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Built sector in apprehension over proposed VAT rate

By Victor Gbonegun
30 September 2019   |   4:22 am
There are growing concerns by housing professionals on the possibility of fresh housing crisis in the country should the proposed Value Added Tax (VAT) by the federal government be implemented in 2020.

Abuja city

There are growing concerns by housing professionals on the possibility of fresh housing crisis in the country should the proposed Value Added Tax (VAT) by the federal government be implemented in 2020.

Although government has stated that the process of increasing the VAT rate would involve extensive consultations with state governments and local government authorities, and others in the public and private sectors of Nigeria, experts apprehensive that the process could ultimately result in amendment of the VAT law to give legal backing to the new rate which would negatively impact the housing industry.

Already, the sector is weighed down by exorbitant taxes that apply to real estate or property transactions in Nigeria and some of which include, the companies income tax and personal income tax, value added tax, capital gains tax, stamp duties tax and the state property taxes (Lagos State Land Use Charge Law and the Federal Capital Territory Property Tax, among others.

Other problems that have hampered industry include, lack of secure access to land, high cost of construction, limited access to finance, bureaucratic procedures, high cost of land registration and titling, uncoordinated policies and implementation at Federal and State levels, ownership rights under the Land Use Act, lack of critical infrastructure, affordability gap, inefficient development control, youths harassment of developers, high cost of mortgages and inaccessibility to housing finance and others.

The Federal Executive Council had approved a proposed increase of Value Added Tax from five per cent to 7.2 per cent. The proposed increase to the VAT rate has been previously considered by the federal government, with one of the reasons in support of a VAT rate increase being that Nigeria’s five per cent VAT rate is the lowest in Africa.

But investigations shows that Ghana, a West Africa nation is abolishing and reducing VAT to shift focus from taxation to production while Nigeria is increasing VAT to fund minimum wage.

Expounding on the issue, the Chairman, faculty of real estate consulting of the Nigerian Institution of Estate Surveyors and Valuers, Niyi Fadoju said, “Although house rent is not subject to VAT but it would have effect on the industry because of two inputs; professional services and building materials used in construction sector.”

Fadoju explained that the policy would push up the cost of delivery of houses to about 2.5per cent while the professional services and building materials would be increased by 50 per cent and housing supply may be reduced.

He observed that overtime, Nigeria has being contending with issue of multiplicity of taxes at the three levels of government, stating that the country has all along being a place for the survival of the fittest.

“What it would mean is that the group of those that are surviving in the built industry would reduced. The strong like what usually happen in a capitalist economy knows how to pass the taxes to the poor. Ultimately, it would affect the affordability of housing by the poor more than it would affect the rich,” Fadoju said.

In his submission, the immediate past national president of the Nigerian Institute of Building, (NIOB), Kenneth Nduka stated that one thing about VAT is that government would wish to collect it as tax to help them finance infrastructure and other projects, however, he said the truth of the matter is that the cost implication of VAT is transferred to the general public.

Nduka further said in all ramifications, housing as a programme has to depend on building materials and these materials, VAT would be paid on their purchase and the services of professionals would also enjoy increase VAT.

“When implemented it thus, means that anyone who wants to build, cost of materials would have to increase by 7.5per cent and same for services of professionals in the housing industry. The financial burden is thus transferred on the investors.

He stated that the federal government that there is big challenge in housing availability, stressing that if government must insist on VAT, they could give exemption to the built industry, especially housing materials because it would serve as a booster to those interested in delivery of houses to acknowledge that the government identify with their commitment to the industry.

The former president of Association of Consulting Architects of Nigeria, (ACANigeria), Mr. Kitoyi Ibare-Akinsan explained that the increase is tied to real estate straight away because the sector pays VAT in both the construction, rent and purchase lamenting that the economies of real estate is bad already.

“Everything would go up. For architects who earn less in the sector, any fee we get, practitioners have to go and pay 7.2per cent VAT instead of 5per cent. An exemption for the sector by government would be a wise step to take by government to improve the real estate industry”.

Given the fact that Value added tax supposed to be for luxurious goods, a past president of Nigerian Institute of Town planners, Luka Bulus Achi maintained that whatever percentage added to the existing VAT rate would automatically trigger an increase in the value/price of market property later.