The National Assembly has passed a new law, the National Housing Fund (Establishment) Act 2018.
The key provisions of the Bill include the following:
- Mandatory 2.5% contribution of monthly income by employees earning minimum wage and above in public and private sectors
- 2.5% of income by self-employed individuals
- 2.5% on cement, locally produced or imported
- Employers are to deduct and remit the contributions monthly
- The penalty for non-compliance of up to N100 million for corporates and N10m for individuals
- Sanctions include cancellation of operating licence of banks, insurance companies and PFAs for violations
- Withdrawal by contributors who have attained the age of 60 years or 35 years of service to be at an interest rate of 2% per annum
- The Fund and any refund of contributions are exempted from payment of taxes
10 reasons why the proposed law is a bad idea:
- The contribution is regressive as it taxes the poor more than the rich. For instance, minimum wage earners will pay about 250% of their personal income tax (PAYE) to the NHF monthly
- Making all employers liable to deduct and remit the contributions monthly (without a threshold) will worsen the ease of doing business and Nigeria’s paying taxes ranking
- Cost of borrowing will increase as banks are required to invest a minimum of 10% of their profits at 1% above current deposit rates
- Increasing the tax burden without addressing other fundamental issues like land regulation, REITS framework etc is not consistent with the 2017 National Tax Policy
- Imposition of the 2.5% levy on cement is a tax on property development which will make housing even less affordable
- The 12 years statute of limitation is too long, this increases the risk to employers and encourages laxity on the part of the government
- The penalty regime is draconian, excessive and not commensurate with the violations
- The requirement for PFAs to invest pension funds in the scheme means fewer returns for pension contributors which will erode value for pensioners
- The return of 2% per annum for contributors withdrawing after attaining 60 years of age or 35 years of service is far below the inflation rate and grossly insufficient to compensate for the time value of money
- The exemption from tax clause is badly worded, it means refunds are exempt but contributions are taxable.
The National Housing Fund (NHF) was established by the NHF Act of 1992 to facilitate the mobilisation of funds for the provision of affordable housing for Nigerians. Unfortunately, 27 years after, affordable housing for Nigerians remains a dream.
While the proposed law may be well-intentioned, availability of funds will not of itself address the myriad of challenges facing the housing sector which centre mostly on policy and regulations. Nigeria should, therefore, adopt a holistic approach to the issue of which affordable financing is only a component. The fact that there is no marked progress to show for the 27 years of establishing the NHF is proof that Nigeria’s housing problem cannot be solved by simply throwing more money at the problem.
