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Analysis of the National Housing Fund (NHF) Act 2018

Food. Clothing. Shelter (Housing).

These are three basic needs of human beings. Housing is one of the key parameters for measuring the standard of living as well as the social status of a person.

Housing is a product and a process. As a product, housing refers to the output of the construction work. In contrast, housing, as a process, entails the construction, building plan, urban and regional planning, and environmental management. It also includes housing delivery, such as the building of a new house, renovation works and the allocation of new and existing housing to individuals who need it.

In Nigeria, the demand for affordable and befitting housing for citizens far outweighs its supply. Some reasons for this shortfall are poverty, high rate of urbanization, the high cost of building materials, as well as a rudimentary technology of building. This led to government intervention in formulating policies for the housing sector. One of these interventions is the National Housing Policy (NHP) in 1991. NHP came into effect to offer possible solutions to the housing problems in Nigeria. At the inception, the major goal of the policy was to provide affordable housing to accommodate the Nigerian populace in a suitable environment.
The National Housing Fund (NHF) Decree No 3 of 1992 was further given the responsibility of ensuring a steady flow of funds for housing construction and delivery. Hence, all employees in the public and the private sector in Nigeria will contribute 2.5% of their monthly salary as NHF. Payments is done through the Federal Mortgage Bank of Nigeria. Meanwhile, the employee enjoys exemption from Pay-As-You-Earn (PAYE) tax on contributions to NHF. With a population of above 190 million people and about 50% living in urban areas, the housing dilemma in Nigeria remained a clog in the wheel. One major issue that affected the National Housing Policy was its inability to solve the quantitative and qualitative housing problems in Nigeria. Some experts, thus, recommended a periodic review of the National Housing Policy to make it efficient and suitable. Twenty-seven (27) years later, this wish became a reality.
The National Assembly recently passed a new law, the National Housing Fund (Establishment) Act 2018. The key provisions of the Bill are:
  • A compulsory contribution of 2.5% of monthly income by employees in the public and private sectors. The threshold for contributors is employees who earn a minimum wage and above
  • A compulsory contribution of 2.5% of income by self-employed individuals
  • Two additional contributors to the scheme – cement importers and manufacturers and pension fund administrators
  • 2.5% levy on cement, locally produced or imported
  • Employers will deduct and remit the monthly contributions
  • Penalty for non-compliance is NGN100 million for organizations and NGN10 million for individual
  • Sanctions include revocation of the operating license of banks, insurance companies and Pension Fund Administrators (PFAs) for non-compliance
  • Withdrawal by contributors who are 60 years or 35 years of service will enjoy an interest rate of 2% per year
  • Contributions to the Fund and any refund of contributions attract no payment of taxes

Here are eleven (11) reasons why the proposed law should be reconsidered:

  1. Even though the rate of contribution is the same, the tax base is wider as it covers monthly income. This means a lower net income for employees and self-employed individuals. In the earlier Act, the tax base was basic monthly income.
  2. The return on investment does not consider the time value of money.
  3. Employees and self-employed individuals will be worse off as their returns on investment will reduce by 100%.
  4. Insurance companies also will be worse off as their returns on investment will reduce by 300%.
  5. Cost of borrowing funds may increase when banks invest a minimum of 10% of their profits before tax to receive 1% above current account rates.
  6. The insurance premium may increase since insurance companies will invest a minimum of 10% of their profits before tax to receive 1% above the current account rates.
  7. Imposition of the 2.5% levy on locally produced and imported cement may be passed to consumers or employees or the economy at large. It gets to the consumer in the form of higher price. It can be passed to employees in the form of lower salaries, compensation package, and downsizing of employee strength. And if passed to the economy at large, it will be in the form of lower production output or GDP. This will, in turn, make housing less affordable and a sharp contradiction with the objectives of NHF.
  8. Increasing the tax burden without increasing the welfare of contributors make it less conducive for businesses to do business in Nigeria.
  9. The statute of limitation for 12 years is over-stretched. This increases the NHF exposure for employers and may reduce accountability on the part of the government.
  10. The penalty regime is adjusted for inflation while the rate of return on investment is constant.
  11. The new rule for PFAs to invest pension funds in the scheme means fewer returns for pension contributors which will erode the standard of living of pensioners.
The performance of the housing sector is one of the yardsticks for measuring the health of a nation. Apparently, the impact of the new bill on the Nigerian economy is counterproductive. More so, this quest for an additional source of financing erodes the main aim of the policy itself, which is, to provide affordable housing for Nigerians. The solution to the problems in the Nigerian housing sector, thus, requires a holistic approach beyond financing. Other qualitative and quantitative issues should be addressed too.
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