On February 18 2019, the National Assembly passed the National Housing Fund (Establishment) Act 2018, a newly proposed Act that repeals the National Housing Fund (NHF) Act, Cap. N45, Laws of the Federation of Nigeria, 2004.
NHF explained in the Act that the new law was reviewed to provide for additional sources of funding for effective financing of housing development in Nigeria and for related matters. Going by that, it simply means that the intention is to improve the well-being of people through sustainable development by investing in housing. But, a critical look at the provisions of the new law raises a number of questions.
To put things in perspective, the NHF was established by the NHF Act of 1992 to mobilise funds that will facilitate the provision of affordable housing for Nigerians. Under the current NHF law, every Nigerian earning N3,000 or more per annum is required to contribute 2.5 percent of their monthly basic salary to the NHF. The funds mobilized will be made available to contributors at affordable interest rates to build homes.
The proposed NHF law, however, mandates every Nigerian earning from the minimum wage mark to contribute 2.5 percent of their monthly income to the fund. Meaning that a N30,000 earner will contribute N750 every month, while a N250,000 earner will contribute N6,250 to the fund. By calculation that is a whooping 150 percent of PAYE tax for low-income earners and only about 21 percent for the middle-income earners. More practically, Nigerians who earn around the current minimum wage of N18,000 will contribute N450 to the fund (250 percent of their PAYE tax). Taiwo Oyedele, PwC Nigeria tax partner described the new bill to be “retrogressive as it taxes the poor more than the rich.”
The new bill also imposes a 2.5 percent levy on cement. Although the aim is to raise funds to support affordable housing, this additional tax on cement will only lead to more expensive houses. If cement dealers are required to pay more, logically they will adjust their prices to affect the overall cost of housing. This defeats the NHF goal to provide affordable housing for Nigerian workers. Oyedele, the tax expert said in a tweet that “It is counter-intuitive to impose a tax on cement in order to make housing development more affordable.”
From every indication, the revised NHF law does not avail equal opportunities for Nigerians, especially low-income earners. Another factor is that the interest on contributions (2 percent) is hardly rewarding and fails to compensate for the time and value of money. Contributors are expected to benefit from the scheme, unfortunately only a few stand to gain from it. The large majority will have to withdraw their contributions once they attain the age of 60 years or after 35 years of service. But since the interest is relatively insignificant, there would be little or nothing to cash out.
Here are highlights of the revised law:
2.5 percent levy on cement, locally produced or imported
2.5 percent contribution of monthly income by employees earning the national minimum wage and above in public and private sectors to be deducted and remitted monthly by all employers
2.5 percent contribution of monthly income by self-employed persons earning the equivalent of the national minimum wage and above
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
Sanctions for non-compliance include a fine of up to N100 million for corporates and N10m for individuals, 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 percent per annum