The Lagos State governor, Babatunde Raji Fashola SAN, seems intent on complicating the (even at best of times) fractious relationship between landlords and tenants in the state. After signing into law the Tenancy Law which restricts the payment or rent to one year in advance, proposing that landlords may be asked to account for the criminal activities of their tenant, he has now told tenants to deduct withholding tax from the rents they pay their landlords. Speaking at the 5th Lagos State Taxation Stakeholders Conference last month, the Governor said “Everybody who pays rents for example, is collecting agents for withholding tax. And it is five per cent.
Everybody who pays money to a doctor, lawyer for the services they rendered to him, is our collecting agent for that withholding tax. And we expect that they fairly collect, issue receipt and account for them” the Governor told the conference that his Government will be very aggressive in the collection of withholding tax as from January 2012.
Estate agents whose views we solicited explained that the law on deduction of withholding tax on rents received by landlords was not new. However, because landlords were unwilling to allow any deductions, most rents are quoted as ‘net of withholding tax and any other outgoings whatsoever”. This in effect means that the burden of paying withholding tax falls on the tenant rather than the landlord. In most cases, the tenants do not bother to pay the withholding tax and the landlords do not ask for the receipts.
If the Government was to on an aggressive withholding tax drive, then what was likely to happen is that the landlords would increase their rents by the amount of the withholding tax and ‘magnanimously’ allow the tenant to deduct the tax. However because of the issues they would have with the Government, the landlords would be more insistent that the tenants pay to the appropriate Government authority. “The challenge” one agent said “is still the issue of demand and supply. The tenants most times are desperate to secure accommodation and therefore are at the mercy of the landlords. If Fashola gets his tax boys to go after this tax, we would see a wholesale increase of rent in the state by as much as the rate of tax to be paid” he concluded.