How multiple taxation stifles real estate sector
Stakeholders in the real estate sector said the threat posed by multiple taxations to property development, consultancy and administration is huge and required urgent action because it is stifling investment in the sector.
The scope, they said is large and suffocating industry players. While in many cases, people are made to cough out huge sums on taxes, they’re not supposed to pay.
Some of the taxes payable by players in the sector include consent fees on the land transaction, land use charge, withholding charge, Personal Income charge, Value Added Tax, Ground rates, Development levies, Property levy, community tax and Television Antenna charge.
For example, in some estates owned by communities and families in locations like Allen Ikeja and Oniru in Victoria, Island, people are supposed to pay ground rates to the families, since they are not government-owned estates as in Central Business District (CBD), Ikeja and Lekki Phase 1. They are also often made to pay to the government after paying to the families.
When it comes to property development, the overall cost is also frightening that even before you get approval at times what is paid before commencement of building is close to 60 per cent of the cost of land.
For investors, developers, estate surveyors and valuers and other critical stakeholders, multiple-taxation needs critical evaluation and streamlining by governments at all level to ensure the survival of the sector.
The assertion is based on the employment potential of the sector, primed as one of the largest employers of labour.
Although the 2019 introduction of Land Use Charge in Lagos and other parts of the country have tried to streamline some of these charges, there are still some bottlenecks within its operation.
Former Lagos State chairman of Nigerian Institution of Estate Surveyor and Valuer (NIESV), Rogba Orimolade, explained that such bottleneck within the operation of taxies and levies are killing investment in the sector.
According to him, if there are levies that are not planned from the onset when setting up a business and those other charges come up suddenly it runs those businesses down.
“The real estate sector is about development, those that are building and developing need guidance and a bit simplified method of paying the taxes.
He stressed that multiple taxations is quite large but it concerns taxation from the local governments, states and federal, while there seems not to be clarity concerning who exactly is meant to charge certain taxes.
“There are certain ones that are clear, which has to do with VAT, everybody knows who collects the VAT, the personal income charges, even land use charges, those things are normal, there are basic things, even the withholding tax, but there are all kinds of levies brought up by local and even the state governments which seems to contradict each other.
“There are taxes like business premises taxes that are being charged in some instances by the states while the local government also charge something along that line.
“There is an urgent need for the local and state government to articulate taxes that citizens should be paying especially those that fall within the SMSE bracket|, he added.
Orimolade said these taxes and levies along the line that discourages real estate development and is the reason why a lot of people enter into joint ventures development because they are trying to save as much cost as possible to avoid being suffocated.
Apart from its impact on real estate administration, the former Chairman of the Estate Surveyors and Valuers Registration Board of Nigeria (ESVARBON), Elder William Oruka Odudu said multiple taxations put extra burden on tenants, thereby affects low-income housing.
According to him, some of the development levies and other levies forced on developers are often factored into the sales of the property and add to the price of the property which may be out of reach of the low and middle come earners.
He stressed that Lagos tax law on property and land use charge levy for instance supposed to represent community tax, tenement rates and development levy but some of the local governments are still collecting levies on the same thing.
“Ideally property levy should be handled by the local government but the state government, who don’t suppose to handle taxation doing that, which is discouraging property investment”, he said.
Also, Mr Joe Idudu, a former president of NIESV, provided another insight from the perspective of investors, who owns property outside the jurisdiction and are required by law to pay income taxes no matter where their investments are domiciled.
According to him, multiple taxations is a disincentive to investment because often investors, whose investment in the property to earn an income are expected to pay a tax upon them.
“ As an investor, you are expected to declare all your income where you live, so like a Nigerian investor, you live in Nigeria, you are expected to pay your taxes in Nigeria but also those properties whether they are in Nigeria or America, they are liable to taxations.
“That is why it is very important that the countries should resolve these issues to ensure that the investors do not have to face the problem of multiple taxations. It is a big problem to financial professionals because they have to work it out but it is better still if the governments can between themselves resolve it and said if you have pay tax here you should not pay there. That is the best way to it.
“If you faced double taxation, of course, you will not be interested in investing,” he added.