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 percent contribution of monthly income by employees earning minimum wage and above in public and private sectors to be deducted and remitted monthly by all employers
  • 2.5 percent of income by self-employed individuals 
  • 2.5 percent levy on cement, locally produced or imported
  • Banks, insurance companies and pension fund administrators shall invest a minimum of 10 percent of their profits before tax into the Fund at an interest rate not exceeding 1 percent above rate payable on current accounts by banks
  • Penalty for non-compliance of up to N100 million for corporates and N10m for individuals
  • Sanctions include cancellation of operating licenses 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 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:

  1. The contribution is regressive as it taxes the poor more than the rich.
  2. 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 
  3. Introducing earmark taxes and increasing the tax burden of contributors without addressing other fundamental issues like land registration and legal framework for real estate investment trusts is inconsistent with the 2017 National Tax Policy
  4. Imposition of the 2.5% levy on cement is a tax on property development which will make housing even less affordable. It is counter-intuitive to impose a tax on cement in order to make housing development more affordable.
  5. The penalty regime is draconian, excessive and disproportionate to the violations under the law 
  6. The exemption from tax clause is badly worded, it means refunds are exempt but contributions are taxable.
  7. Negative impact on the capital market – because banks, insurance companies will have to set aside 10 percent of the profits for NHF investment, the returns available to shareholders will be less hence reducing the attractiveness and value of their shares
  8. Cost of other funds – Since funds will be forcefully diverted from other uses, it means less liquidity and hence higher cost of borrowing
  9. GDP impact – the opportunity cost of the funds going to NHF is that investment will be negatively impacted as well as consumption thereby impacting negatively on GDP growth especially in the likely event that the growth from NHF investment in housing is insufficient to offset the decline in other sector.
  10. Pensioners will be worse off as the return of 2% per annum on their contributions to be withdrawn after attaining 60 years of age or 35 years of service means their investment will be completely eroded.

Taiwo Oyedele, PwC Nigeria Tax Partner