March 20, 2019
On 18 February 2019, the National Assembly passed the National Housing Fund (NHF) Establishment Bill 2018 (“the NHF Bill”). The NHF Bill seeks to repeal the National Housing Fund Act of 1992 and provide for additional sources of funding for financing housing development in Nigeria and other related matters. In addition to the imposition of a compulsory 2.5% deduction on the monthly income of Nigerian workers, the NHF Bill introduces a 2.5% levy payable by manufacturers and importers of Cement and also seeks to impose a compulsory contribution of 10% of profits before tax on banks, Pension Fund Administrators (PFA) and Insurance companies. The Bill now awaits the assent of the President before it becomes a law.
The NHF was established under the NHF Act of 1992 to primarily facilitate the mobilisation of funds for the provision of houses to Nigerians through lendings. However, the NHF Bill has not been quite successful in achieving this objective over the years.
The NHF Bill 2018 seeks to introduce some changes to the operations of the NHF Scheme (“the Scheme”). While the 1992 Act requires a contribution of 2.5% of basic monthly salary from Nigerian workers, the NHF Bill requires a contribution of 2.5% of the total monthly income of Nigerian workers. The NHF Bill also increases the threshold of its application from workers who earn a minimum of ₦3,000 to workers who earn not less than the National Minimum Wage, which is currently ₦18,000. In addition, the NHF Bill expands the scope of the required contributors to the Scheme to include PFAs, local producers and importers of Cement.
Some specific provisions of the Bill are highlighted below:
The NHF Bill will have significant impacts on businesses, if signed into law by the President. This is because it introduces a new form of compliance burden on companies and individuals, which would trigger penalties if disregarded.
Furthermore, the introduction of the Sustainable Development Levy to be paid by manufacturers and importers of cement may cause further hardships as such companies may pass such cost to the consumers. Also, the introduction of this additional Levy may only result in an increase in cement prices for building and construction, which could impede the ease of doing business in Nigeria. In addition, the powers of the President to include additional goods and services on which Sustainable Development Levy may be imposed by an Executive Order appears arbitrary as it creates uncertainty for investors.
Given that the effective tax rate minimum wage employees is significantly lower than 2.5% of monthly income, an imposition of an additional 2.5% compulsory contribution is a significant deduction to be applied to a low income employee. Perhaps, it would have been more equitable for the bill to seek to apply a graduated contribution rate which is commensurate to the amount earned by individuals to mitigate any economic effect such deductions may cause.
It is important to note that, although the Bill appears not to contain provisions for exemption of contributions to the Fund from tax, NHF contributions are expressly exempted from Personal Income Tax (PIT) under the sixth schedule to the PIT Act. Also, the provision for 2% yearly interest payable upon refund of contribution is rather low in the light of the current inflation rates and other economic circumstances.
Given that the current NHF Act has achieved little towards significantly improving the housing situation of the country, it is uncertain whether an increase in the sources of contributions to the Fund would improve the situation. It would appear that the challenge is more with the implementation of the objective of the Act, which is to provide affordable housing through citizen-friendly loans, than availability of funds.
Notwithstanding the foregoing, we will continue to monitor developments and are willing to provide relevant tax and regulatory advice to companies that require same in this regard.