the rental value. Rental value, has been described in the order as “the open market rent payable from year to year in respect of the tenement in question or as established by analysis of comparison of the general level of rent actually paid for that class of tenements in that area or locality. Arranged at arm’s length, in circumstances motivated by pure economic interesting of the parties there to, without any collateral consideration being given taken or promise. Where a tenement is rent. Controlled by the government of this state, the rental value there of shall be deemed to be equal to the maximum rent collectible under the relevant ethics” (edicts).

It must be stated here that other state that have rent-collected edicts. The rental value is equal to the maximum rent collectible under such edicts.

The open market value payable from year to year is the actual rent, which the tenement will let in and agreed terms between the hypothetical tenant and hypothetical landlord who have the actual knowledge of the property market in the rating area. The rent actually paid however, is “Prima facia” only evidence of the open market rent or the annual rental value, as it is not necessary the rent what the hypothetical tenant will be expected to pay. A good example of the rent actually paid that does not represent actual open market rent is a case with long lease, which were granted long time ago if there is evidence that the properties have appreciated in value and will therefore command high rental value.

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It must be noted that the actually paid though the best evidence, is not the measure of value the actual rent pay is no criterion unless it happens to be the rent that the hypothetical tenant will reasonably be expected to pay. What the rating valuer has to find is the fair rental value at the data of his valuation and he is not be unduly influenced by the rent actually passing in respect of the property if the rent is not based on a tenancy expressed in terms identical to that order. The open market rent is not necessarily the rent actually paid but the rent, which a hypothetical tenant may reasonably be expected to pay.

Nevertheless rent actually paid is the best evidence of rent. If that actual paid rent is a rack rent which a hypothetical tenant and landlord on agreement fixed as rent from the property or if such rent is a rent from a comparable tenement, then that is a direct evidence and should be adopted. If no direct or a comparable property is forth coming, the valuer may estimate from his experience the probable rent, which a hypothetical tenant will pay. In determining the appropriate rental value, the use, which the tenement is put, should be considered since such will affect the quantum of rent, which the property will command. The order provides another basis of assessment known as the depreciated capital.

Depreciated capital value of a tenement is the amount assessed to be cost of the replacement of the tenement at the price prevailing at the time of assessment account being taken of age and structural condition of the building. Other basis of rating assessment includes capital value and unimproved value.

CAPITAL VALUE: This means the price, which a purchaser might reasonably be expected to give for the tenement, excluding any machinery upon or in the tenement. Since the making of order. No 28, 1977 capital value is of no relevance to rating valuation in Imo and Anambra state. In cases that do not required rental value, the assessed value is based on the depreciated capital rather than on the outright capital value.

UNIMPROVED VALUE: Means the sum which the owners estate or interest in the bare site if not encumbered by any mortgaged or changes in able realize at the time of valuation in an open market sale. It is however rare to find a bare site rated per see. VACANT AND TO LET

In preparing valuation for rating purpose, certain other basic principles must be observed. The tenement being valued must be assumed to be vacant and to let. This is so because even if the tenement is occupied unless its occupation is on a reasonable rent, the tenement will be assumed to be vacant and free to be let, so that the open market rent can be ascertained.

The tenement is also deemed to be ready for occupation at the date of proposal or of the new list with all the legal advantages and disadvantages which attach to it, and the rent is to estimated on the basis of yearly tenancy one year certain with a reasonable prospect of all existing conditions remaining unaltered for the period of the tenancy.

It is also established principle that for the rating purposed a property is to be valued as it exists at the time of valuation and in the condition and circumstance then existing. This is expressed in the maximum “REBUS SIC STANBUS” That is an existing physical state for example a dwelling house as dwelling, a shop as a shop, and a factory as a factory. The facts that there will be development sometimes in the future, however near the period will be ignored. For example if a property is not fully completed but is capable of being used at its existing state, it must valued as such as will not assumed that it will be completed in a very near future, and the assessment will be based on the knowledge that the actual use of the property remains the same. The future is however not be ignored altogether in as much as the future prospects do actually affect the letting of property at the time of valuation; for example, the prospect of a boom in the future may create a demand for the premises “Rebus sic stantibus” however does not prevent minor changes of non-structural nature. The principle also applies to all properties, which are subject to rating assessment and requires that such tenements should valued in the condition they exist and are occupied and used at the time of assessment.

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REPAIRS, INSURANCE AND OTHER EXPENSES

The annual value has been described as a rent, which a tenement commends with the landlord being liable for repairs, insurance and other expenses to maintain the tenement in condition to command such rent passing.

To arrive at assessed who on which rate burden is placed, the reasonable cost of outgoings not exceeding two-fifths of the rental value, is deducted from the rental value.

METHOD OF ASSESSMENT

Whatever method of assessment that may be used the end product must be the estimate of an assessment value of the property on the basis of the order No 28 of 1977 in Anambra state or other statutory provisions in other state of the federation.

Rating valuation, therefore, is an opinion as to the rental in term and on certain assumption.

RENTAL EVIDENCE

The commonest method of rating valuation is through the rental evidence. This method is to be used in reference to any other method.

There are two types of rental evidence, these are direct rental and indirect rental evidence.

Direct evidence

Direct evidence is based on the actual rent of the actual property under consideration.

It is assumed that the tenant must have compared rents passing on comparable properties around before agreeing on rent of the other hand must have known the level of rent on his property.

Indirect Evidence

If the property is one commonly let in an open market but is not let at the time of rating valuation then evidence of other properties let can be used to find a reasonable rent for the one under consideration.

SOLVED PROBLEM

Value for rating purposes, a block of six flats on Umumpama Road, Amakwa all let at a rent of N12,500 per annum each with the tenant liable for rates and internal repairs. The landlord is liable for all other repairs including repairs to common parts and also for cleaning and lightening of common part and maintenance of gardens.

SOLUTION

Gross rent                                                                      N75,000 P.a

Add-internal repairs and rates                                       N1,000

Fill gross rental value                                                    N76,000

Less landlord services, repairs and insurance                N1,200

Cleaning and lightening of common part                       N300

Light running cost only garden                                                N100

Supervision of services                                                  N500

N2,100

Gross annual value                                                                  N73,900

Less outgoing @ 25%

25     x   73,900                                                            N18,475

100          1

Assessed value                                                                         N55,425

ANALYSIS OF RENTAL

Some certain factors may influence the valuer in determining the correct rental value. These factors include:

Whether there is a personal relationship or business relationship between landlord and tenant.

If there is a trading monopoly which may influence the tenant to pay higher rent than the open market rent due to special favour.

Property Rating Taxation An Efficient Internal Generation by Local Government in Ekwusigo of Anambra State

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