Why proposed tax laws on NHF is a bad idea — PwC

A new tax law passed by the national assembly, awaiting assent from the president is seeking to impose over 200 percent of personal income tax on low income earners.

Provisions of the new law tagged the National Housing Fund, NHF, (Establishment) Act 2018, includes a mandatory 2.5 percent contribution of monthly income by employees earning minimum wage and above in public and private sectors.

According to Taiwo Oyedele, PwC Nigeria tax partner, the contribution is regressive as it taxes the poor more than the rich.

“For instance, minimum wage earners will pay about 250 percent of their personal income tax (PAYE) to the NHF monthly,” he said, adding that, “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”.

The new law also provides that 2.5 percent of income by self-employed individuals, and that 2.5 percent on cement, locally produced or imported are remitted to the fund.

The law states that employers are to deduct and remit the contributions monthly and places penalty for non-compliance of up to N100 million for corporates and N10 million for individuals with additional sanctions to include cancellation of operating licence of banks, insurance companies and Pension Fund Administrators (PFAs) for violations.

It states that withdrawal by contributors who have attained the age of 60 years or 35 years of service, be at interest rate of 2 percent per annum, adding that the fund and any refund of contributions are exempted from payment of taxes.

Oyedele explained that with assent to these proposed tax laws, cost of borrowing will increase as banks are required to invest a minimum of 10 percent of their profits at 1 percent above current deposit rates.

He said it will also increase the tax burden without addressing other fundamental issues like land regulation, REITS framework etc.

“Imposition of the 2.5 percent levy on cement is a tax on property development which will make housing even less affordable, he said, also noting that “the penalty regime is draconian, excessive and not commensurate with the violations.”

According to the tax expert, the requirement for PFAs to invest pension funds in the scheme means less returns for pension contributors which will erode value for pensioners. “The return of 2 percent per annum for contributors withdrawing after attaining 60 years of age or 35 years of service is far below inflation rate and grossly insufficient to compensate for time value of money.” Oyedele further stated.

The proposed new laws come on the heels of increased pressure from investment and economic experts who are advocating for channels of increasing revenue options for the government in other to bridge an infrastructure deficit gap.

Analysts at the Financial Derivatives Company, FDC in their March 2019 economic update report indicated that improved tax administration will aid the government in diversifying its revenue stream.

Rather than impose shocking taxes, the FDC analysts advised the government to guard the loopholes and curb the effect of oil shocks on government revenue, through avenues for higher tax income such as improving tax compliance, employing necessary and appropriate technology, introducing other indirect taxes to capture a greater share of the non-formal economy and increasing the effective tax rate for the elites through VAT on luxury goods.

While the proposed law may be well intentioned, Oyedele noted that, availability of funds will not of itself address the myriad of challenges facing the housing sector which centre mostly on policy and regulation.

He counselled that “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.

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.