Lessons from Oyo State Experience


Tomori M.A
Bs. (Est. Mgt.), ANIVS, RSV.
Oyo State Rating Valuation Coordinator
E-mail: lolatomori @ yahoo. Com
Phone. No: +234803-726-0502


The urban property tax is potentially an attractive means of financing municipal government in developing countries. As a revenue source, it can provide local governments with access to a broad and expanding tax base. In contrast to the mix of intergovernmental grants and indirect taxes that now dominate local government revenues, it can also promote broader efficiency objectives, linking the provision of municipal service more closely to their financing and rationing the consumption of municipal services by price.

At present, however, yields of urban property taxes in developing countries are extremely low. Its contribution to total public sector tax revenues is negligible, and its share of municipal revenues is typically less than 30 percent.

In part, these low yields reflect failures in the administration of the tax. To an extent , these administrative failures can be addressed through procedural reforms which include improved property tax base coverage, valuation accuracy and collection efficiency that minimizes reliance on the judgment of valuers, and provide incentive to agencies responsible for tax administration.

Recent experience, nevertheless shows that indexing valuation can help maintain the real levels of property tax revenue during periods of inflation. To maintain the real level of tax liabilities, taxing authorities must either revalue annually or increase nominal tax rates. Annual field revaluations, however, are too expensive, and annual tax increase are too politically controversial. Hence, the problem could be addressed by adjusting valuations “from the Office” on the basis of a common inflation indicator. The World Bank expert, William Dillinger (1992) suggested that this solution should be more widely adopted.

This paper shows that the property tax in Nigeria is an underutilized revenue source for local authorities. Potentially, property tax revenue could be increased by 60 percent through effectively improving four critical ratios of coverage, valuation tax rates and collections. Improved property tax revenue could contribute critical resources necessary to enable local authorities to provide the level and quality of services required to sustain and promote further economic and social development in Nigeria.

The breadth of international property tax experience provides an opportunity for Nigeria and other developing countries to learn and adapt the key lessons to the unique legal, political, economic, social and institutional environment in their countries.

However, the first step in any property tax reform effort is to undertake a thorough analysis of the existing property tax system, identifying the major constraints and opportunities for improvement. Based on this analysis, an appropriate reform strategy must be designed, focusing on the policy and administrative dimensions as well as the implementation strategy itself.

The paper is divided into four parts (i) Urban System in Oyo State (ii)Overview of property tax system (iii) Sequence of property tax administration; and (iv) Strategies to achieve sustainable property tax system.(iv) lessons for the development for a sustainable tax system.


Cities and towns are the spatial manifestation of a national economy. The national urban hierarchy consists of all villages, towns and cities within one country, State and Local Government areas, ranked together, they record the distribution of population throughout different levels of the hierarchy.

The economic history of Oyo State, as well as its economic geography, is made manifest in the changing form of urban hierarchy. Oyo State witnessed the rapid growth of many urban centres during the 19th century Yoruba civil wars with Ibadan becoming a primate urban centres while others developed and transformed into District headquarters such as Ogbomosho, Oyo, Iseyin, Okeho, Saki and Kisi.

The emergence of these urban centres results in un-even distribution of economic growth, inefficient infrastructure services and blighted communities where poor people reside. According to the National Population Commission, an urban centre in Nigeria are cities with 20,000 people in 1991. Between 1991 and 1996, Oyo State recorded about 14 urban centres as indicated in the table below with several small towns located in each of the 33 Local Governments such as Moniya, Lalupon, Fiditi, Aawe, Igangan, Tede, Sepeteri, Ayete, Lanlate, and a host of others. Some old villages within Ibadan Metropolitan Area have also become urban centres with no distinct boundary. These are: Alakia, Monatan, Adegbayi, Odo-Ona, Apata,Owode Ogbere e.t.c.

Table 1: Major Urban Centres in Oyo State (1991 - 1996)


City/Metropolitan Area

Local Government Areas

Urban Population

1991 1996



Atiba, Oyo East, Oyo West, L.G.As





Ogbomoso North LGA

Ogbomoso South L.G.A





Saki West L.G.A





Iseyin L.G.A





Irepo L.G.A.





Olorunsogo L.G.A.





Oorelope L.G.A





Kajola L.G.A





Kajola L.G.A





Iwajowa L.G.A





Ibarapa East L.G.A





Ibarapa Centra L.G.A





Fiditi L.G.A










Source: National Population Commission, 1996

However, as at August 1991 when Osun State was carved out of the Old Oyo State, the present Oyo State had 25 Local Governments. In 1995, additional 8 Local Governments were carved out in line with the national directive that 30% of the existing Local Government Areas be created in each state of the Federal Republic of Nigeria. Below is the analysis of Local Government Areas by population size, using provisional population census figure of 2006 released by the National Population Commission (NPC) as the base year.

Table 2: Demographic Data of Oyo State Local Governments by Size (2006)

Population Group

No of L.G.As

Percentage of Total

0 - 49,999



50,000 – 99,999



100,000 – 149,999



150,000 – 199,999



200,000 – 249,999



250,000 – 299,999



300,000 – 349,999






Source: National Census Provisional Figures (2006)

rapid urbanization rate in Nigeria and Oyo State in particular, being the 5th most urbanized state in the country, has exacerbated the relative shifts in market value of property between sections and locations in the cities and between the urban and rural areas. It is an established fact that statutory burden of property tax is, by definition, distributed according to the value of property. This is evident in the high property values in must of the major urban centres in Nigeria where rapid urbanization as taken place. Oyo State is growing at the rate of 3.27% per annum with a total population of 5,591,589 according to the provisional census figure released by the National Population Commission (NPC) in 2006 as against 3,452,720 in 1991.

A close study of atables 1 and 2 would reveal some relationship that exist between the major urban centre (i.e large cities of Iseyin, Oyo, Saki, and Ogbomoso) including Ibadan Metropolitan area and the size of the local governments in the state, especially, those with population above 150,000 inhabitants.

the importance of these large cities and the metropolitan area is that they generally have greater fiscal capacity, than smaller local governments and small towns. Because of the higher level of economic activities, the large cities and metropolitan areas have greater ability to levy income and sales taxes. Also, due to concentration of valuable residential, commercial and industrial property, the cities and metropolitan areas can generate more revenue from property taxes than other smaller towns or rural areas because of the ever-increasing property values which is not available in the less developed areas of the state.

1.1 Objective of the Paper
The paper examines the nature and causes of low property yieLd in Nigeria, especially Oyo State and evaluates the capacity of local governments to generate property tax revenue. It also develops lessons for future development of sustainable property tax system.


Rating originated in England as far back as the year 1601 and was given legal authority by the Poor Relief Act. The payment of rates was for the support of persons unable to maintain themselves.

The modern property tax, according to Glenn W. Fisher (2006) of Wichita State University (U.S.A.), had roots in feudal obligations owned to British and European kings or landlords. In the fourteenth and fifteenth century, the British tax assessors used ownership or occupancy of property to estimate a taxpayer’s ability to pay. With time, the tax came to be regarded as a tax on the property itself (tax in rem). In the United Kingdom, the tax developed into system of “rates” based on the annual (rental) value of property.

The growth of the property tax in America, on the other hand, dated back to 1796 and was closely related to economic and political conditions on the frontiers. In pre-commercial agricultural areas, the property tax was a feasible source of local government revenue and equal taxation of wealth was at the time consistent with the prevailing equalitarian ideology (Glenn W. Fisher, 2006).

In principle, the amount of revenue raised by “rating “ is entirely governed by the municipal expenditures and the system of rating has no connection with it. Every responsible resident should bear his or her share of the expenses incidental to the running of the town administration because everyone derives benefits from the municipal services rendered.

There are different systems of rating in force in different countries. Some countries support American countries, or capital value of land only while others based their rates on capital value of land only while others based their rates on capital value of land and buildings jointly, or separately as the case may be.

Nigeria, India and some Common-Wealth countries inherited the British traditional rating system. The word ‘RATE’ is understood to mean “a tax for local purpose imposed by the local authorities the basis of which is the annual value of lands and buildings arrived at by adopting different recognized models of making the levy”.

The tenement rate laws in Nigeria have in a general way taken the rental value of properties as the basis for imposition of house property taxation. It is the Annual Value (AV) or the Annual Rateable Value (ARV) which forms the basis of such taxation. This is arrived at by making statutory deduction of 25 percent from the Gross Annual Rent which the land or building might at the time of assessment be reasonably be expected to let from year to year.

2.1 Objectives and Principles of Property Taxation:
The decision makers in government are often confesured as to whether to raise money by sales taxes, which have a regressive effect, or by income taxes, which usually have progressive effect. Unavoidably, their judgments will be influenced by a variety of considerations, one of which is Fairness. One standard is taxation according to benefit received, for example when a special district is created to supply water to users and the charge is made on the basis of the amount of water used.

The second consideration is the redistribution of income in the taxing and spending policies of government. In this situation, some people pay more while others pay less than the cost of their benefits, indicating a tendency toward taxation according to ability to pay.

The third consideration is adequacy of government revenues. Government at all levels must be supported and one test of a good tax is whether it will produce the needed money without producing intolerable burdens on particular groups of people.

The forth factor is whether the tax can be efficiently administered. The costs of collection and the opportunities for evasion or unequal treatment become tests of the appropriateness of a tax.

A final consideration is the effect of a tax on the economy. Decision makers at both State and Local levels may be especially interested in avoiding taxes which deter location of industry in their areas. Those at the national level may be interested in whether the tax contain a built-in flexibility so that it bears in prosperous times.

Efforts to increase the responsiveness and accountability of local governments have prompted an interest in reviving the urban property tax as a major source of local government revenue. Fiscal constraints at the central level have reinforced this trend. Central Government’s capacity to finance increasing levels of inter-governmental transfer has declined. Growth in business taxation is constrained by the threat of fiscal competition with higher level of government such as Value Added Tax, Company Tax and Rental Income Tax.

2.2. Other Forms of Property – Based Taxes

In addition to recurrent taxes applied to real estate, non-recurrent taxes based on real Property include Transfer Taxes, Capital Gains, Inheritance and Gift Taxes and Withholding Taxes.

  (a) Transfer Taxes:
There are three main component of transfer taxes or fees, which are based on declared property value, stamp duty, assignment fees and title registration.

(i)  Stamp Duty:
Stamp duty is a levy charged on any document presented to Stamp Duty Office by individuals or corporate bodies. It is used to signify government’s seal or any contractual agreement or deed and the rate chargeable varies according to Document. This is collectable by both Federal and State Governments. The Federal Government collect tax on transactions between corporate bodies while transactions involving individuals are performed by the state.

(ii) Consent Fees:
These are charges imposed on Assignor by virtue of the provision of the Land Use act of 1978 which vested land in the State Governor. The charges varies between 10% to 15% of the open market value of the property or the total consideration.

                                    (iii) Title Registration Fees:
                                    The Land title Registry collects a fee of between 2% to 5% of the reported price on record                                               the new ownership title into land registry book.


(b) Capital Gain Tax/Profit Tax:
 Capital Gains Tax (GGT) is presently chargeable at 10% on Capital gains arising from disposal of assets. The act defines chargeable assets as meaning all forms of property whether situated in Nigeria or not and including:
          (a)           options, debts and incorporeal property generally;
          (b)           any currency other than Nigerian currency; and
          (c)           any form of property created by the person disposing of it, or otherwise coming to be owned without                                 being acquired. In respect of assets outside Nigeria and
                                            (i) disposed by non resident individual or
                                            (ii) trustee of any trust or settlement, or
                                            (iii) a company whose activities are managed and controlled outside Nigeria.

CGT is chargeable on that part of the gains (if any) received or brought into Nigeria when they are dealt with “Capital loss on disposal of any asset is not deductible from capital gains on disposal of any other asset even if both are of the same type.

(c) Withholding Tax on Rent:
This is tax chargeable on rental income of individuals or corporate Bodies. The tax is collectable by both the Federal and State Government collects the tax due on properties rented by corporate Bodies and residents of federal Capital territory, Abuja. State Governments collect tax due on rents of individuals resident in Their states.The enabling law is section 68 of Personal Income Law issection Decree Decree No. 104 of 1993 as amended by Finance(Miscellaneous taxation Provision) Decree No. 39 of 1996. It states thus: “Where a rent becomes due or payable to a person, the payer of rent shall at the date when the tax is paid or credited, which ever first occurs, deduct therefrom tax at the rate of 10 percent of gross rent and shall forthwith pay over to the relevant tax authority, the amount so deducted.”
  (d) Inheritance and Gift Taxes:
The amount of inheritance and gift taxes varies according to numerous factors, including the tax group to which the taxpayer belongs, the relationship to the person making the request or gift, the value of real property being inherited or received, and the exempt threshold amounts. The closer the blood relationship, the lower the tax. The higher the value of the subject property, the higher the tax.


2.3       Policy Targets of the State Government                                                                                                                 
The low yield of propery tax is the combined result of inappropriate policy and poor tax administration. To achieve a sustainable increase in yields, the Oyo State Government took the following steps to address the policy issues and poor tax administration by local governments. The policy issues are aimed at:

2.3.1    Enhancing Local Revenue Generation

Government policy is geared towards enhancing local revenue generating capacity through property taxation in particular, to reduce overdependence on intergovernmental transfers (e.g. Statutory Allocation from Federation Account, Grants and constitutionally guaranteed 10% State Government IGR.)

2.3.2    Stabilization of Two Rates Structure

While increasing the tax rates offer the prospect of quick revenue, taken alone, it exaggerates the inequities in the incidence of property tax as it places the burden of the increase on those few individuals whose property are actually collected. The state government policy is to assist local governments, without breaching the state law, to determine the tax rates for different categories of taxable properties within their jurisdictions virtually; all local governments impose a higher rate on industrial and commercial property than residential and private schools property.

2.3.3    Updating of Property Tax Base
In order to maintain the real level of property tax revenues during the periods of inflation, the State Valuation Office in the Ministry of Local Government and Chieftaincy Matters has the mandate to adopt
indexation of valuation to rateable property in the valuation rolls while new buildings and alterations of existing ones are captured through regular field work.

2.3.4   Improved Property Tax Administration

The tenement rate law of Oyo State provided for the collection of property (tenement) rates by local governments but vested the valuation and assessment of rates on the Valuation Office (a government agency). In order to reduce conflicts in the implementations of the law, a joint tenement rates implementation committee was set up by the State Government to address all issues relating to property tax (rates) administration. Ogun State government provided for the setting up of Tenement Rates Board.

However, while that of Oyo State is made up of Local Government Chairmen representing the eight (8) Rating Zones, the Permanent Secretary of the Ministry of Local Government and Chieftaincy Matters as the Chairman of the Committee, while the State Rating Valuation Coordinator is the Secretary; that of Ogun State Board was made up of Permanent Secretary of the Bureau of Local Governments as the Chairman, Directors of Finance and Supply of Local Governments as members, while the Director of  Valuation is the Secretary. In both cases, the Ministry of the Bureau or Local Government serves as the secretariat for the smooth operations of the bodies.

2.3.5      Human Resource and Skill Development
Property tax administration involves property identification, valuation, billing and collection, creation and management of rate payments. The policy of the state government therefore, was to:

(i)    Ensure the establishment of central valuation office in the Ministry of Local Government and Chieftaincy Matters to assess rateable properties and monitor rate collection performance at the local government level through the establishment of zonal valuation offices by the State Government.

(ii)     Employment of qualified graduates of Estate Management by the State Civil Service Commission to man the offices.

(ii)   In the same vein, Rating Units are established in each Local Governments for the purpose of Tenement Rates collection and documentation of financial records and maintenance of valuation lists and rate defaulters records. Officers of this units are recruited by the Local Government Service Commission which is saddled with the responsibility of recruitment, training and discipline of Local Government Staff.



Property tax is an instrument of denaturalization as well as a source of revenue for local governments. Developed and developing countries do formulate policies on which level of government that will be responsible for property taxation. In the United States of America and Japan, the property tax process has been decentralized completely to local governments for both policy and administrative issues.

In Chech Republic, France and Sweden both functions have been centralized at the National level. However, property tax policy is decentralized while the administrative aspect is centralized. It is the other way round in the United Kingdom where the property tax policy is centralized while tax collection (Administration) is assigned to local governments.

The new land Use Charge Law 2001 of Lagos State, Nigeria put both property tax policy and administration responsibilities in the Ministry of Finance as against the practices entrenched in the former tenement Rate Law of Lagos State, 1989 which created Lagos State Valuation Office that was responsible for policy issue while local governments were vested with the responsibility to collect Tenement Rate as provided in the 1999 constitution of Nigeria.

Assignment of the valuation is a politically sensitive issues when competing Agencies vie for control or local governments. Estonia government assigned valuation responsibility for the Land Tax to the National Land Board and Tax administration and collection to the National tax Board. In other countries, property tax reforms generally have been led by the Finance Ministries as we have in Oyo State during the World Bank Project financed Oyo State Urban Projects (IDF II) including introduction of valuation based property tax. (i.e. Ad-volerem property tax). Where ministries and agencies compete for control, the creation of new departments or consolidation and reorganization of existing agencies may provide a solution. This policy of the World Bank provided ground for the creation of Oyo State Valuation Office in the Ministry of Local Government and Chieftaincy Matters in 1996. The Ministry performs oversight functions over local governments in the state.

The Ministry of Local Government and Chieftaincy Matters in year 2006 established eight (8) Zonal Valuation Offices in the major urban local government areas of Oyo State namely, Ibadan, Oyo, Ogbomoso, Saki, Iseyin and Eruwa.



Property Rating Function


Action and Responsibilities

Performance Index


Tax Base identification and Valuation

To determine what object will be taxed and how tax burden will be distributed among taxpayers

Valuation Office or Consultant to identify land, building and equipment and value them

Amount of taxable property captured and recorded in the valuation list for Local Government


Tax Assessment

To determine how much rate will be levied (i.e. Tax Rate)

Estates and Valuation Division to determine rates to be approved by the Local Government Council

Tax Rate Structure levied according to ability to pay maximum of 10% for commercial and industrial Property and low rate for residential.


Tax Billing

Tax Bills served as legal notice of tax liability of the owner or occupier

Finance and Supply dept. of LG. to print Bills and Receipts Rating Units or Consultant to deliver Bills to owner/occupier

Number of bills served as recorded in valuation list


Tax Collection

To generate revenue and commit taxpayers to fulfil their social responsibility

Rating Unit or Consultant to collect Tax

Percentage of tax collected to the total collectable rate.


Tax Enforcement

To determine how much revenue will be collected through enforcement

Local Government to set up Valuation Courts while the Ministry of Local Government & Chieftaincy Matters provides the operational guideline

Number of cases tried and the amount of revenue recovered by Court.


Tax or Valuation Appeals

To ensure that the tax is equitably administered

Resolve disputes concerning objections to property Valuation or tax assessment through Valuation Appeal Tribunal/Court set up by the State Government.

Number of cases treted and effect on total tax base.


Monitoring & Evaluation

Monitoring compliance with the policy objectives equity and accountability

State to establish Valuation Offices

Improvement in Tax collection ratio and number of cases administered by Valuation Appeal Tribunal and Valuation Courts.

3.1. Property Tax Base Identification
A property tax system involves six major functions as shown in table 3 and these functions are:
        (1) tax base identification (2) tax base valuation (3) tax assessment
        (4) tax collection (5) tax enforcement and; (6) dispute resolution and tax payer service.
These functions are linked to the four critical ratios of coverage, valuation, tax assessment and collection that were identified in the conceptual model of property tax revenue expressed as follow:

Tax Revenue = Tax based *CR *VR *TR *CIR

The knowledge of the size and number of individual buildings including the Location value and type of use and the general occupancy characteristic of the property are of the data needed for property taxation and effective land management.

The administration of property taxes is based on the system of property – related information termed fiscal cadastre. Each record in the cadastre contains the following information:  
                         1. tax identification number (or code) permitting the record to be linked to a parcel on the ground;
                         2. the data to be used in determining the property’s value; and
                         3. the data used for billing and tax collection.

The challenge is to ensure that the basic information on land, land and improvement, or land and improvement together with machinery/equipment depending on the policy choice regarding tax base definition, is up-to-date and accurate, that is to maintain the coverage ratio as close 100 percent as possible.

To carry out discovery and identification of tax base property, the city or an urban Local government area is divided into geographic zones depending on the political boundaries of the local government and the location of employment centre, population of built up areas and community patterns in the metropolis or a city. The arrangement of political wards is equally important as they form the basis of geographical zoning for data collection.

The geographical zone is defined in such a way that each zones provides a homogeneous pattern of land use and housing typology. The boundaries of the zones should be set in a way that the land use patterns within the zones are roughly. Similar in terms of social and economic activities.

3.2. Valuation of Taxable Property:

The legal base of the property tax or (tenement rate) tax defined by the state tenement rate law and consists of land with or without building held or occupied for a beneficial purpose and includes open storage facility, wharf or pier within a local government area.

Value, for tax purposes (rateable value) is defined as the value at which the tenement is assessed in Nigeria, especially in Oyo and Ogun states except in Lagos state where land-use charge has been introduced since 2001.

The basis of valuation is the Gross value of the tenements which is the annual rent passing on the tenement or depreciated replacement cost method and any other authorized method. To arrive at the rateable value of the tenement, the appraiser shall deduct 25% from the Annual Gross Value of the tenement.

3.3. Procedure for Updating Assessment Lists:
The need to discover and incorporate changes in property tax base is particularly acute in Nigeria. Due to the country’s rapid urban growth rate, the tax base is rapidly changing, new land parcel are created through subdivision and expansion of the “urban zone”, new buildings are constructed and existing ones improved; and changes in ownership occur.

To discover and incorporate changes in property characteristics, Nigerian urban local governments do not rely on regularly scheduled general revaluations. Several parallel strategies are instead usedto discover and incorporate the various types of change in the tax base. The most common method is through regular field work or adjustment of the nominal tax rate or make an across-the-board annual adjustment in property assessment at a uniform percentage rate or in inflation rates supplied by the Central Bank of Nigeria.

3.4 Property Tax Coverage:
Tax base identification is a continuous exercise and it goes along with tax Valuation in order to determine how the tax burden will be distributed among the tax payers.

It is essential that property tax coverage is maximized with the tax base being as wide as inclusive as possible. Low levels of coverage can be attributable to several reason such as:

                              (i) the failure of taxable properties being identified and omitted From the valuation rolls as at the time of general exercise;
                              (ii) Political inference resulting in the failure to value properties; and
                              (iii) numbers of exempt properties.

The wider the tax base, the lower the tax rate required to raise the equivalent level of revenue and the greater incentive for voluntary compliance. The number and range of exempt property and these entitled to exemption of favourable treatment needs to be strictly controlled especially government and quasi-government owned building.

There were over 430,000 property units rated all over the state with an essential Revenue of N350million from commercial/industrial property and N176.31 million on residential property. As the property continues to increase in rental value so the rates accruable to Local Governments will increase. This is why local governments need to tap these sources of revenue.

These categories of high income generating property found in the urban areas of Oyo State are listed below. They were compiled by the field officers and consultants in 2006.

(i) GSM Operators (Masts) - 150 Units
            (ii) Office/Shopping complexes - 27.000 Units
            (iii) Industrial property - 360 Units
            (iv) Residential Property located on:
                                 (a) Government Residential Areas - 4,500 Units
                                 (b) Property development Corporation Estates - 6,500 Units
                                 (c) Local Government Schemes; and - 25,600 Units
                                 (d) Private/Company Estates - N/A
            (v) Private Educational Institutions - 2,500 Units
            (vi) Private Hospital/Clinics - 650 Units
            (vii) Banks and other financial Institutions - 156Units
            (viii) Hotels/Restaurants/Fast Food Canteen etc. - 270 Units
            (ix) Petrol filling/Gas Station; and - 550 Units
            (x) Other income generating assets such as Cyber-café, Cinema Hall, Ceremonial Hall - 35 Units

The challenge before the State Government in collaboration with local governments is to ensure that this basic information is up-to-date and accurate, that is, to maintain the coverage of tax base which invariably increases daily as long as the economy improves and remain investors friendly.

However, substantial efforts and ingenuity are required to mobilize the technical and administrative resources to develop accurate property tax valuation list and to update them at regular list and to update them at intervals and to bill and collect property rate effectively in the State. Oyo State should increase its property rate yields to about 60 percent of the total local government revenue to meet the needs of the local governments. This calls for concerted efforts of all the stakeholders, the local governments, the State, the consultants and the taxpayers.

3.5 Adoption of Differential Tax Rates

The main purpose of progressively structured property tax rates is to put a higher share of the tax burden on the more valuable properties and therefore presumably on the weather population groups. As an owner invests in improvements to his property, its value increase as it will be pushed into a higher tax bracket.

Industrial and commercial properties are taxed at 10 percent and than residential properties at about 3-5 percent of rateable values (or assessed values). The justification is that owners of these properties have a greater ability to pay than owners of residential lots, in other words, the main objective is that of equity.

The common industrial and commercial properties found in both urban and rural local governments in Oyo State and other states in the Federal Republic of Nigeria are GSM masts, Petrol Filling Stations, Private Hospitals and Educational institutions, light industries (i.e. blockmaking, sawmills etc) while heavy industries are only found in few major urban centers especially the state capital where there are supporting facilities and ready made markets for the products.

The use of differential tax rates is a mechanism that, if properly applied, can adjust the tax incidence to better reflect the ability to pay particular actors. In addition, it can also be used as an adjustment factor to reflect the level of services provided to specific classes of property in a neighbourhood.

3.6 Tax Collection Procedure
Collection improvement is complicated as it involves a mixture of administrative, legal and political constraints. As a general rule, successful collection depends on adequate collections procedure, the structure of tax, making compliance convenient and non-compliance subject to swift, certain and costly penalties.

Collection can be made more convenient by decentralizing the collection to neighbourhood collections points (as in Ibadan, Lagos, Karachi, Pakistan) Collection can also be made more convenient by permitting tax payments into designated Commercial Banks as now the case in Lagos State under Land Use Charge Law, 2001.

In many countries, problem with collection procedures often grow out of a shortage of skilled staff in the Treasurer’s Office of the Local Government. Other Problem include:

                        (i) Poor Coordination between the assessor’s (Central Valuation Office) and Treasurer’s Office in the Local Government.
(ii) No follow-up mailing or visits to major tax delinquents; and
(iii) Inadequate record of property owners and tax delinquents that could easily be identified for prosecution.

Legal liability for the property tax rests with property itself. The determination of legal ownership is not a precondition to imposing the tax.

The production of revenue ultimately depends on effective system of billing and collection. This aspect of property tax is often overlooked in favour of reforms in the discovery and evaluation system. The objective of a billing system is to fulfill the taxing authorities legal obligation to notify the taxpayers of his ability. Success depends as much on the legal definition of liability as it does on the mechanics of producing and delivering the bill. In order to relieve the taxing or rating authority of the obligation to prove legal ownership, the law permits the rating authority to impose rate levy and the penalty on the owner/occupier in beneficial. Occupation at a particular point in time.

The mechanics of billing consist either of positing the list of assessments in a public place or attaching a bill to the physical premises of each property with concern for whether the bill has been received by an absentee owner.

Where property is being assessed for the first time, the assessor or appraises is required to notify the owner or occupier, by having the notice of assessment or bill delivered directly or through registered mail. Inability to deliver the notice of assessment or bill to the owner does not relieve the property of tax liability. Below is table 6 for collection efficiency analysis of property tax:

Table 4: Property Tax Collection Efficiency in Oyo State (1977 - 2006)


Tax Rate




N : K

Amount of

Tax Collected

N : K



N : K

Total IGR

N : K

Rate %








































































Sources: Oyo State Valuation Office and Local Government Inspectorate, Ministry of Local Government and Chieftaincy Matters, Ibadan.

3.7 Enforcement Mechanism:
Lack of special courts for the Local Authority has been cited as a serious impediment in Lagos, Nairobi and Oyo State especially Ibadan South West Local Government, since the regular courts has been unable to dispose speedily of appeal or tax enforcement actions such as expropriation. Because of such delays, some India cities have in the past negotiated the amounts to be paid (Baw 1975). In Anambra State, Dillinger 1988 a:35), Nigeria, property tax cases have been dismissed for want of a judge to try the case.

A credible system of penalties is usually necessary for effective collection of rates. Such a system requires a timely method of discovering delinquencies and imposition of still penalties for non-payment. The Local Rating Authorities are legally authorized to take enforcement actions whose consequences would outweigh the cost of paying an outstanding property tax bill (e.g. detrains of property or goods, imprisonment, sealing of premises).

One other difficulty, which inhabits enforcement, is that tax is not levied on property but on the owner or occupiers; that is, the tax is in persona not in rem. This means that the owner or occupiers has to be located and brought to court in order to institute proceedings for non-payment of taxes. To avoid prolong litigation on disputed land title, the law usually impose rate liability on occupier who enjoys beneficial occupation.If taxpayers are aware that the body responsible for collecting the tax is both willing and able to enforce payments, compliance is likely to be considerably enhanced.

Another possibility to increase collection rates is to provide a set of positive inducements. In many countries (Colombia and Phillippines are examples). Cash discount have been provided for early payments.

3.8.  Property Tax Revenue Sharing in Oyo State

Reliance on Local governments for collection of property taxes has been a failure, therefore, alternatives are needed, including the use of professional valuers who in the past have performed well. This informed the Ministry to appoint Property Rating Consultants for the eighteen Urban Local Governments in Oyo State where property rating implementation had been successful since the introduction of Ad-Valorem Taxation in 1995 under the World Bank Assisted Oyo State Urban Projects (IDF II).

However, if further efforts are to be made on property rates administration in Oyo State, it should be a joint effort of the State and the 33 Local Governments. It is also pertinent to stress that, it is essential to devise an agreement that gives both parties (the State and local governments) adequate incentives to deliver results.

This need to improve efficiency in tax administration informed the State Government in 1997 to adopt Lagos State Government strategy of sharing property tax with their local governments. The local governments in Oyo State subsequently agreed on a sharing formula as an incentive for Oy State Government investment in the astablishment of a central valuation office, and other infrastructures for monitoring and evaluation of property rates collection performance at the local government level. The sharing formula is as follow:

  • Oyo State Government - 20%
  • Valuation Office - 2%
  • Local Governments - 78%
    The sharing arrangement of property rates revenue was incorporated into the amended Tenement Rates Law Cap 160, Laws of Oyo State in year 2000.

3.9 Geographic Distribution of Property Tax Burden
The rapid urbanization rate in Nigeria has exacerbated the relative shifts in market value of property between sections and locations. It is an established fact that the statutory burden of property tax is, by definition, distributed according to the value of property this is evident in the high property values in most of the major urban centres in Nigeria where rapid urbanization has taken place. If these relative shifts in property values were captured in the valuation list, these would have been major reallocation of tax burden among ratepayers in various urban local government areas. There is empirical evidence from data collected so far that ratepayers in local governments with rapidly increasing land values were required to pay a higher proportion of tax burden (total assessed value) while those with less rapid growth have reduced their relative contribution to the total tax collectable in Oyo State as shown in table

Table 5: Distribution of Tax Burden Across Geographic Zones in Oyo State, 2006


Selected Local Government

Total Assessed Value as at 2006

Actual Tax Collection 2006

Tax as a Percentage of Total IGR

Ibadan South West




Ibadan North
















Oyo East




Ogbomoso South




Ogbomoso North








Saki West








Ibarapa East




Sources: Oyo State Valuation Office, Ministry of Local Government and Chieftaincy Matters, Ibadan (2007)

The current tax burden distribution among local governments in Oyo State is still based on 1977 allocation of property values in the valuation list except in Ibadan eleven local government areas where the consultants reviewed the existing Valuation lists for commercial and industrial; property. The current practices of relying on increases in normal tax rates does not pick-up the relative changes in property values and the shift in tax burden. Unless these relative property value changes can be captured through frequent revaluation, taxpayers equity cannot be maintained.

The revenue capacity of local government also vary as a result of difference in local resources available especially non-tax revenue sources such as licenses fees, revenue on commercial undertakings. The availability of non-tax revenues has reduced tax efforts and consequently the need for property tax collection. Moreover, intergovernmental transfers constitute between 80%-90% of total revenue going to local governments inn Nigeria thus limiting the contribution of property taxes to local government finances. The table below shows the resources available in selected local government areas that accounted for high revenue generation from property tax in Oyo State.

Table 6: Distribution of Taxable Commercial and Industrial

Property Across the five Geopolitical Zones of Oyo State


Types Of Property







Oke-Ogun Zone



G.S.M. Masts












Petrol Stations






Shopping Complex






Private Nursery Sch.






Private Sec.School






Private University






Private Hospitals






Hotels/Guest Houses






Industrial (Light/Heavy)






Banks /Finance Houses






Food Services





Geographic distribution of high revenue yielding property such as Banks, Industrials Petrol filling stations etc, has positive effects on the economy of local governments where they are located in term of revenue generation. Unfortunately, federal and state governments are not paying the statutory money-in-lieu of tenement rates on institutional and administrative property located in local government areas in Nigeria thus denying them of their legitimate sources of revenue.

Lack of adoption of differential tax rates for less privileged or economically disadvantaged local governments also contributed to negative response of ratepayers in these local government areas as we have in other countries. For example, local authorities in Kenya tend to use a uniform area rate or a uniform tax rate structure (Roy Kelley, 1999). The tax rates ranges from (0.02 to 0.13) or (2% to 13%) applied to the values contained in valuation list. The media tax rates are 7 per cent for municipalities and 5 percent for both towns and countries.

It is widely accepted that urban property tax is best suited to generating revenue to finance local government infrastructure investment and provision of urban services. It is an appealing revenue generating option for developing countries because of the untapped potential accumulated wealth tied to real estate. Property tax is hard to avoid legally due to its high visibility and immobility.

However, despite this recognition, property tax is not exploited to its fullest extent, primarily, due to weakness in property assessment and its administration, especially, the collection and enforcement aspects by the taxing authority. In essence, the guiding principle of property tax reform should be to ensure the long term sustainability and generation of adequate revenue from this source in an equitable manner.

Given the experience of Oyo Stat in Nigeria, in relation to implementation of World Bank assisted valuation based property rating (i.e Ad-Valorem taxation), since 1995, there are a number of lessons or strategies that are important to other states in Nigeria as well as other developing countries.

4.1 Property Tax System should be Considered as an Investment

Both the states and local governments in Nigeria should undertake a transparent evaluation of expenditures on property tax reform in a manner similar to the way they would assess the return on other capital and financial investments. The relationships between the revenue generated and the cost of raising the revenue needs to be carefully weighed.

It is fundamentally important that local governments should consider the property tax as an investment that can deliver significant annual returns, the system needs to be cost effectively maintained. It is common for governments to initially invest in producing valuation rolls and then collect annually the tax revenue without any further system investment or regard to the currency of those valuation rolls.

Tenement rate laws in almost all the states in Nigeria, normally incorporate provisions for the revision of valuation rolls every five years. Oyo State tenement rate law, however, incorporates provision for annual valuation or assessment of new property, newly renovated property or at the request of new owner/occupier and properties omitted during the general assessment.

4.2 Broad Definition of Tax Base
Broadening the definition of what is taxable can also increase the yield of property tax Exemptions and favourable treatment for particular types of property can remove significant contributions from the property tax base.

There is no justification for exempting taxation of vacant land in Nigeria based on the assumption that vacant land receives no services or that there is no occupier to enjoy the services provided by the local council. On the contrary, vacant land in the urban centres continues to increase in value as a result of development going on in the neighbourhood and the network of roads, street light and public utilities provided by public authorities.

In Jamaica, the legal basis of the property tax is the unimproved market value of the land, that is, the value of land as it would be if there were no improvement (structure) on the site.

The definition of tax base in Oyo State (Nigeria) is “land with or without building held or occupied for a beneficial purpose and includes open storage facility, wharf or pier”. However,, this definition does not provide for rating of vacant land in the local government area not held for a beneficial purpose, that is, not in use for any purpose at the time of valuation.

4.3 Billing and Collection Efficiency
Success at collection is essentially a matter of information management and leverage, that is, knowing who owes what, and having the means and incentive to include them to pay. There are two targets for reform: (i) the legal framework defining what is liable, what constitutes notification and what penalties may be imposed; and (2) collection administration in managing the production of bills, the monitoring of payments, and the pursuit of delinquents.

4.3.1 Defining Tax Liability
For tax purpose, the sole objective in defining tax liability is to make the tax collectable and to find a person to whom the taxing authority can apply sufficient leverage to extract the tax. The first decision to be made is whether to designate the owner or the occupant as liable. In Brazil and Nigeria, the owner is defined as liable, but ownership usually include anyone in beneficial occupation of the property (W. Dillinger, 1992).

4.3.2 Define Notification as Delivering the Bill to the Property
If the law requires the owner to be notified in person, finding the owner can be a major obstacle to the imposition of the tax. In Abidjan, for example, an estimated 40 percent of tax bills are uncollectable because the owner’s address is not known (Dillinger, 1992).

Two measures can address this problem. First, the taxing authority can be absolved of the legal obligation to personally notify the taxpayer as a condition of imposing the tax, by defining legal notification as delivery of a bill to the taxable property. In Nigeria, the tenement law provides for the delivery of a tax bill to the taxable property, even to the extent of pasting it to the door if no person is willing to accept receipt, constitutes legal notification.

A secondary level of liability can be imposed upon the occupants of the property. Tenants have the virtue of being on site. In Oyo state, a beneficial occupier of a property is primarily liable to pay tenement rates while that of owner is secondary unless the owner occupies the property; then, he becomes primarily liable to pay the rates.

4.4 Improve Coverage of Taxable Properties
It is essential that property tax coverage is maximized with the tax base being as wide and as inclusive as possible. Low levels of coverage can be attributable to several reasons such as the failure of taxable properties being identified and omitted from the valuation rolls, political interference resulting in the failure to value properties; numbers of exempt properties. The wider the tax base, the lower the tax rate required to raise the equivalent level of revenue and the greater incentive for voluntary compliance.

Coverage of taxable properties necessitates the requirement to gather data on each property that can be used within the valuation and collection process. Such data relates to the physical characteristics of the property and details on ownership and occupancy. The real challenge for the central valuation office that is directly involved with the property tax assessment is to ensure that this data is kept current and up-to-date.

The number and range of exempt property and those entities entitled to exemption or favourable treatment needs to be strictly controlled. In particular, the concept of exempt public property needs special consideration given that government and quasi-government bodies in developing countries still own significant numbers of buildings Granting government full exemption based on ownership can and does impact significantly on municipal revenues. Exempt buildings still use local services and generate costs to local government authorities. Where government bodies retain exempt status there should be payments in lieu of taxes made to the municipality.

The main purpose of progressively structured property tax rates is to put a higher share of the tax burden on the more valuable properties and therefore presumably on the weather population groups. As an owner invests in improvements to his property, its value increase as it will be pushed into a higher tax bracket.

Industrial and commercial properties are often more heavily taxed than residential properties. The justification is that owners of these properties have a greater ability to pay than owners of residential lots, in other words, the main objective is that of equity.

If lower taxes are charged on industrial and commercial properties, it is usually with the purpose of encouraging and attracting business investment in a particular jurisdiction.

To achieve these objectives, property taxes must have constituted a significant part of the affected industry’s costs and the tax brake must be significant and sustained.

The common industrial and commercial properties found in both urban and rural local governments in the South Western zone of the Federal Republic of Nigeria are GSM masts, Petrol Filling Stations, Private Hospital and Educational institutions light industries (i.e. blockmaking, sawmills etc) while heavy industries are only found in few major urban centers especially the state capital where there are supporting facilities and ready made markets for the products.

As an owner invests in improvement to his property, its value will increase and it will be pushed into a higher tax bracket. This is likely to act as disincentive to more intensive use and development of the land and as such implies a distortion in the allocation of resources.

The use of differential tax rates is a mechanism that, if properly applied, can adjust the tax incidence to better reflect the ability to pay particular actors. In addition, it can also be used as an adjustment factor to reflect the level of services provided to specific classes of property in a neighbourhood. For example, commercial and industrial properties are taxed higher than residential property.

However, the inequity in the distribution of land and building has been regarded as the most important source of the ever-unending gap between the have and the have-nots. The objective of tax reform is therefore to reduce tax induced distortions in the allocation of resources arising from the narrow tax bases, multiplicity of rates and uneven enforcement and compliance. The initial goal of property tax reform was revenue neutrality (i.e. tax that avoids distortions of the market) in the short-term anticipation of broadening the tax base and lowering tax rates. It is envisaged that, the reform proposals would make the system capable of generation additional revenue through improved tax administration, tax compliance and a more effective land and building tax.

Property tax system also often exempt low value residential property due to administrative cost of assessment and collection. However, where small, low value properties constitute a large proportion of the real property assets in a city, tax administrative could adopt extremely simple valuation methods for typical units (e.g. point system or flat rate assessment ), thus bringing the properties into the tax system at the lowest possible cost.

Many countries also permit preferential rates to owner occupied residential property or even adopt low assessment ratio. The rational for preferential treatment is either to encourage home-ownership or on ability-to-pay grounds. This category of property does not generate rental income hence the occupants are less able to pay recurrent rising property taxes. This preferential treatment does, however, represent a subsidy to middle and income groups, which account for the bulks of owner-occupants living in a city including the retired pensioners with limited income.

4.6 The Carrot and Stick Strategy
Kelly (1998), suggested that a comprehensive collection and enforcement system needs to rely on a combination of three mechanisms, firstly, incentives to pay, secondly, sanctions and thirdly, penalties.

The principal objective must be to provide incentives so that the majority of taxpayers comply by the due date. The incentives can range from discounts for prompt or early payment to visible signs of the expenditure of revenue locally. That is, expending property tax proceeds on physical development of infrastructure services in areas where the tax is collected.

Sanctions need to be applied to those taxpayers who have not paid by the due date and as such can include the withholding of tax clearance certificate and denial of enjoying the services provided by the local council.

Where sanctions have failed, the next stage in the enforcement process is to initiate action in a special court to impose penalties and fines for breaching property rate offences and ultimately seizure of personal and real property.

For the collection and enforcement system to be effective, timely and rigorous implementation of the three enforcement mechanisms as pointed out by Kelly (1998), which should create an environment for greater compliance, is critical.

4.7 Tax Education Programme
Tax collection at local government level has a number of advantages including the incentive to collect the incentive to enforce against delinquent taxes, local knowledge and local accountability.

The collection system requires the development of an effective information management system that can handle the taxpayers database. It is essential to know accurately that all taxpayers have been sent a tax bill by the statutory date (i.e. January 1), who have paid what has been paid, the level of delinquent taxes, accrual of penalties and what enforcement mechanisms have been involved. This is the reason why Rating Units are being established in all the local governments in the State and Valuation Courts are set up to enforce rate payments.

Local government therefore, has the responsibility and sacred duty to print rate bills receipts and record books ahead of January each year when officers and rate collectors are supposed to be in the field to inform taxpayers of their rate liabilities.

In this era of free education and other social services from the government, people may not understand the rational for paying property tax. Councilors and even enlightened members of the community themselves are sometimes ill-informed about the rational for property taxation. Therefore, taxpayers education programme is an important component in the mobilization of the taxpaying community.

4.8 Political Will
Despite the potential of property tax as the most lucrative local taxes for urban local government, it is extremely prove to political interference and corruption. The reason is that, tax would tend to fall most heavily on wealthier property owners (given progressive rates) who normally are more politically active. Therefore, strong political commitment and capacity building for key political functionary are essential if the property tax is going to have public credibility.

Political interference can significantly affect the operation of the property tax to the extent that ordinary taxpayers lose confidence in the fairness of the tax. This can result in wide spread unrest and ultimately encourage the taxpayers in deciding to withhold payment. Governments therefore need to balance the need to maintain political legitimacy with the fiscal imperative to raise revenue (Rosengard, 1998).

4.9 The Use of Computer Technology
The property tax is a tax that must utilize computer technology in all its facets from data collection, valuation, billing, collection and enforcement. The property tax base are so numerous, with each property having a significant number of attribute data.

Computer-base geographic information system (GIS) is increasingly being used to collect, store, analyze and display maps and other spatial information. A GIS can help to improve the management and use of this information at all levels of an organization. One of the most important advantages of a GIS is the possibility of combining data from different sources and of exchanging information between organizations.

Most importantly, 70 percent to 80 percent of the information and activities concerning local governments are location related. A GIS can provide support to the management and use of this information at all levels including operational, managerial, and decision and policy making. These applications are not restricted to property assessment and taxation but include; property management; land-use planning and development; environmental protection; planning and management of services such as transportation n, police and utilities; facility management and mapping. Digital mapping and GIS technology automation of the Lands Registry are already embarked upon by Oyo, Ogun and Lagos States in Nigeria.


1. Roy Bahl and Johannes Linn

Urban Public Finance in developing Countries
( New York: Oxford University Press, 1992)

2. Bengt Paulson (1992) Urban Applications of Satellite Remote Sensing Remote Sensing and GIS Analysis published by the World Bank, Washington D. C. and Urban Management Programme
3. Dillinger, William

“Urban Property Taxation: Lessons from Brazil” Report INU-27 (Washington D. C. World Bank, 1989)

4. Dillinger William

“Urban Property Tax Reform Guidelines and Recommendations” (Washington D. C. World Bank 1991) World Bank Urban Management Programme Tool


Government of Oyo State (Nigeria)

Tenement Rates Law Cap. 160, Laws of Oyo 2000 and formerly, Edict Gazette No. 3 of 1995 published in Oyo State of 6/11/95.
6. Glenn W. Fisher of Wichita State University (Emeritus)

History of Property Taxes in the United States 3/25/2006 www.ch.net) encyclopedia/article/ fisher; property tax history. US.

7. Government of Oyo State (Nigeria)

Local Government Annual Treasury Board meeting for Fiscal Year 2000/2007 (Ibadan: Ministry of Local Government and Chieftaincy Matters, 2008)

8. Kelly Roy

Designing a Property tax Reform Strategy for Sub-Saharan Africa: An Analytical Framework Applied to Kenya (Development) Discussion Paper No. 707, June 1999. Harvard Institute for International Development, Harvard University.

9. Professor Akin L. Mobogunje

“Land Management in Nigeria: Issues Opportunities and Threats “(Being Text of a Land Paper presented at the National conference on “Land Management and Taxation” organized by the Department of Estate Management of the University of Lagos as part of its 2002 activities held at the Unviersity Conference Centre on Tuesday, July 16, 2002 at 11.00am).

10. Paul Sanderson

Introducing a Local Property Tax: The Bulgarian Valdep Project – A paper presented Paul Sanderson, supretending Valuer, Valuation Office Agency London, England to the Committee on Human settlements meeting of Officials an Land Administration.

11. Tomori M A.

The Challenges of Urban Property Tax Administration in Nigeria: A paper Delivered at the Seminar organized by the Development Policy Centre, Aboyade House, Agodi, GRA.

12. Tomori M. A.

Principle and Practice of Urban Property Taxation, Printed and Published by Business Mirror Newspapers, Ibadan Oyo State ISBN – 978-006-069-3 February, 2001