CHAPTER ONE 1.0 1.

1 INTRODUCTION BACKGROUND OF THE STUDY

The increase in urban population in Nigeria has brought about increase in the demand for urban services (improved road network, more schools, places of relaxation, electricity, water supply, amongst others) and put local councils under increasing financial pressures. The three tiers of Government (Federal, State, and Local Governments) are usually responsible for putting these services in place. It is for this reason that Federal and State Governments are expected to make allocations to Local Government authorities to meet their capital and recurrent expenditures to improve the quality of life of their people. However, as Ekpo and Ndebbio (1998) pointed out, the allocations from grants made by Federal and State Governments alone cannot finance all the expenditures of the Local Government as local authorities still find it difficult to meet both capital and recurrent commitments. The failure of statutory allocations to meet the needs of municipal councils has refocused attention on Local Government to fashion out other sources of revenue for the development of their areas (Kuye, 2002). The most prominent of these sources is tenement or property rating. Property rating refers to a form of property tax levied at the local level, for raising the required revenue to carry out specific projects such as the provision of roads, electricity, health facilities, amongst others. It impinges on the income accruing from property (real estate) annually. Property rating is statutorily defined and its origin can be traced back to the Poor Relief Act or the Statute of Elizabeth of 1601 in the United Kingdom (Oyegbile, 1996). Apart from this legislation, other laws had come out to give effect to and 1

regulate the standard of property rating in that part of the world. In Nigeria, property rating came into force with the enactment of the Assessment Ordinance of May, 1915, he further stressed. Following these promulgations, several States in Nigeria, have come up with edicts and legislations to guide property rating administration within their territories. The legislation for Niger State, where the Study area is situated, is the Tenement Rating Edict No. 3 of 1995. These laws provide for the procedures and techniques (method) for the assessment, collection, and appeal so that the practice of property rating should not be misguided. However, some procedures have also been implied over the years by Local Authorities levying the rates. From a general perspective, valuation inaccuracies occur as a result of insufficient manpower in rating valuation units within local governments and the award of rating assessment to persons who may not possess the required skill in valuing properties. Consequently, resulting in a situation where ratepayers evade or avoid rate payment as a result of overbilling or in the case where hereditaments are undervalued resulting in reduced revenues for the Local Government Authority. According to Oguefi (2004), this is as a result of the lack of manpower that is professionally trained to execute rating administration as he complained that very few local governments have qualified Estate Surveyors and Valuers within their employ or lack them is most instances. Thus, the research work seeks to evaluate the appropriateness of the techniques used in the rating valuation of commercial properties in Minna and environs. 1.2 STATEMENT OF THE PROBLEM

Generally, property rating is a veritable source of revenue by which local government authorities meet her recurrent and capital expenditures. At present, however, yields of urban property taxes in developing countries are extremely low 2

(Tomori, 2007). Particularly in the Northern part of Nigeria, property rating have not been harnessed to its full potential as a good source of revenue by which Local Government Authorities meets its capital and recurrent expenditure. However, major problems are usually emphasized concerning property tax in developing countries. These emerged in the Nigerian study as well as in other studies and writings on the subject. These three problems arevaluation, assessment and collection (Gboyega, 1990). This had been creating unrealistic revenue potential from the tax. These problems stem from the personnel involved, his skill and the techniques employed. There has been no research regarding this problem hence, this study wants to investigate the mode of assessment or valuation employed by Local Government between 2000 and 2009 to ascertain to what extent this has affected the general success of the property rating exercise in Minna. 1.3 AIM AND OBJECTIVES

The intent of this study is to ascertain the appropriateness of the techniques used in the rating valuation of commercial properties between (2000 2009) within Minna and its environs. To achieve this aim, the following objectives would be adopted: 1. To identify the personnel involved in property rating assessment. 2. To identify the techniques adopted in the rating valuation of commercial properties within the study area. 3. To ascertain the appropriateness of the techniques used in the rating valuation of commercial properties in relation to the techniques that have been prescribed for such properties.

1.4

NEED FOR THE STUDY

The need for property rates arises in order to supplement the Local Government finance in the provision and maintenance of basic services and amenities. However, this revenue have not been optimized in recent times to achieving these needs as a result inadequate funds realized due to under valuation or misappropriation of collected funds. It is against this backdrop that this research study seeks to study the appropriateness of the techniques adopted in the rating valuation of commercial properties in Chanchaga and Bosso Local Government Areas, located in Minna and its environs. The knowledge of the accuracy of the techniques for the assessment of commercial properties will aid stakeholders in property rating administration in significant implementation measures and strategizing as well as understanding the best approach to adopt in the rating assessment. 1.5 RESEARCH QUESTIONS

The circumstances of this study within the case study areas naturally brought the following questions: 1. Who are the stakeholders involved in property rating assessment within the study area? 2. What are the techniques used in property rating valuation of commercial properties within the area? 3. What are the reasons for adopting these techniques? 4. Are these assessment techniques appropriate?

1.6

SIGNIFICANCE OF THE STUDY

This study seeks to evaluate the accuracy of the techniques used in the rating valuation of commercial properties in Chanchaga and Bosso Local Government Areas of Minna and its environs. Its importance cannot be overemphasized as it will address the correctness of skills, procedures and method used in the rating valuation of commercial properties within the study area as this is a major contributor to the problems of property rating administration, if not correct. Also, this study would make effective again the estimated revenue from property rating which had been hindered and mitigated as a result of the lack of correctness of the techniques adopted in rating valuation of commercial properties. Furthermore, this study would proffer the most appropriate techniques for rating valuation of commercial properties, having exposed the appropriateness of techniques adopted presently. 1.7 ASSUMPTIONS AND LIMITATIONS

1.7.1 Assumptions This research study is based on the following assumptions: 1. That the research will be carried out without undue bias. 2. Those respondents who will fill questionnaires and responded to interviews are knowledgeable about the property rating exercise and their environment. 3. That data obtained from textbooks, journals, internet, etc. are also assumed to be correct and any gap in knowledge would be identified.

1.7.2 Limitations of the Study Certainly, academic research of this nature cannot be without several shortcomings Bureaucratic nature of government establishments in Nigeria evident in both Local Governments visited lengthened the duration of this study and most data required for the proper evaluation of this study were not accessible and made available on the grounds that they are confidential data. Particularly the information on the assessed value from 2000 to 2008 was not available which if made available would have been evaluated against the open market rental values of the properties over the years. Also, some of the stakeholders in past valuation exercises could not be reached for information regarding the technique adopted, and some individuals were unwilling to give out information on their profits and books of account. However, these limitations, this study was still carried out and recommendations made. 1.8 SCOPE OF THE STUDY

This study bothers on Minna and its environs, and covers Chanchaga Local Government Area, of Bosso Local Government Area. The techniques considered are the methods adopted for the rating assessment/valuation of commercial properties within Chanchaga Local Government Area and Bosso Local Government Area of Minna Urban. Commercial properties focused on include; eateries/restaurants, private schools, private hospitals, filling stations, warehouses and distribution outlets, offices (banks), and shops. Also the personnel responsible for rating valuation and administration such as the local government staffs, Estate Surveyors and Valuers as well as any other firms involved in property rating assessment would be considered in this study.

1.9

DEFINITION OF TERMS

For the purpose of this research and a better understanding of the terms adopted in the research study, the following terms would be defined, including: 1.9.1 Rate Nairage This is the rate in force in the rating area where the hereditament is located. It is fixed periodically after considering the financial needs of the rating authority (i.e. the local government authority responsible for assessment and collection of the rate). The rate nairage is arrived at after careful analysis of all sources of income available to the rating authority and the total value of all rateable hereditaments in the rating area. 1.9.2 Capital Value The capital value of a tenement or hereditament is referred to as the depreciated capital value, and a rate upon such tenement shall be amount represented by 5% of the value multiplied by the uniform rate per naira (Kuye, 2002). That is, the depreciated capital value shall be the amount at which the tenement is assessed, giving the replacement cost of the tenement at the present ruling prices at the time of assessment depreciated according to the age, obsolescence and structural condition of the buildings upon the tenement at the same time. 1.9.3 Net Annual Value This is defined as the rent at which the hereditament might reasonably be expected to let from year to year if the tenant undertook to pay all usual tenants rates and taxes and to bear the cost of the repairs and insurance, as well as other expenses, if any, necessary to maintain the hereditament in a state in order to command the rent.

1.9.4 Gross Annual Value This is defined as the rent which the hereditament might reasonably be expected to let from year to year if the tenant undertook to pay all usual tenants rates and taxes and the landlord undertook to bear the cost of the repairs and insurance, as well as other expenses, if any, necessary to maintain the hereditament in a state in order to command the rent. In order to arrive at the annual or assessed value, statutory deductions would be made from Gross Value. The Statutory deduction is to cover cost of repairs, insurance and other outgoings necessary to maintain the hereditament in a state to command the rent. 1.9.5 Hereditaments This is any land, tenement, property that is or may become liable to any rate or in respect of which the valuation list has been made conclusive. It can also be termed as any any such property, which is or may become liable to a rate, being a unit of such property which is, or would fail to be shown as a separate item in the valuation list. Before any listing is made, the hereditaments have to be identified. Thus, in this research study, the terms hereditament, tenement and property would be used interchangeably. 1.9.6 Tenement/ Property Rates The term tenement has been defined as lands with buildings, factories, workshops, storage tanks, petroleum oil and gas pipes, wharfs or piers but does not include vacant land (Local Government Law, 1980 of Bendel State). In the same vein, Section 117 (1) of the Rivers State Local Government Edict defines Tenement as land with buildings which are occupied as a distinct or separate holding or tenancy of any wharf but is not explicit about bare land not being rateable and rightly so (Osunwoke, 1990). The two words property and tenement would be used interchangeably in this book.

1.10 STUDY AREA 1.10.1 Historical Background Minna is the capital city of Niger State located in North-Western Nigeria (See Maps at Appendix C to F). Prior to its present status as the state capital, it was a small railway town inhabited mainly by Gwari natives, rail workers and civil servants of the old Niger province. Before it became the state capital, its indigenous population engaged themselves mainly in farming activities. Later, it became a civil service town based on the movement of the countrys capital to Abuja in 1991. Today, few industries have started to emerge, quite a number of banks have equally spread their tentacles to Minna recently. Minna accommodates about 65% commercial activities in the state. There are good network of roads, which include two dual carriage roads that cut across at two ends of the towns, a tarred road links all areas. There are also a good network of drainages, regular electricity but not constant and water supply from the public main. Facilities such as airport, railway lines, hydro-electric power stations, stadium, four and five star hotels, trade fair complex, telecommunication networks, institutions of higher learning, making thus Niger-state an emerging commercial centre in Northern Nigeria. 1.10.2 Population and People Minna has an estimated population of 304,113 as at 2006 population census with an annual growth rate of between 6.9% and 8% per annum. The major ethnic groups in Minna and its environs include Nupe, Gwari and Hausa being their common language. Tribes from other states like the Igbos, Yorubas and numerous others have also settled in Minna. The inhabitants are mainly Christians and Muslims with few traditionalists. 9

1.10.3 Geographical Location The city lies on latitude of 903650 North and on longitude of 603325 East with a land area of 6,784sqKm. It is the headquarters of Chanchaga Local Government Ares. Minna is bounded to the North by Shiroro L.G.A, to the West by Wushishi, to the South by Bida, and to the East by Suleja, Lapai and Agaie. The city of Minna is connected to neighbouring cities by road and Abuja the capital of Nigeria is only 150km away. It is also connected by railroad to both Kano in the North, and Ibadan and Lagos in the South. The city also has an airport that connects it to the world. 1.10.4 Climate, Weather, and Vegetation Minna has distinct wet and dry seasons with a mean annual rainfall of 133mm, and September recording the highest rainfall of 300mm (1,107 inches). The rainy season lasts between 190-200 days. The mean monthly temperature is highest in March at 30.50 c (87 0f) and lowest in August at about 25.10c (720f). The city of Minna experiences three weather conditions annually. This includes a warm, humid, rainy season and blistering dry season which is equivalent of winter in the temperate region and summer in the temperature climate. In between the two seasons, there is a brief interlude of harmattan occasioned by the north east trade wind with the main features of dust haze intensified coldness and dryness. In terms of vegetation, Minna falls within the savanna zone vegetation of the West Africa sub-region. The dominant vegetation of the city is however classified into three (3) savanna types which are; the park or grassy savannah, the savannah woodland, and the shrub savannah. 10

1.10.5 Chanchaga Chanchaga is a Local Government Area in Niger State, Nigeria. Its headquarters are in the State capital, Minna which occupies much of the Chanchaga Local Government Area. Chanchaga lies on a latitude of 9 03650 North and on longitude of 603325 East. It has an area of 72sqkm and a population of 201,429 (Census figure, 2006). 1.10.6 Bosso Bosso is a Local Government Area in Niger State, Nigeria. Its headquarters are in the town of Maikunkele. Bosso Local Government Area has an area of 1,592sqkm and a population of 147,359 (Census figure, 2006).

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CHAPTER TWO 2.0 2.1 LITERATURE REVIEW CONCEPT OF PROPERTY RATING

Property rating is conceptually a form of property tax or levy imposed on occupier of land with its administrative districts by a local authority (Local Government). It is also referred to as tenement rating which is the imposition of tenement/ property rates. This view is exclusive as various authors have presented their views on this subject. Barlowe (1978) defined property taxes as annual charges on the asset values of all the non-exempted properties located in taxing district. The assertion is that these taxes applied to all classes of properties except properties that are exempted such as the church, public schools charitable organization etc. Property rating have been defined as a process of scientifically assessing the rateable value of hereditament using the appropriate basis of rating and applying a stipulated percentage of rateable value for determining the appropriate rate for the hereditament (Adi, 1991). This he stated is a local tax imposed on owners and occupiers of landed properties in respect of rateable properties owned or occupied by them. However, Olayonwa (1996) was of the view that property rating is an annual charge against the assessed annual value of all non exempted properties within any rating authority or district. The amount of revenue required by the rating authority in each year is first established and then total liability is distributed among rate payers according to some definite standard. It is also conceived that

property rating is a form of tax levied on real property and it is normally charged at local level for raising the required revenue to carry out specific developmental projects (Oyegbile, 1996 and Kuye, 2002). This tax they stated is aimed at promoting the total well being of inhabitants of the local community. For example 12

in Nigeria, the third tier of government, the local government is rating unit within which property rates can be assessed, levied and collected. Kuye (ibid) stressed that the levy is on property (i.e. real rather than personal property) according to its values. He opined that it is a tax on the occupation of property; hence, it aims at raising revenue for the rating authority. Jones (2004) sees real property taxes as levied annually and is based on the market value of the property as determined by the local government. Considering the forgoing, it is clear that property rating is a compulsory levy by the Local Government in charge of governance at the local level for raising revenue to meet both capital and recurrent expenditures. This rate impinges on real property and is usually a percentage of the annual return from the property being the liability of the owner known as the rate payer except in cases where exemptions are granted. 2.2 HISTORY OF PROPERTY RATING

The first rating law which is known as the Poor Relief Act or The Statute of Elizabeth was enacted in 1601. The Act provided for the levying of taxes on every occupiers of land, houses etc towards the relief of the poor. Occupiers of hereditaments are to contribute, under the statute, to the poor in their area according to the need. In 1836, the annual value became a basis of assessment of contribution. This means that each hereditament would be assessed and its annual worth is taxed. The Annual value as a basis of assessment became recognised in the periodical assessment act of 1836. There was no basis or definite system of referring to rating valuations until 1963. However, the common assessment act of 1963 brought an improvement. Apart from the 1601 act in United Kingdom, other laws came out to give effect to and regulate standards for property rating in the United Kingdom. The 1925 act 13

defines and makes a clear distinction between the gross annual value and the net annual value. This Local Government Act of 1948 highlighted the procedures for making and amending the valuation lists. A new basis of assessment for dwelling house and rate contribution in respect of electricity and certain transport undertakings was introduced. It was responsible for transferring the duty and responsibility of making and defending the rating assessment valuation of properties from local authorities to the Inland Revenue commissioner. Changes were brought about to the laws in property rating in the United Kingdom by the valuation and rating act of 1953, rating and valuation (Miscellaneous provision) Act of 1953, 1951, 1959, 1961 and 1964 and the General Rate Act of 1967. All issues affecting rating authorities, basis of assessment, valuation list, exemption and relief procedures, and period of assessment and toning of lists were harmonized and made less of a subject of contention and disagreements. 2.3 PROPERTY RATING IN VARIOUS COUNTRIES

In most other countries of the world the perception of property rating and property taxation in general may vary slightly but a few of these concepts are considered below: Table 2.1: Property rating in various Countries
S/N 1. Country Australia Basis for property Land value Time Rate sequence Quarterly $100 to 1,000 per quarter depending on the location and value of land Annually Mode of assessment Flat fee charge alone or a combination of both Remarks Here what is common is the quarterly payments, but frequencies varies by locality

2.

Canada

Current use and land value

Municipal tax rate x phased-in assessment for

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3.

Chile

4.

Hong kong

Land and building value Annual income

Annually

Annually

1 to 2% of fiscal value Fixed standard taxation rate usually 80% of annual income

the particular taxation year = municipal portion of tax county/regional tax rate x phased-in assessment for the particular taxation year = county/regional portion of tax education tax rate x phased-in assessment for the particular taxation year = education portion of tax municipal portion of tax + county/regional portion of tax + education portion of tax = Total Property Tax -

Net assessable value = 80% of Assessable value. HK property tax payable = Net assessment value X Property tax standard rate Assessable value = Rental income + Premium + (Rental bad debt recovered Irrecoverable rent) Rates paid by owner.

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5.

Jamaica

6.

India

2/3 of property value Building and land value

Annually

Annually

Flat rate structure on rural properties

7.

Netherlands Annual income

Annually

The tax is underutilized in the municipalities and not effectively used in panchayats mainly due to tax payer resistance Here the tax liability is shared between the owner and occupier of the house

8.

United Kingdom

Annual gross income

Annually

The rate is fixed across the countries 0.2 to 4% of build value Rate between 0.03 to 15% across varying states

9.

United States

10. Nigeria

Improvement Not fixed or building value Annual Annually gross income

Floated as according to the budget decided on by councilors -

Multiplication of annual income of property outgoings= rate payable

The tax liability varies across the states and Lagos State has shifted to Land Use Charge

SOURCE: Authors research, 2010 2.4 COMPARISM OF THE PROPERTY RATING IN NIGERIA AND

OTHER ADVANCES COUNTRIES In Nigeria rates payable are determined by the application of a rate nairage to the annual rental value of hereditaments. However, in countries such as Australia, the 16

assessed value of the land determines the total charges of rates. Rates can range from $100 per quarter to $1,000 per quarter depending on the location and value of the land. The United States of America, rates vary across the states, between about 0.2% and 4% of the home value comprising of the value of the improvements and the land value. This however has not been established in Nigeria where though variation exists across States, the extent of range of rate variation has not been fully established. Nigeria and the United Kingdom practice similar property rating systems attributed to the fact that most laws in Nigeria are fashioned out of the British law because they colonized the country. However in Britain and the United Kingdom, rates are still as at 2010 levied on business property, though some classes of business are exempt. In Chile, Jamaica, India, Netherlands, and most other developing countries, the approach to tenement rating and the basis for the tax, assessment and administration takes a different connotation. 2.5 RATING ASSESSMENT/ VALUATION

Valuation has been defined as the determination of the monetary worth or value, at a specific date and for a specific purpose, the property rights encompassed in an ownership (Udechukwu, 2006). Simply he further considered valuation as the art and science of determining for a specific purpose at some specific date, the monetary worth of property interest or right encompassed in an ownership and by one authorized to do so. While, rating on the other hand is process of assessing and fixing a rate. Thus, rating valuation is the art and science of determining the monetary worth or value for rating purposes at some specific date, and by one authorized to do so (i.e. a valuer or rating officer). Assessment is an act of determining the exact amount subject to taxation under a given status Ifediora (1998). Assessment involves the processes of land procedure for determining the taxable value of property on which the tax burden is calculated in accordance with the enabling law. As have been posited by (Kuye, 2002), rating valuation involves 17

the analysis of field data, comparison with appropriate rents and land values from elsewhere in the local property market in accordance with the guidelines provided for the exercise, to determine the gross and net rateable values of the respective hereditaments. Most landed properties are rateable and the often advises ratepayers on their assessment for rating, and if necessary, negotiates with the Valuation officer, who is himself a valuer. They also conduct appeals on behalf of rate payers in the local courts. In order to ascertain the rate liability of a particular occupied building, two things ought to be known: a) The rating assessment of the occupied property expressed in terms of rateable value and, b) The amount of the rate in the Naira in force where the property is located. 2.5.1 Basis for Property Rating Valuation In valuing most premises for rating purposes, the object of the valuation is to find the Gross Annual Value which is the basis for the valuation (Section 16 (1) of Tenement Rating Edict No. 3 of 1995). This is the rent at which the property may be expected to let in the open market assuming the owner does the repairs and the tenant pays the market rent. The valuation may be based on the following: (a) The rent at which the premises are let: The rent actually paid in a particular case is not necessarily indicative of the gross annual vale, as it may be subject to special factors, for instance, the rent may be low because the landlord and the tenant are relatives or the low rent passing on the premises is in consideration of the lessee paying a premium on entry or surrendering an unexpired term of the existing lease or undertaking an improvement or alteration to the premises on behalf of the landlord.

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Therefore, with the above circumstances, the rent paid would not represent the gross rental value of the premises. (b) Rent at which similar properties are let: The rent at which similar premises are let is the basis, which is usually adopted, and the other method should be employed only when this basis namely, equality as between various properties. When employing this method, the valuer collects all the relevant information he can as regards the rent paid in the neighbourhood for various types of properties. The rents are then reduced to a common standard by adjusting them so as to make it (rent) conform to the definition of Gross Annual Value (GAV). (c) The profit of the business carried-on the premises: A prospective tenant of a commercial property will calculate his likely turnover, costs, and allowance for interest on capital employed in the business, salary and rates. The balance will represent the Net profit. He will then determine the proportion of this net profit to be allocated to rent. Hence, prospective tenants will differ in the way they calculate the rent that they are prepared to pay, with resultant variations in the figure obtained. However in summary, the bases of assessment known to have been adopted in one form or another in different parts of the world (McCluskey et al, 2002) include: a. Capital Value of the whole hereditament that is land and building taken together. b. Capital Value with land derated i.e. only the improvement thereon (building tax). c. Capital Value with improvement derated i.e. only land usually referred to as unimproved value or site value. d. Annual rental value to a hypothetical tenant. e. Actual annual rent payable. 19

f. Profit method used in the absence of rental evidence and where there is a sufficient element of legal or factual monopoly. g. Unit charge in various forms. 2.5.2 Elements of Property Rating Valuation It is a general rule in rating valuation that apart from properties that may be exempted or granted relief, it is not all other hereditaments that are liable to pay property rates. Rates are payable primarily not by the owner, but by the person who is in rateable occupation. From the four tenets of rateability, it is possible to determine who is or not in rateable occupation. These elements are: (a) Actual occupation or possession:

There must be actual occupation, that is, there must be some degree of users no matter how slight. Where premises are not used, the right to use them is not sufficient to amount to actual occupation. An intention to us the premises in the future does amount to occupation. However, the test of actual occupation takes into account the types of hereditament. If the use is seasonal, rateable occupation may continue throughout the year, even though the property is in fact empty for part of it. It is not necessary that the occupier should have title to land. This implies that a trespasser may be in rateable occupation. (b) Exclusive occupation: i. General: The second element of rateable occupation is that the occupier must be able to prevent others from using it in the same way as himself. But the existence of simultaneous but different rights is consistent with rateable occupation. Although, primarily, the legal entitlement to possession raises a presumption of rateable occupation, this presumption will be rebutted where the person entitled to possession can show that he is unable to take possession.

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ii. Occupation by Several Persons: Two or more persons may be in joint occupation and if this is so they are each liable for rates on the whole property. An example of this is where land is occupied by partners, but it is not so where spouses occupy. In this case if he is under a duty to maintain, he will be the sole rateable occupier. iii. Paramount and subordinate occupation: In certain circumstances different persons with separate interests in the property, might each appear to be in rateable occupation. In these circumstances, the rateable occupier is the person with the paramount occupation. iv. Occupation by another: Where an employee occupies premises, he will often occupy as a representative of the employer. This will be so where the employee is obliged to be on the premises and his employer is assisted by his being so. Where, however, the occupation is for the purpose of the employee, although he occupies by virtue of this employment, he, and not his employer, is the rateable occupier. (c) Beneficial occupation:

Occupation must be beneficial if it is to be rateable and in many cases, this benefit may be in the form of pecuniary benefit. Also, occupation which shows no immediate profit, but is potentially beneficial will be sufficient. In addition, the occupation is beneficial if it enables the occupier to discharge a duty. For example, a local authority in charge of sewage disposal is in rateable occupation of sewage disposal works. (d) Permanent occupation:

For an occupation to be rateable it must have in it an element of permanency. The test of permanency is related to the use of hereditament, and does not depend on the term for which it is held. A weekly tenant and licensee can be in rateable occupation and so can trespasser, as was shown earlier. 21

2.5.3 Exemption and Relief from Property Rating Valuation 1. Exemption Exemption occurs when freedom from liability to pay the rate is granted. It is the freedom from an obligation to a pay a tax. In this research study it would be referred to as the freedom or the permission granted to an individual not to pay the property or tenement rate. The Tenement Rate Edict provides that the following tenements be exempted from assessment and rating: a. All lands and buildings appropriated exclusively for the purpose of public worship e.g. churches, mosques and shrines. b. c. Cemeteries and burial grounds. Charitable institutions similar institutions certified by the Commissioner for Finance and Economic Planning and Commissioner for Information, Sports, Youths and Social Welfare to be non profit making and educational institutions certified by the Commissioner for Education to be non profit making. d. e. f. g. h. Educational properties. Agricultural land and buildings. Government properties. Pipelines. Plant and Machinery.

2. Relief Relief in property rating valuation is different from exemption though in some cases similar. It is a condition of abating partially the liability or burden to of rates. Person(s) granted relief are people who are normally due to pay rates but for certain reasons are being considered for either a total or partial abatement. Relief is the case where the right to pay rate is established but remission granted because of the peculiar condition of the rate payer. It differs from exemption in that it 22

recognises the right to pay but abates it. While relief acts on the person, exemption is on the occupation. That is, the use or purpose for which particular hereditament is being committed to. 2.5.4 Principles of Property Rating Valuation There are five general principles to be considered in preparing valuations for rating purposes. According to Johnson, Davies, and Shapiro (2005) the principles to be adhered to in the valuation for rating purposes include: a) The hereditament being valued must be assumed to be vacant and to let. The statutory definitions assume a tenancy and it is, therefore, necessary to assume that the hereditament is available so that the bid of the hypothetical tenant on the statutory terms can be ascertained. b) The hereditaments must be valued rebus sic stantibus which means in its actual existing physical state. This rule does not, however, prevent the assumption of minor changes of non structural nature. Furthermore, the mode of occupation by the hypothetical tenant must be conceived as the same mode as that of the actual occupier. Thus, possible changes for use may be largely irrelevant. c) If a property must let at a rack rent, then that was the only permissible evidence. However, other evidence may be examined, and this includes rent passing on comparable properties. d) Assessment on comparable properties may be considered in the absence of better evidence. e) The rateable unit will normally be taken as the whole of the land and buildings in the occupation of an occupier within a single cartilage. It is not necessary for parts to be structurally severed to be capable of separate assessment if the parts are physically capable of separate occupation. If parts are

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separately assessed and one part ceases to be in rateable occupation then there would normally be no liability for rates on that part. 2.5.5 Procedures for Property Rating Exercises There are a number of very important things to be done for a successful property rating exercise and a good rating valuation. According to Onyekwuena (2001) as cited by (Kuye, 2002), the process of rating involves all the stages required to meet the goals and objectives of a rating exercise to be achieved. The most important steps in the process include the: 1. Recruitment of Staff: The first step in any rating exercise is the appointment of staff which would be responsible for the appraisal or assessment of the rate to be paid. Usually, external or private Estate Surveying and Valuation practitioners or firms, due to shortage of the requisite manpower resources in the various rating valuation offices and the limited time-period within which the exercise is expected to be completed. 2. Preparation of working sheet: In efforts to speed up the process of data collection and data analysis both on the field and in the office, some working sheets have to be prepared. These working sheets are prepared sheets of paper, which make for easy entering and extraction of useful information about the individual rateable hereditaments. Some of these working sheets to be prepared are: i. ii. iii. iv. Field inspection sheet Rating valuation data sheet Valuation list sheets Demand Notice forms

3. Public enlightenment: This is extremely important as people are at the centre of any rating exercise. Therefore it is the duty of the appraisers to

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carry out an extensive awareness campaign to make the public aware about the exercise, its benefits to them, and the reason for carrying it out. 4. Reconnaissance survey: The rating assessment to be carried out is expected to involve the entire hereditaments in the local government area which is the rating area. Therefore it becomes an exercise in the right direction to first take a trip around the whole rating area. The objective or reason for this reconnaissance survey is to reveal the extent of the area of operation and the likely difficulty to be encountered in carrying out the exercise. 5. Area zoning: The rating area should be zoned into working areas. This is easy after a good reconnaissance survey had been previously carried out. As the appraisers or valuation officers go round the rating area he/she will be able discover the coverage of the area and precisely delineate the area. For example; zone A, zone B, zone C, etc. 6. Market survey: This exercise normally involves consulting with the practicing Estate Surveyors and Valuers, Quantity Surveyors, and other participants in the property market. It is an investigation to determine the annual rent passing, cost of construction, and the market indices, which will in the determination of the rates be adopted in carrying out the rating assessment or valuation. 7. Field inspection and physical measurement: The above discussed stages are the bedrock on which the field inspection and physical measurement lie. Failure to carry field inspection and measurement will render the rating exercise a nullity. Hence, every hereditament to be assessed should be physically visited and inspected which automatically lead to the physical measurement of the property. It must be noted that Valuation officers should not be tempted to accept building plans from the owners or occupiers.

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8. Property survey: This goes hand in hand with the physical inspection and measurement of the properties. The field inspection sheet is the material normally used to simplify this seemingly difficult work. This job can be made easy depending on the training, experience and knowledge of the leader of the team members. 9. Office computation and entries: The expertise of the valuers becomes very useful at this stage where the information already collected by the use of working sheets are taken onto the office to arrive at the final figures used for the computation of the assessed value and consequently the rate payable which would be the liability of owners to pay. The data could be analyzed by the use of computer since the world is now in a computer age. 10.Compilation and of valuation list: During this stage all entries are entered and organized serially taking into consideration the location, address, rating area/zone and the type of property. This stage brings about the production of the valuation report as would be presented to the rating authority and displayed to the public. 11.Display of the Valuation list: Before the valuation list can be adopted, it is mandatory for the interim list of all proposed rateable properties to be displayed in an open place for a period of about 30 days. This is done to allow for complains from the ratepayers to the rating officers. The rating officers are expected on their part to look into every objection and inform the complainants the outcome of their objections. Once these corrections have been made, if any, the valuation list is closed signed by the appraisers and adopted as the prevailing or the current valuation list.

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2.6

Overview of the Techniques, or Methods of Property Rating Valuation

The actual rating valuation/assessment is very crucial to the success of any property rating exercise. It usually a fundamental task carried out by the rating valuer in a process leading to the preparation of the valuation list. The object of this exercise is to determine the current annual rental value of the property. This annual value is referred in rating terminology as the Assessed or Rateable Value of the property. There are several methods of valuation in use for property rating valuation. However, as opined by Olatunji (2008) with exceptions in cases where a statutory formula is prescribed for valuing a given property, the valuation produced by all methods of valuation is admissible as evidence. He was of the opinion that nature and circumstances surrounding a property being assessed that will dictate the method of valuation to be adopted. Supported by the International Valuation Standards Committee (IVSC), the Royal institute of Chartered Surveyors (RICS), several different international and national approaches for the valuation of property and real estate were presented according to Sven et al (2009) and Ogbuefi (2004) as with other prominent authors, the following methods are advanced for rating assessment and valuation. 1. Rental evidence method or income approach: This is so far the most common method and undoubtedly the best method in that it is based on hard evidence of what is actually paid in the market and the real worth. As opined by Johnson, Davies, and Shapiro (2005) called this approach the valuation with reference to rents paid. In its simplest form, this means that if the hereditament is let at a date which approximates to the valuation date and demonstrably following an arms length negotiation, then it is to be expected that the rent so determined and being paid will be the value for rating purposes but such rent must conform to the annual value. Having thus valued a hereditament, similar 27

hereditaments could be valued on comparable basis. It is important to mention that where property has to be valued to gross value, the rents used for the purpose of comparison will be adjusted approximately to bring them to accord with rent in terms of gross value, especially where properties are let on full repairing and insuring term. The common practise in this case is to add certain percentages to the rent paid representing outgoings to obtain the gross value. This is necessary where the tenant is responsible for internal repairs and/or for internal and external repairs. The gross value obtained is usually called the assessed value to which the rate nairage is applied to obtain the tenement/property rate payable. According the Oyegbile (1996), the adoption of this method seems very easy. However, care must be taken to ensure that the true annual rental value of the property being used as evidence in obtained. All factors that are likely to affect the rent so as not to give the true rent are to be noted and considered. The true rent of the property, which the rating valuer is interested in is the open market value of the subject property. Open market value is the price, which an interest in property might reasonably be expected to realise in a sale by private treaty, based on the following assumptions: (a) (b) A willing buyer. A reasonable period within which to negotiate the sale, taking into account the nature of the property and the state of the market. (c) (d) (e) (f) Values will remain static throughout the period. The property will be freely exposed to the market. No account is to be taken of an additional bill be a special purchaser. No account is to be taken of expenses of realisation which may arise in the event of a disposal This method is most applicable in the rating valuation of residential, commercial, and other classes of properties especially where there are comparable properties 28

with evidence of rental or capital values accruing from such properties which would be adopted as the basis for the subject. Ogbuefi (2004) was of the view that this method can be applied to commercial properties (such as shops and offices) and other properties that can be let. He commented that in practice the use of this method have not been properly articulated owing to the use of unqualified or inexperienced rating valuers. 2. Profit Method: This method is sometimes referred to as the Account Method. It is used where rental value is absent or inconclusive. The reason is that it is based on the extensive usage of the books of account of the business being carried out within the property being assessed. It is used in rating assessment when the rental evidence approach cannot be employed due to lack of evidence of rent passing. The theory behind the use of this method is that the hypothetical tenant is likely to relate his rental bid to the profit he would likely make from the business being carried out in the property (Kuye, 2002 and Oguefi, 2004). No investor will like to operate at a loss. Therefore none would like to pay a rent that is more than the profit made on his business. Indeed, the margin of profit is likely to help determine the amount of rent he is willing to pay. Again, it is most common to employ the method in cases under which some elements of monopoly are enjoyed in the business being carried out. In such cases the rental value is adjudged to be dependent on the profit earning capacity of the tenement. Such examples include hotels and guest houses, race courses, cinema halls, petrol filling stations, caravans, public utility corporations and other licence premises that enjoy some degree of monopoly. The basic concept and procedure to be adopted in using this method are as follows: Gross Income Less Working Expenses 29 ......................... .........................

Divisible Balance Less Tenants Share Rent and Rates Less Rates Rent Apply the Rate Nairage Rate Payable Variant of the Profit Method:

_____________ ......................... _____________ ......................... _____________ ......................... _____________

A Variant of the profit method is the Through-put analysis. This approach is the simplified version of the profit method and normally adopted for the valuation of garages and petrol or gas stations. It is referred to as through put because it is based on potential annual profit on sales of gas put through the containers. In arriving at the annual value using this method, the values attributed to other properties and services that go along with the filling station must be considered (i.e. the annual value of the supermarket/ minimart, the value of the garage/ service workshop, the generator house, etc.). The combined annual gross value should be obtained before arriving at the overall rateable value of the property. The actual annual rental of this adjoining supermarkets/ minimarts can easily be obtained from the analysis of rent within the neighbourhood. And the garage/ service workshop can be obtained adopting the contractors test. 3. Contractors test/ Cost Approach: It is not always that rental evidence is available to the rating valuer. Indeed, there are arrays of properties that are not rented out or are not easily lettable. Such properties include grain silos, fire stations, shops and commercial complexes, schools and colleges, cinemas and theatres, hotels and guest houses, sewage works and petrol filling stations as well as other public utility services. The rent passing

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cannot be determined either directly or indirectly, yet the valuer is called upon to assess such properties. The solution is to use the contractors method. This method is also referred to as the Depreciated Replacement Value method or the Cost of Replacement Method. The principle underlying this method is that the hypothetical tenant would relate the amount being offered as rent to the annual cost of purchasing the hereditament. As such, whatever is paid annually is seen as a percentage of the overall cost. When computed over the life span of the interest in the property, it would be equal to the overall cost of the property. Therefore, a percentage of the capital value of the property is taken to represent the annual rental value of the property. The steps adopted in this approach are as follows: (i) Determine the cost equivalent similar new building/property. This cost is the current Replacement cost of the property as at the date of valuation. (ii) Depreciate the cost in (i) to reflect the present state of the property. The figure here will then be that of equivalent reinstatement cost of the property rebus sic stantibus. (iii) Add the cost of the bare site. Care should be taken not to add all this cost to (i) above before depreciating. The reason is that the land is not likely to depreciate except if evidence is obtained to that effect. (iv) Then, take a percentage of cost (iii) as the Annual value or assessed value of the property. The percentage to be adopted if not stated in the law on the rating assessment should be determined based on field experience. It is however customary to adopt between 5% - 8%. (v) Apply the Rate Nairage to the assessed value or annual value to arrive at the rate payable. The procedure of arriving at the above is straight forward but caution must be taken to ensure that all the steps above are systematically followed. The concept 31

adopted above as can be seen is based on the cost whereas normal valuation is based on value. However, lacking evidence of value, cost could serve as a guide. It must be mentioned that care must be taken in the use of this method for rating assessment because so many subjective judgements are built into its use. The principal usefulness appears to rest on the doctrine that the cost of replacement represents a ceiling value. This doctrine according to Ifediora (1993) is valid only under perfect market conditions because, as has been well established in economic theories, cost can be well above value under conditions of imperfect competition. 4. The Income Capitalisation (Investment) Method: This is based on the principle that annual values and capital values are related to each other and that, given the income a property produces or its annual value, the capital value can be found. The method is widely used by valuers when properties which produce an income flow are sold to purchasers who are buying them for investment. That is, the property is purchased primarily for its income bearing capacity. The method involves the determination of net rental income multiplied by a years purchase factor at the appropriate rate of interest over the time period concerned. This time period should normally be equal to the life of the investment and the method is similar to that employed by the equities market where valuations of stocks are undertaken with reference to their price to earnings ratio (p/e). Rental income can be actual or notional. Actual rental income exists when the property is let on lease and the tenant pays a rent for use and occupation. Notional rental income occurs when the property is owner-occupied the notional rent being the rental that would otherwise be paid for the use and occupation of a similar property. Many types of property are let (rented) on terms, which require the landlord to bear the cost of certain outgoings, that is expenses related to the property, that are 32

essential to the property maintaining its full value. To arrive at the net income in such cases, outgoings must be deducted from the rent paid. Landlords outgoings are usually classified as: Repairs, Insurance, Management, and Rates and Taxes e.g. ground rent charges and other forms of taxes. Note that service charges are not part of landlords outgoings. The Years Purchase (Capitalisation Rate) or multiplier is derived from the rate of yield (rate of return) that an investor decides he will require from a property. This yield reflects the quality of the investment in comparison with other property investments and other investments generally. Consideration has been given to factors, which influence the investor in his choice of yield and the valuer will obviously need to be conversant with these when using the investment method. It should be noted that as with most investments the yield reflects the attendant risk attached to the investment and in the case of property would be representative of the attractiveness of the investment to the purchaser in the market in general, with specific regard to: a) b) c) d) e) Capital security (in real terms); Income security; Income growth; Ease of sale and management; Return on other investments.

It will be noticed that an analysis of previous transactions is a pre-requisite of the investment method and the comparative principles are at the heart of this process. Hence, this method involves estimating future income flows and converting this income flow to capital values.

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5. Other Approaches or Analyses The above three methods stand out as the commonest methods normally used in property rating assessment. But like the variant of the of the profit which is the through-put analysis, other analysis exist as variant approach to the rental evidences or income approach and the cost approach as given thus: a) Output Method In the assessment of mines for the production of different kinds of minerals or of mineral producing hereditaments the output method is adopted. These mines could b engaged in the production of burnt clay bricks, coal, tin, iron, gypsum, and any other mineral and the determination of the amount to be paid is normally based on the total output of the minerals concerned. Here, a rate in x kobo/ton is fixed which is applied to the total level of production to obtain the rate payable. The total quality of production for the rating year arrived at is multiplied by the predetermined rate fixed per unit of production. This unit of production can be expressed in volume, weight, or quality depending on the nature of the mineral extracted. And the rate to be adopted for a particular year will depend on the quality of the minerals, location of the minerals with respect to the market place of consumption and efforts put in place before the minerals are extracted. b) Average Analysis This method is also known as the Cumulo approach. It has been used in Britain for assessing water undertakings like canals and other forms of transportation. Details are however not explored in this research study. c) Zoning Analysis The zoning analysis is generally used in the valuation and assessment of shops and departmental stores. It is basically the application and analysis of the rental

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evidence available to the valuer/ rating officer. The principle underlying this method is based on the observation of large shops of different values. 2.7 RATING VALUATION AND EMERGING TECHNIQUES Recent development particularly in developed countries among experts in the field calls for more use of Discounted Cash Flow (DCF) Methodologies Mallison Report (RICS, 1994). The DCF Method is not expected to replace the traditional methods but can and should be used whenever the purpose calls for worth calculation. French (1996) emphasized that DCF is not solution to all valuation problems but instead should be used alongside the principal methods of valuation. Other methods in use include the Computer Aided Mass Appraisal (CAMA) which can be made by use of Hedonic or multiple regression models which can be used to handle data for varying hereditaments. 2.8 COMMERCIAL PROPERTY Commercial properties can be said to be buildings for profit making business. It comprises mainly of shops, show rooms, and offices as well as those that offer retail and wholesale services used for investment purposes. According to Olu (2007), commercial properties are those properties developed solely as investment for or payable for the use of the property or the realization of profits from sale of such property after having completed the development. He further stressed that these properties render retail and wholesale services, provide banking or other financial services or they handle other similar functions. Developments of a commercial nature comprise of different building components/services with each of these services providing a different utility to the occupier(s), (including visitors and customers of the business venture). It is often impossible to have unlimited resources (due to budget constraints) to provide for these services /components and this creates the need to prioritize them. Thus, 35

emphasis will be on those items on the peak of the value hierarchy scale of these services/components as derived from market research. The best of investments are those located in the central position where the value most often lies in the site rather than the buildings. That is higher values or rents are enjoyed in better locations than others. Investments located in specified locations can be assessed or evaluated based on the return on the property or rental income. In the view of Harvey (1999), rent is determined by accessibility to the user of a property, while the higher the rent in question, is practically a function of its advantage in terms of accessibility (commercial location), convenience and amenity. 2.8.1 Types of Commercial Property Commercial property types vary and according (Udechukwu, 2006) to include shops (lock up shops, chain shops, mobile shops, supermarkets, etc.) and office premises. However, it extends to include all such properties use for trading and commercial purposes such as office building, industrial building, medical centres, warehouses, hotels, shops, garages, factories, schools and all forms of income yielding ventures. In developed countries, rented residential apartments are considered commercial properties. 2.9 PROBLEMS OF DATA COLLECTION IN TENEMENT RATING EXERCICES The use of the most appropriate technique regarding rating valuation would be achieved if the data is readily available. However as been pointed out by Kuye (2002), several problems that hinder the success of the data collected include: (1) Difficulties of gaining access to the various tenements to be assessed.

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(2) The problem of taking internal measurement of the tenement and sketching of properties. (3) The problem of interpretation and application of exemption clauses. (4) The uncooperative attitude of owners/occupiers in giving useful information and allowing easy access to tenement. (5) Poor public enlightenment by the government on the relevance of the exercise. 2.10 ANALYSIS OF NIGER STATE RATING EDICT NO. 3 OF 1995 REGARDING RATING VALUATION AND ISSUES RAISED The Tenement Rating Edict would be analyzed under the following Headings: Appointment of Valuers Duration of Assessment Basis of Valuation Method of Valuation (a) Appointment of Valuers:- As provided in Section 7 (1) of the Edict, the Director-General may appoint for any rating area, any suitable person or firm to act as Valuation Officer. The Edict however, did not specify clearly the qualification of the suitable person to carry out rating valuation of commercial properties within her territory make it very open to any individual whether qualified or unqualified to carry out rating assessment/ valuation to be involved in it. (b) Duration of Assessment:- the Edict in Section 9 (2) specifies valuations to be carried out every five years following a general assessment. However, a toning or updating of the list is recommended every year to take cognisance of newly developed properties or liable hereditaments that omitted during the general assessment. 37

(c) Basis of Valuation:- Section 16 (1) provides that all tenements shall be value with reference to the Gross Value and Section 16 (2) the rate payable would arrived at by deducting an amount from the Gross Value that shall reflect the outgoings that will be incurred to earn the Gross Value. (d) Method of Assessment:- The Edict provides in Section 17 (1) for the use of the comparative/ rental evidence method where there are comparables within the vicinity of the tenement being valued. Section 17 (2) provides for the use of the Depreciated replacement cost method where it is apparent to the Valuation Officer that tenement cannot be valued with reference to the direct rent by the reason of the special nature of the tenement. And alternatively, in Section 19 the Edict specifies the use of the profit method with respect to properties that are not let. 2.11 A REVIEW OF RELEVANT LITERATURE Several problems have been raised over time as being the cause for the failure to recoup the much anticipated revenue from property rating exercises. Amongst this problems include the issue of the method of valuation used. According to Shittu (2002), in an unpublished study titled Issues of Property Rating and Taxation in Nigeria: A Case Study of Kaduna State, pointed out that the use of the contractors or the depreciated replacement cost method in the valuation of all the hereditaments within the local government had a lot of controversies because the method was not suitable for some property types within the area. Her main point was that the use of cost method for the valuation of commercial properties always leads to under valuation in some neighbourhood and overvaluation in other neighbourhoods. Other issues were the low quality or the lack of skill and manpower necessary for the exercise of rating valuation and the entire property rating administration exercise.

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However, as had been opined by Kelly and Musunu (2000) in Tanzania to date, due to the perceived lack of market information, all valuation for rating is being done on a cost replacement approach. The law there provides for a maximum allowable depreciation rate of 25 percent and the property tax roll to be valued every five years or for such longer period as the responsible Minister may approve. It was pointed out by them an important component of a valuation-based property tax system is the need for a simple but effective system of appeals. Sections 33-42 of the Urban Authorities (Rating) Act (UARA) provide for appeals Tribunal which is centralized and which can only be appointed by the Minister responsible for local authorities. It is reported that the high level of this Tribunal has often caused considerable delay in the hearing of appeal cases and therefore postponing the use of the valuation rolls for taxation (UNCHS, 1998). Property valuations until recently in Tanzania were conducted on a sporadic basis funded by the central governmentusually without proper maps and without a systematic property ID system. These valuations were largely carried out by the Ardhi Institute on behalf of the local authorities due to the lack of in-house valuation expertise. To date, no empirical studies have been undertaken to estimate the level or the accuracy of the property valuations in Tanzania. However, based on international experience in other similar countries, it can be assumed that the average valuation ratio may be in the order of 30-50% of market value, with large variations among properties. This low valuation ratio would typically be attributed to the valuation standards used, lags in the valuation roll, and lack of indexation in the unit rates used for the flat rate system. In the United Kingdom, the practice is to adopt various methods of valuation for the valuation of different classes of property. According to French (2002) the accounts / profit method is used in the valuation of commercial properties in the United Kingdom which is a reflection of the available information in the market 39

place. He pointed out that the offices, shops, industrial units and warehousing be valued by either the Investment or Comparative Methods or, in some markets, by the Replacement Cost Approach particularly where rental evidences are lacking. He further commented on other commercial properties thus as was supported by Plimmer (2003), in his study of An Overview of the Method of Valuation for Local Property Tax (Rates) in the United Kingdom valuers are, however, required to value the actual property (although assumptions may need to be made regarding its state of repair) within the actual locality and to use actual market evidence in order to fix a rateable value. Specifically, valuers are required to consider all of the evidence all of the factors which affect the rental value (other than those which rating law specifically excludes) must be taken into account. Valuers according to him are, however, given no direction as far as method of valuation is concerned and it is well recognized that all methods of valuation are admissible in court. "The goodness or badness of them goes to their weight as evidence" (Garton v Hunter (VO) 1969). Thus, the courts rely more heavily on the outcome of one method rather than another, depending on the circumstances and it is clear that certain property types are valued using certain methods rather than others. Thus, shops, offices and general industrial and warehouse premises are valued using open market rental evidence; petrol filling stations, cinemas and race courses are valued using a profits method; and specialist industrial premises, leisure centres, municipal property and plant and machinery are valued using a contractors method. In fact, there are only two instances when the law intervenes in the valuation process: the rateable values of occupational properties belonging to the so-called statutory undertakers (providers of such services as water, gas, electricity, rail) are valued using a statutory formula, which is not a true valuation; and 40

 Within the contractors method, the law prescribes the percentage to be used to convert the capital value to a rental value. One of the important issues of any tax is that people should pay proportionately i.e. in the case of a property tax, those who occupy more valuable properties should pay more than those who occupy less valuable properties. Thus, the taxable value needs to reflect that differential in a way and to a degree which is acceptable to the taxpayers and the electorate. For a property-based tax, the open market value of property must be the best evidence on which to base a tax. Hence, it is evident that since commercial properties run as business are seen as income yielding hence they are valued on account or profits method. Example of such properties include schools, hospitals, supermarkets, etc and others of the like. Although, where there are rental evidence the practice is to adopt the Rental evidence or investment valuation approach. Therefore determining the gap in knowledge according to Olowu (2002), the most intractable problem confronting this property tax administration has been to find a suitable and reliable local revenue base. Central government transfers in many countries have been relied upon to finance local government revitalization. While this is a welcome development, his paper suggests that there are some dangers as well. Of the possible forms of local taxes that are possible in many developing countries as was identified by him, property tax is the most highly recommended. Other alternatives such as the poll tax in East and West Africa, or Octroi in India have been abused and are regressive in terms of their impact (see World Bank 1995, Livingstone & Charlton 1998). On the other hand, three major problems are usually emphasized concerning property tax in developing countries. These emerged in the Nigerian study as well 41

as in other studies and writings on the subject. These three problems are valuation, assessment and collection (see for instance Gboyega 1990). All three problems are compounded by the fact that land titles and cadastre are poorly developed in most of these societies. The idea that land is government or communally owned have only aggravated the problem. A crucial element is that of property assessment. On the one hand the preparation of a proper valuation roll requires accurate data pertaining to rateable property parcels, but on the other hand, it is all in vain if the tax assessed is not collected. The municipal valuer, although unwillingly, is a team player. His/her own performance unfortunately is dependent on how the other players (e.g. those responsible for accurate property records and those responsible for tax collection and enforcement) perform. It will take a considerable effort and commitment on the part of all concerned if the current, rather dismal state of municipal assessment for rating purposes is to improve significantly. The Tenement Rating Edict No. 3 of 1995 provides in Section 17 (1) for the use of the comparative/ rental evidence method where there are comparables within the vicinity of the tenement being valued. Section 17 (2) provides for the use of the Depreciated replacement cost method where it is apparent to the Valuation Officer that tenement cannot be valued with reference to the direct rent by the reason of the special nature of the tenement. And alternatively, in Section 19 the Edict specifies the use of the profit method with respect to properties that are not let. (See the Tenement Rating Edict No. 3 of 1995 at APPENDIX G). Hence, where the techniques comply with the statute they are considered appropriate.

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CHAPTER THREE 3.0 RESEARCH METHODOLOGY INTRODUCTION This chapter is known as the Research Methodology and is described as the basic plan that guides the researcher in his data collection and logical research work. It comes after the review of literature and gives support to the analysis and result of this work giving a good understanding to readers. This section explains the sources of data, data handling technique, procedure and instruments of data collection, data sampling technique amongst others, necessary for the accomplishment of the set aim and objectives of the research work. 3.1 INSTRUMENTS FOR DATA COLLECTION

Based on the peculiar nature of this research study, the instruments that were adopted include: 1. Questionnaire: This represents a set of questions that are posed in order to obtain responses in relation to the variables available. It is the most widely data collection instrument and was used extensively for this project research. The questionnaire employed is a mixed questionnaire comparison open-ended and close-ended questions. See sample of the questions adopted for Estate Surveyors and Valuers at APPENDIX B. 2. Personal Interview: This refers to personal interaction between the researcher and the interviewee to obtain information necessary for the accomplishment of his goal and the resolution of his problem. A set of questions were prepared for interview with the local 43

government officials. See sample of the questions adopted for interview at APPENDIX A. 3. Field Survey: This is has to do with an interaction, study or observation of the objects being researched upon. It may include a combination of observation and interview in some cases. Prior to the commencement of the research work a reconnaissance was done to be acquainted with the happenings associated with property rating assessment in the study area. 3.2 PROCEDURE OF DATA COLLECTION

In carrying out this research, Chanchaga and Bosso Local Government Areas were visited to obtain data on the personnel involved as well as details on collection efforts from estimates of valuation and approach to tenement rating valuation for a ten year period between 2000 2009 by means of interview with the Principal Revenue Officers and the Lands Officer at the department of works. Questionnaires were also adopted to collect data from Estate Surveyors and Valuers to ascertain their involvement in rating valuation exercises within the period under study and the techniques they employed by interviewing them and filling their responses into the questionnaire so that the accurate data would be retrieved. 3.3 SOURCES OF DATA

Data was sourced from two main sources which are the primary and secondary sources.

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3.3.1 Primary Sources of Data: These represents raw materials needed for processing in order to arrive at findings relevant to the research problem and were collected directly by the researcher through questionnaire, personal interview and field survey. 3.3.2 Secondary Sources of Data: These are materials obtained from past research works that are considered resourceful and relevant to the study and include seminar papers, internet materials {Hypertext Markup language (http) and Portable document file (Pdf) documents}, past projects, records from the local government authority, textbooks, and the Tenement Rating Edict No. 3 of 1995. 3.4 METHODS OF DATA COLLECTION The following methods were adopted in collecting data relevant to the research work. Methods of data collection such as interview and questionnaires were adopted. 3.4.1 Interview With respect to the research work an interview was done by the researcher during the course of this research by asking a respondent representing the Local Government Authority, for a information regarding the persons who have been involved in the Rating Valuation of commercial properties in Minna from 2000 2009 as well as the approach they adopted if it had being able to meet the need of the Local Government Council. Interview was conducted with the Principal Revenue Officers of the Local governments to obtain information on the personnel that have been involved in property rating as well information on the collection efforts made and the rate nairage to appraise the techniques adopted in property assessment exercise. 45

Table 3.1: Analysis of staff interviewed in Chanchaga and Bosso Local Government Areas. LOCAL DURATION IN S/N. RESPONDENTS DEPARTMENT GOVERNMENT SERVICES AREA Chanchaga Principal Revenue 1. Revenue 10years & above Officer Chanchaga 2. 3. Deputy lands officer Principal Revenue Officer Works (Lands and Estate) Bosso Revenue 10years & above Above 5 years

SOURCE: Field Survey (2010)

3.4.2 Questionnaire Questionnaires distributed for this research work are in the form of structured (close-ended) questions for the purpose of the research work. Questionnaires were distributed to Estate Surveyors and Valuers who have been involved in the rating valuation of commercial properties from 2000 2009.
Table 3.2: Schedule of questionnaire administered to Estate Surveyors and Valuers S/N Description No. No. No. not returned Percentage administered returned or poorly filled returned (%) Estate Surveyors and Valuers SOURCE: Field Survey (2010) 1 32 21 10 65.63

3.5 SAMPLING AND SAMPLING TECHNIQUES Sampling is a process by which elements of the target population is selected with a view of finding out something about them in order to know something about the whole population. Sampling technique helps in the selection of element in the population. The method employed varies depending on the nature of the population and research itself.

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3.5.1 Population of the Study The population of the study comprises of all the relevant departments in Chanchaga and Bosso Local Governments involved in property rating. This consisted of the Lands office under the works department of both Local Government Councils. Also the population includes Estate Surveyors and Valuers in Minna, Niger State. 3.5.2 Sampling Technique This refers to a process by which elements of a target population is selected with a view to finding out questions/information about them and thus making a general conclusion to the whole. Owing to the unusual nature of this research study, the method/technique of sampling adopted was the purposive sampling technique. It was adopted for this study due to the fact that the target group is small and the basis of selection was relating the involvement and participation of Estate Surveyors and Valuers in past rating valuation exercises within the study area as there were found appropriate to provide the data requirement for this study. Purposive sampling technique is a type of non-probabilistic technique which is based on the selection of sample elements based on the judgment of the researcher and the nature of the population group. Adopting this technique the researcher chooses the sample based on who he thinks would be appropriate for the study and is used when there are a limited number of people that have expertise in the area being researched. The quota type of purposive sampling precisely was adopted. 3.5.3 Sample Frame The sample frame adopted for the study comprised two (2) members of staff in the Lands office of the works departments in Chanchaga Local Government, one (1) 47

Members of staff in Bosso Local Government and thirty-two (32) Estate Surveyors and Valuers practicing in Minna as was obtained from the Branch Secretary Nigerian Institution of Estate Surveyors and Valuers (NIESV), Minna, Niger State (2010). 3.5.4 Sampling Size Due to the small size of the population and sampling frame for the study, all the elements in the sample frame were adopted as sample size for the study. This equaled 35 3.5.5 Sampling Unit This refers to the geographic or physical unit or area where the targeted population is located and from which the sampling exercise took place. For the purpose of this study, Minna Urban has been chosen as the sampling unit. And this unit was further sub-categorized into Chanchaga and Bosso Local Government Areas because Property Rating which is the main object of this study is usually carried out at the Local Government Level. 3.5.6 Sampling Element These are the individual members of the target population about which information is required. Here the sample elements were Estate Surveyors and Valuers and staffs of the Local Government who have been and are involved in Property Rating exercise within Minna Urban.

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3.6

Data Handling Technique

Descriptive analysis was adopted to analyze the data collected and presentation was done in a mode for easy comprehension using tables and likert scale to analyze data. Also some data which could not be presented in tables were analyzed using textual analysis.

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CHAPTER FOUR 4.0 DATA PRESENTATION, ANALYSIS AND INTERPRETATION OF

RESULTS INTRODUCTION Data serves as a database for further research and when comprehensively analyzed provides credibility and validation to the conclusion drawn by the researcher from the available records. The data obtained from the field would be presented and in tables and charts and textually analyzed as given thus: 4.1.1 Personnel Involved in Property Rating Valuation Exercise The participants involved and responsible for the rating valuation exercise within the study area were identified so that they can be reached for techniques they adopt in valuing commercial properties for rating purposes. Table 4.1.1 Personnel involved in Property Rating Valuation from 2000 to 2009 for Chanchaga Local Government Area. YEAR Personnel Involved 2000 Exercise was not conducted 2001 Exercise was not conducted 2002 Exercise was not conducted 2003 - 2006 Local government officials through her treasury department 2007 - 2008 Non-Estate Surveyors and Valuers 2009 Estate Surveyors and Valuers SOURCE: Revenue office Chanchaga L.G.A. (2010). From Table 4.1.1 above validated by interview with the Principal Rating Officer, between the year 2000 2002 the rating valuation exercise was not conducted hence there was no information available regarding the personnel involved while the period of 2003 2006 Local government officials through her treasury department made up of accountants were involved in the Rating Valuation of 50

commercial properties, 2007 2008 saw valuation carried out by Non-Estate Surveyors and Valuers (Canaan Land Consultancy Services), and 2009 a

Professional practicing Estate Firm M. B. Nuhu and Company was involved. The implication of the table above is that Estate Surveyors and Valuers were not fully incorporated in property rating assessment but have just been considered in 2009 to do so. Table 4.1.2: Personnel involved in Property Rating Valuation from 2000 to 2009 for Bosso Local Government Area. YEAR Personnel Involved 2000-2003 Exercise was not conducted 2004 Estate Surveyors and Valuers 2005 Based on 2004 valuation 2006 Based on 2004 valuation 2007 Non-Estate Surveyors and Valuers 2008 Non-Estate Surveyors and Valuers 2009 Non-Estate Surveyors and Valuers SOURCE: Revenue office Bosso L.G.A. The Table 4.1.2, above regarding the personnel involved in property rating valuation of commercial properties in Bosso government as elicited by interview with the Principal revenue Officer revealed that from 2000 to 2003 the Exercise was not carried out, while in 2004 Estate Surveyor and Valuers was contracted, and in 2007 and 2009 a Non-Estate Surveyors and Valuers whose valuation estimates are used for rate collection to date was contracted. Thus, from the foregoing Tables 4.1.1 and 4.1.2, it suggests that Bosso Local Government Area started much earlier adopting Estate Surveyors and Valuers before Chanchaga so they would expect to record much success regarding the approach to tenement rating valuation and although, Estate Surveyors and Valuers were recently incorporated to Chanchaga, they have been discarded by Bosso Local Government suggesting that something went wrong.

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4.1.2 Techniques Employed in the Rating Valuation of Commercial Properties in Minna Validated by interview with staffs of both Local Government Areas and Estate Surveyors and Valuers who have been involved in rating exercise, the following techniques below were employed: Table 4.2.1 Techniques adopted for Property Rating Valuation from 2000 to 2009 for Chanchaga Local Government Area. PERIOD STAKEHOLDERS TECHNIQUE ADOPTED 2004 2006 Local Government Staffs Arbitral fixing of assessed through her treasury values based on the budget department 2007 2009 Non-Estate Surveying and N/A Valuer 2009 to date Estate Surveyors and Valuing *Rental Evidence and firm Replacement Cost Method SOURCE: Revenue office Chanchaga L.G.A. * M. B. Nuhu & Co Table 4.2.2 Techniques adopted for Property Rating Valuation from 2000 to 2009 for Bosso Local Government Area. PERIOD STAKEHOLDERS TECHNIQUE ADOPTED 2004 2006 Estate Surveyors and Valuing *Rental Evidence and firm Replacement Cost Method 2007 2009 Non-Estate Surveying and N/A Valuer SOURCE: Revenue office Chanchaga L.G.A. * Babatunde & Co. From Tables 4.2.1. and 4.2.2 it is evident that the techniques adopted by Local Government Officials was an arbitral fixing of assessed values suggesting that they did not base the assessment during those years on the Net Rental Value which is the actual basis for property rating assessment revealing that the practice was carried out without reference to the Edict and the specifications set out for property 52

rating valuation in the statute; it was also found out that the practice was exercised by the treasury department made of mostly accountants who are not supposed to carryout valuation as have been set out in Section 3 of the Regulations for the practice of Estate Surveying and Valuation, Decree No. 24 of 1975 now CAP III LFN 1990 which stipulates that no individual except an Estate Surveyor and Valuer should be involved in valuation for all purposes; while Estate Surveyors and Valuers adhered to the use of conventional methods as rental evidence and cost replacement approach; the Non-Estate Surveyors and Valuers (Canaan Land Consultancy Services) could not be reached on the methods adopted signifying the firm is no longer in operation and connotes that the firm was set up by individuals in the authority and closed at after the property rating exercise. 4.2 FACTS FROM ESTATE SURVEYORS AND VALUERS

4.2.1 Response on the Involvement in Property rating Valuation Estate surveyors and valuers practicing in Minna were sampled to obtain their responses on the involvement in property rating valuation exercises in the study area in the last ten years and their responses are summarized in the table below. Table 4.3 Responses on the Involvement of Estate Surveyors and Valuers in Property Rating Valuation Exercise in the study area. Local Chanchaga L.G.A Government No of % of Area Respondent Respondents Response Yes 4 No 17 TOTAL 21 SOURCE: Field survey (2010) 19.05 80.95 100 2 19 21 9.52 90.48 100 Bosso L.G.A No of % of Respondent Respondents

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From the Table 4.3 above, it is evident that 4 respondents, representing 19.05% of the population, have been involved in property rating valuation for Chanchaga L.G.A, while 9.52% representing 2 respondents have been involved in property rating valuation for Bosso L.G.A implying that the spread of professionals in the practice of rating valuation is quite limited in Minna. 4.2.2 Application of the Niger State Tenement Rating Edict No. 3 of 1995 Table 4.4: Showing the Application of the Niger State Tenement Rating Edict No. 3 of 1995 Local Chanchaga L.G.A Bosso L.G.A Government No of % of No of % of Respondent Respondents Respondent Respondents Response Yes 4 100 2 100 No TOTAL 4 100 2 100 SOURCE: Field survey (2010) From the Table 4.4 above, 100% which represents 4 respondents and 2 respondents involved in the rating valuation of commercial properties responded positively to the application of the Tenement Rating Edict No. 3 of the1995 in Chanchaga and Bosso L.G.A areas of Minna suggesting that they follow the provisions set by the law. 4.2.3 Basis for Tenement Rating Assessment Table 4.5: Showing Basis for Tenement Rating Assessment Local Chanchaga L.G.A Government No of % of Respondent Respondents Basis of Valuation Annual value 4 100 Capital Value Assumptions TOTAL 4 100 SOURCE: Field survey (2010) 54 Bosso L.G.A No of % of Respondent Respondents

2 2

100 100

From the Table 4.5 above, 100% which represents 4 respondents and 2 respondents involved in the rating valuation of commercial properties responded positively to basis for rating valuation as the annual value in Chanchaga and Bosso L.G.A areas of Minna suggesting that they comply with the provisions set by the law. 4.2.4 Method Adopted for rating valuation of Commercial properties The responses of Estate Surveyors and Valuers who have been involved in rating Valuation of commercial properties in Chanchaga and Bosso Local Government Area were sampled and their opinions analyzed below: Table 4.6.1: Method Adopted for rating valuation of Commercial properties in Chanchaga L.G.A Rental Cost Profit Investment Others Method adopted Evidence Method Method Method

Commercial property types Office and Shops Filling Stations Schools and Hospitals Factories and Warehouses Restaurants/ Eateries SOURCE: Field survey (2010)

2(50%) 2(50%) 1(25%)

2(50%) 4(100%) 2(50%) 4(100%) 2(50%)

1(25%)

From Table 4.6.1 above, it is evident that most responses were between rental evidence and cost method while profit method accounts for only 25% of the responses suggesting that Estate Surveyors and Valuers in Chanchaga L.G.A involved in rating valuation adopt the rental evidence and cost method of valuation implying that most properties assessed within the study area are valued using the rental evidence and cost methods.

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Table 4.6.2: Methods Adopted for rating valuation of Commercial property types in Bosso L.G.A Method adopted Rental Evidence Commercial property types Office and Shops 1(50%) Filling Stations Schools and 2(100%) Hospitals Factories and Warehouses Restaurants/ Eateries 1(50%) SOURCE: Field survey (2010) Cost Method Profit Investment Others Method Method

1(50%) 2(100%) 2(100%) 1(50%) -

From Table 4.6.2 above, it is evident that most responses were between rental evidence and cost method while no response where given regarding other methods suggesting that Estate Surveyors and Valuers in Bosso L.G.A involved in rating valuation do not adopt the profit, investment and other methods of valuation for rating within the area.

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4.2.5 Reasons for use of the Methods for Rating valuation of Commercial Properties From the survey carried out and interview with Estate Surveyors and Valuers, the reasons advanced for the use of these methods include the following: Table 4.7 Reasons for use of the Methods for Rating valuation of commercial properties in Chanchaga and Bosso L.G.A. of Minna Suggested Reasons Strongly Agree Undecided Disagree Strongly Agree Disagree Difficulties in gaining 2 1 3 access to varying tenements to be assessed Uncooperative attitude 2 3 1 of occupiers in giving useful information regarding profits and rents as well as allowing easy access to tenements Specified by law 4 2 It is the best method 1 5 The problem of 2 4 interpretation and application of exemption clauses. SOURCE: Field Survey (2010) The attributes in Table 4.7 above are assigned points as given below with strongly agree assigned the highest Strongly Agree 5 Agree 4 Undecided 3 Strongly disagree 2 57

Disagree 1 Table 4.8: Overall assessment of reasons for use of the Methods for rating valuation of commercial properties in Chanchaga and Bosso L.G.A. of Minna The columns in Table 4.7 are multiplied by the points assigned to the attributes above Suggested Reasons Strongly Agree (5) Agree Undecided Disagree Strongly (4) (3) (2) Disagree (1) SUM

Difficulties in gaining access to varying tenements to be assessed 0 8 Uncooperative attitude of occupiers in giving useful information regarding profits and rents as well as allowing easy access to tenements 10 12 Specified by law 0 16 It is the best method 0 4 The problem of interpretation and application of exemption clauses. 0 0 SOURCE: Computed from Data in Table 4.7 Composite Index/ mark off point 1.00 1.49 Strongly disagree 1.50 2.49 Disagree 2.50 3.49 Undecided 3.50 4.49 Agree 58

17

3 6 15

0 0 0

0 0 0

25 22 19

14

4.50 5.00 Strongly Agree Table 4.9: Mean points for overall assessment of reasons for use of the Methods for rating valuation of commercial properties in Chanchaga and Bosso L.G.A. of Minna Suggested Reasons Total points Mean (SUM/6) Interpretation

Difficulties in gaining access to varying tenements to be assessed Uncooperative attitude of occupiers in giving useful information regarding profits and rents as well as allowing easy access to tenements Specified by law It is the best method

17

2.83

Undecided

25 22 19

4.17 3.67 3.17

Agree Agree Undecided Disagree

The problem of interpretation and 14 2.33 application of exemption clauses. SOURCE: Computed from Data in Table 4.7 and 4.8

From analysis in Table 4.7, 4.8, and 4.9 above, it is evident that the reasons for the use of the rental evidence and the cost methods for property rating valuation of commercial properties are as a result of the specification by law and the Uncooperative attitude of occupiers in giving useful information regarding profits and rents as well as allowing easy access to tenements this thus suggests that people are not well enlightened about the benefit, need and importance of paying tax else they would be more cooperative particularly where they are aware of how they are been assessed.

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4.2.6 Source of rate Nairage Table 4.10: Source of Rate Nairage Local Chanchaga L.G.A Government No. % of Respondents Response Response Fixed by law 1 Determined by budget needs Specified by Local 3 government Council TOTAL 4 SOURCE: Field Survey (2010) 25 75 100 1 1 2 50 50 100 Bosso L.G.A No. Respondents % of Response

From Table 4.10, the responses suggest that the source of the rate nairage applied to the assessed values to obtain annual values is the mostly specified by the local government signifying that the local government council specifies the rate. 4.2.7 Involvement in the updating or toning of valuation list Table 4.11: Involvement in the updating or toning of valuation list Local Chanchaga L.G.A Bosso L.G.A Government No. % of Response No. Respondents Respondents Response Yes No 4 TOTAL 4 SOURCE: Field Survey (2010) % of Response

100 100

2 2

100 100

From Table 4.11, responses from Estate Surveyors and Valuers revealed that 100% claimed that they have not been involved in the updating of valuation list and response from one of them obtained by interview who has been involved some 60

years ago revealed that updating of valuation list is never done implying that the list is allowed to be outdated pending a general revaluation exercise. 4.2.8 Coverage of all Commercial hereditaments Table 4.12: Coverage of all commercial hereditaments Local Chanchaga L.G.A Bosso L.G.A Government No. % of Response No. Respondents Respondents Response Yes No 4 TOTAL 4 SOURCE: Field Survey (2010) % of Response

100 100

2 2

100 100

From Table 4.12, it is evident that not all commercial hereditaments are covered in both study areas, and substantiating this by interview it was argued that not all hereditaments were captured in Bosso on the grounds that after a feasibility and viability study was done only a few were viable to be rated and for Chanchaga bureaucracy and the delay to seek approval from the Ministry of Local Government and Chieftaincy affairs takes time and as such some commercial properties were captured and assessed and the process in still ongoing till now as only the Phase I of the exercise have been completed and there is lack of a base map of the Study area.

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4.2.9 Procedures adopted for property rating valuation of commercial properties in Chanchaga and Bosso Local Government Areas The procedures adopted by Estate Surveyors and Valuers for property rating valuations of commercial properties in both local government areas include the following: 1. Public enlightenment: This is extremely important as people are at the centre of any rating exercise. Therefore it is the duty of the appraisers to carry out an extensive awareness campaign to make the public aware about the exercise, its benefits to them, and the reason for carrying it out. However, they claimed the local government council was responsible for carrying out the enlightenment campaign through announcements on Televisions. 2. Reconnaissance survey: The rating assessment to be carried out is expected to involve the entire hereditaments in the local government area which is the rating area. Therefore it becomes an exercise in the right direction to first take a trip around the whole rating area. The objective or reason for this reconnaissance survey is to reveal the extent of the area of operation and the likely difficulty to be encountered in carrying out the exercise. This was done by Estate Surveyors to ascertain the extent of the boundaries of the local governments so that disputes are avoided as in the case where the boundary was not clear and jurisdictional claims are made regarding a particular hereditament by both local governments. 3. Area zoning: The rating area should be zoned into working areas. This is easy after a good reconnaissance survey had been previously carried out. As the appraisers or valuation officers go round the rating area he/she will be

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able discover the coverage of the area and precisely delineate the area. For example; zone A, zone B, zone C, etc. 4. Market survey: This exercise normally involves consulting with the practicing Estate Surveyors and Valuers, Quantity Surveyors, and other participants in the property market. It is an investigation to determine the annual rent passing, cost of construction, and the market indices, which will in the determination of the rates be adopted in carrying out the rating assessment or valuation. 5. Field inspection and physical measurement: The above discussed stages are the bedrock on which the field inspection and physical measurement lie. Failure to carry field inspection and measurement will render the rating exercise a nullity. Hence, every hereditament to be assessed should be physically visited and inspected which automatically lead to the physical measurement of the property. It must be noted that Valuation officers should not be tempted to accept building plans from the owners or occupiers. 6. Property survey: This goes hand in hand with the physical inspection and measurement of the properties. The field inspection sheet is the material normally used to simplify this seemingly difficult work. This job can be made easy depending on the training, experience and knowledge of the leader of the team members. 7. Office computation and entries: The expertise of the valuers becomes very useful at this stage where the information already collected by the use of working sheets are taken onto the office to arrive at the final figures used for the computation of the assessed value and consequently the rate payable which would be the liability of owners to pay. The data could be analyzed by the use of computer since the world is now in a computer age.

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8. Compilation and of valuation list: During this stage all entries are entered and organized serially taking into consideration the location, address, rating area/zone and the type of property. This stage brings about the production of the valuation report as would be presented to the rating authority and displayed to the public. 9. Display of the Valuation list: Before the valuation list can be adopted, it is mandatory for the interim list of all proposed rateable properties to be displayed in an open place for a period of about 30 days. This is done to allow for complains from the ratepayers to the rating officers. The rating officers are expected on their part to look into every objection and inform the complainants the outcome of their objections. Once these corrections have been made, if any, the valuation list is closed signed by the appraisers and adopted as the prevailing or the current valuation list. 4.3 FACTS FROM LOCAL GOVERNMENT STAFF 4.3.1 Availability of Specified departments for carrying out rating valuation Table 4.13: Showing the availability Specified department for carrying out rating valuation Chanchaga L.G.A Bosso L.G.A No. of % of No. of % of Response Respondents Response Respondents Response Yes 1 No 1 50 1 100 TOTAL 2 100 1 100 SOURCE: Field survey (2010) From Table 4.13 above, it is clear that there not constituted department for rating valuation although, one respondent from Chanchaga Local government council claimed there is.

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4.3.2 Performance of Public enlightenment campaigns Table 4.14: Performance of Public enlightenment campaigns Chanchaga L.G.A No. of % of Response Respondents Response Yes 2 100 No TOTAL 2 100 SOURCE: Field survey (2010) Bosso L.G.A No. of % of Respondents Response 1 100 1 100

From Table 4.14 above, it is evident that public enlightenment is carried out by the local government council but this according to them is not that vibrantly carried out. 4.3.3 Basis for determining rate nairage Table 4.15: Basis for Rate Nairage Chanchaga L.G.A No. of % of Response Respondents Response Fixed by law Determined by budget needs Assumed 2 100 estimates TOTAL 2 100 SOURCE: Field survey (2010) Bosso L.G.A No. of % of Respondents Response 1 100 1 100

From Table 4.15 above, the basis for the rate nairage is by assumed estimates for Chanchaga Local government which it argued that it was varied by increase of that nairage specified by law which the council in Bosso still adopts the rate nairage specified in the law.

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4.3.4 Property rating collection efforts by the local government authority Table 4.16: Property rating collection efforts for Bosso Local Government Area Estimated Rating Actual Collection of Percentage of actual Tax Revenue (N) Rates (N) collections to Estimated Revenue 2000 2001 2002 2003 2004 5,000,000 500,000 10% 2005 2006 2007 7,808,000 2008 7,808,000 2009 7,808,000 2,000,000 25.61% SOURCE: Revenue Department, Bosso L.G.A. From Table 4.16 above, it is revealed that Bosso Local Government Area had recorded a low collection ratio over the years owing to the fact that there was poor collection and in most cases, no collection efforts were made but from 2000 to 2003. This suggests that there is weak administrative machinery in place to be responsible for enforcing penalties and hearing appeal cases. This is shown in the figure below: Percentage of actual collections to Estimated Revenue
0.3 0.25 0.2 0.15 0.1 0.05 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Percentage of actual collections to Estimated Revenue

Year

Figure I: Percentage of actual collections to Estimated Revenue in Bosso Local Government Area

Source: Field Survey, (2010)

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Table 4.17: Property rating collection efforts for Chanchaga Local Government Area Year Actual Collection of Cumulative Growth rate of Rates (N) collection (N) collection (%) 2000 1,500,000 1,500,000 2001 1,125,000 2,625,000 -25.00 2002 1,375,000 4,000,000 22.22 2003 1,725,000 5,725,000 25.45 2004 1,925,000 7,650,000 11.59 2005 2,500,000 10,150,000 29.87 2006 2,125,000 12,275,000 -15.00 2007 2,750,000 15,025,000 29.41 2008 2,420,000 17,445,000 -12.00 2009 2,527,000 19,972,000 4.42 SOURCE: Revenue Department, Chanchaga L.G.A. From Table 4.17 it is manifest that the actual rate collection of Chanchaga Local Government is significantly low because if it were required to finance a capital intensive project of about N10,000,000 in a particular year, they would have to have waited for 6 years to raise that money implying that collect efforts are significantly low. Therefore, it can be deduced from Table 4.16 and Table 4.17 above, that the collection of effort is minimal and although the actual revenue estimates targeted for collection for Chanchaga local government were not available as is the case of Bosso, given the target estimates for Bosso as a benchmark, the percentage of actual collections to the estimated collections for Chanchaga Local Government in 2009 for example would yield only 32% and if the target estimates was higher than that the percentage would decline. Plotting the line graph of the growth rate of actual collections for Chanchaga local government in Figure II below, it is evident that the collection ratio is fluctuating and much should be done regarding collection of tenement rates in the local government areas. 67

Growth rate of collection (%)

40 Growth rate of collection (%) 30 20 10 0 -10 -20 -30 Years 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Growth rate of collection (%)

Figure II: Growth rate of actual collections of revenue in Chanchaga Local Government

SOURCE: Field survey (2010)

4.3.5 Rate Nairage in force Table 4.18 Rate Nairage in force from 2000 2009 for Chanchaga and Bosso L.G.A. Areas YEAR RATE NAIRAGE (%) 2000 5 2001 5 2002 5 2003 5 2004 5 2005 5 2006 5 2007 5 2008 5 2009 7.5 SOURCE: Ministry of Local Government and Chieftaincy Affairs, Minna From the table above it is evident that the Rate Nairage remained constant from 2000 to 2008 at 5% and varied to 7.5% in 2009 signifying that property rating has remained constant over the years but with the inclusion of the Estate surveyors and Valuers it was varied with an increment of 2.5% to incorporate inflationary increases over the years. 68

4.4 Assessment of the Appropriateness of the Techniques used in rating valuation of commercial properties in Minna The arbitral fixing of rates by the local government staffs and the involvement of Non-Estate Surveyors and Valuers are not appropriate as they do not comply with the provisions of the of the law enabling property rating which specifies in Section 17 (1) for the use of the comparative/ rental evidence method where there are comparables within the vicinity of the tenement being valued. Section 17 (2) provides for the use of the Depreciated replacement cost method where it is apparent to the Valuation Officer that tenement cannot be valued with reference to the direct rent by the reason of the special nature of the tenement. And alternatively, in Section 19 the Edict specifies the use of the profit method with respect to properties that are not let. Hence any of these methods adopted for tenement rating valuation would be regarded correct in the eyes of the law or would be termed legal. Thus an assumption without recourse to a specified approach set out in the law is not correct. But the techniques adopted by Estate Surveyors and Valuers are considered to be appropriate as they comply and are in consistence with the provisions of the Edict. 4.5 Salient Issues involved in Property rating Assessments in Chanchaga

and Bosso Local Government Areas. 1. Poor enlightenment campaigns: Public enlightenment campaigns is a medium where by the public being assessed for rating purposes is made aware of the exercise, its benefits and what it is needed for. However, public enlightenment have not been successfully met with in the study area as obtained from the analysis of the reasons for the use of the methods for rating valuation from Estate Surveyors and Valuers, individuals possessed 69

uncooperative attitude of occupiers in giving useful information regarding profits and rents as well as allowing easy access to tenements, because if they were really aware of the approach to the rating exercise and familiarized with the valuers they would have been more cooperative. 2. Weak implementation and enforcement machinery: Although, most tax payers evaded and avoided the payment of taxes over the years penalties were not enforced against them to pay. It is pertinent to note that to ensure the success of any property rating exercise appropriate penalties prescribed against known offences such as hindering the employees or agents of valuation officers or rating authority, refusing or inciting persons to refuse to pay rate, illegal collection of rate and other rate collection offences. The machinery for the enforcement of payment of rates is yet to be constituted. Until this is done, it is hard to measure the success or otherwise of the enforcement of the administration and effective collection thus revealing that the exercise have not been considered seriously by the local government authority as a good source of revenue. 3. Corrupt Practices: it was obtained by interview with the local government

staffs that collection of rates is carried out with payment made through agents of the treasury departments of the local government. Most tax payers owing to the liability of the tax pay negotiate with the rate collectors and pay less while some evade total and since no penalty for taxation have been enforced against them, this has been the practice over the years. Although this is seen to take a new turn as Estate Surveyors and Valuers involved in Chanchaga Local government have enforced payment to Bank accounts of the Council so that cheap mediums for avoidance and evasion can be dismissed.

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4. Inavailability of Updated Map And Land Cadastre: The ease of carrying out property rating assessment is facilitated by the availability of a good up to date base map of the locality and land cadastre information for the purposes of identifying different hereditaments, zoning the areas and carrying out a good inspection. It would also aid and enhance revaluations exercises. However, the importance of an updated map to the rating exercise, it is lacking in both local governments. 5. Shortage or Inavailability of qualified personnel: There is shortage of well trained and qualified personnel which suppose to serve as tool for collection of taxes and rates at the local level, even the few available are not properly trained in efficient budgetary and financial management systems. The local governments are short staffed to carry out their duties. 6. Lack of adequate information: There is no up to date information about property rating assessment in the local government board, and inadequate information leads to inefficiency in the administration of real property taxation, it is also noted that where few areas available they are not being properly stored and presented for future reference.there by making it difficult for proper research to be conducted. 7. Lack of accounting records or books of account: Adequate according records of businessmen, professionals and other self employed people should be kept for tax authority to fall on. A good tax system must therefore encourage the keeping of accurate, honest and reliable accounts.

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8. Lack of political will: There is a lack of political will within both local government areas, which must be in place for ensure sincerity and honesty to make sure that everybody pays tax irrespective of social status. 9. Misappropriation of funds collected: It was found by means of interview that the most of the funds collected were not gainfully utilized for visible projects in the Local Government Area over the years the funds were not sufficient enough to actualize there budgetary needs.

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CHAPTER FIVE 5.0 SUMMARY OF FINDINGS, CONCLUSION, RECOMMENDATIONS,

AND SUGGESTIONS FOR FURTHER STUDIES. INTRODUCTION The issue of property rating valuation has a huge impact in the return expectations and revenue to be generated from property rating exercises. However, the techniques of rating valuation within the study area have assessed to ascertain the accuracy and this chapter thus seeks to state the discussions of findings, conclusion, implications, recommendations and suggestions for further studies. 5.1 SUMMARY OF FINDINGS

From the survey carried out in the study area being Minna which considered Chanchaga and Bosso Local Government Areas and the data elicited through interview, the following were establish: That Estate Surveyors and Valuers were not involved in Property rating Valuation from 2000 to 2008 in Chanchaga Local Government Area but after so many trials by Local Government Officials through her treasury department constituted mainly of Accountants and Non-Estate Surveyors and Valuers, but have failed, the Local Government involved Estate Surveyors and Valuers in 2009 indicating that their approach was faulty as they employed arbitral fixing of rates In Bosso Local Government Area, the council had paid attention to involving Non-Estate Surveyors and Valuers but adopted Estate Surveyors and Valuers in 2004 and has never involved any of her officers suggesting that there is lack of skilled personnel in her authority as her staffs have not been involved in rating valuation exercises. 73

 Not all commercial properties were covered for rating valuation assessment and owing to factors of bureaucracy which prolongs the exercise and bring about a valuation of few commercial properties within the stipulate time which is not fair and equitable on others who were not assessed. During the research work it was found out that the techniques most predominantly used for rating valuation are the rental evidence and cost methods of valuation owing to reasons such as the lack of cooperation from Occupiers signifying that there is need for much enlightenment campaign programmes to be carried out regarding property rating exercises and the benefits involved. The study also established that there has been much reliance on the replacement cost approach for the rating valuation of commercial properties within the study area and this might not be very proper for use for such commercial properties as hospitals, filling stations, schools, and hotels which are run as profit making ventures and should been valued by the profit method. However, because of the consistency with the law, it is appropriate. The reasons for the use of the rental evidence and the cost methods for property rating valuation of commercial properties by Estate Surveyors and Valuers are as a result of the specification by law and the Uncooperative attitude of occupiers in giving useful information regarding profits and rents as well as allowing easy access to tenements this thus suggests that people are not well enlightened about the benefit, need and importance of paying tax else they would be more cooperative particularly where they are aware of how they are been assessed. Updating of valuation is not done implying that the list is allowed to be outdated pending a general revaluation exercise. 74

 Lack of constituted offices designated for property rating valuation particular in Bosso Local Government and although available in Chanchaga Local Government, they are not well equipped. The collection of revenue in relation to the actual estimates is minimal and did not accrue for some period between 2000 and 2009. The investigations of this study also revealed that property tax rates are fixed by local government and the authority held that the basis of the rate was on assumed estimates. Records are not adequately kept, which makes the retrieval of information difficult when needed particularly the information on the assessed values to explore its variance with open market rents to fully exact the accuracy of valuation carried out. 5.2 CONCLUSION

This research work has carefully considered the techniques adopted for rating valuation in Minna. It can be concluded from this stand point that the techniques or approaches adopted by Local government Staffs within the Study area are not accurate as they depend more on assumptions and arbitral fixing of rates to arrive at the rateable value. Also the idea of contracting Non-Estate Surveyors and Valuers for rating assessment is clearly inappropriate. The techniques put to use by Estate Surveyors and Valuers are considered suitable as they are consistent with the provisions of the law given that property rating is statutorily defined. However, this is not without other salient issues as was identified ranging from Poor enlightenment campaigns, lack of cooperation from occupiers, lack of updated map, lack of updated statute and others identified in this work which can discredit revenue potential from property rating. More so, the idea of much reliance on the replacement cost approach in the rating valuation of commercial 75

properties such as filling stations, hotels, schools, and restaurants may not be ideal because the profits of such businesses are not incorporated and hence, the profit approach should be looked into. From the stand point of this research, it is pertinent to mention that although the applauded benefits inherent in property rating, it has not been taken with much seriousness in recent past in the Local Government Areas and even if the right techniques are adopted and the entire process not efficiently optimized in terms of collection and enforcement of penalties, low benefits might still be recorded from the exercise signifying that property rating is at its infancy and much needs to be done to see it grow. 5.3 RECOMMENDATION

Based on the findings of this research, the following would be recommended: 1. Local government officials should as much as possible desists from incorporating Non-Estate Surveyors and Valuers and employ the services of more Estate Surveyors and Valuer in the process of property rating valuation exercises. 2. Geographic Information System (GIS) tools and computer aided mass appraisals (CAMA) should be employed to facilitate mapping of the cadastre of the area and appraisal using multiple regression techniques. This would ensure the coverable of all rateable hereditaments within the study area and the maintenance of the record of all details of each liable owner or occupier and aid mass appraisals within a reasonable period of time. 3. The existing legislation should be amended to allow for modern and emerging techniques as well as the incorporating of new ideas and approaches to rating valuation. 4. Rigorous and vibrant enlightenment campaign programmes should be carried out which should be geared at letting people know the basis of the tax, what it 76

impinges on, and how they are been rated. This should be done by workshops and face-to-face meetings with Estate Surveyors and Valuers and rate payers so that they can be acquainted at that stage and foster maximum cooperation at the stage of actual assessment as it would go a long way at ensuring the success of the rating valuation exercise. And the transparency would encourage people to give details of their business concerns. 5. Valuation list should be updated as frequently as possible to maintain a good property base structure and maintain fairness and equity as well as the changing economic conditions which also favours the increase of property values. 6. Central valuation office should be established in the Ministry of Local Government and Chieftaincy Affairs to assess rateable properties and monitor rate collection performance at the local government level through the establishment of zonal valuation offices should be established and qualified graduates of Estate Management be employed to man the offices. 7. In the same vein, Rating Units should be 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 these units are recruited by the Local Government Service Commission which is saddled with the responsibility of recruitment, training and discipline of Local Government Staff. 8. Realistic tax rate should be set by the local government authorities. This is because the practice of fixing rates without recourse to the budget and total value of all hereditaments within local government areas should be dismissed as it may not be feasible even if the right techniques where adopted and it is recommended that the fixing of the rates should be determined by the model below so that it would to equitable to all and sundry.

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R=

x 100

Where, R = rate nairage T = Total budget of the local government C = Total income from other sources. V = Total rateable value for all hereditaments within the rating area.

9. Property rating administration machinery should be strengthened and made efficient by way of setting up of rating tribunals and the strict enforcement of penalties against defaulters as well as ensuring that the statute is complied to in every respect. 5.4 SUGGESTION FOR FURTHER STUDIES

From the conclusion of this study, it is suggested that the next researcher works on: a. Modes for improving collection of property rating in Minna and environs. b. The use of GIS tools is the assessment of rateable values of commercial properties.

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