The federal government’s tax reform bill, if passed into law, will give comfort to the real estate sector and players in the sector, including landlords, developers and contractors.
Beyond reducing the cost of building materials and improving access to affordable housing across the country, the reform will also help significantly in easing rent burdens on both individuals and institutions in the real estate sector.
One of such areas is company dividends and rentals where the reform provides that, “with certain limitations, dividends and rental income received by a real estate investment company on behalf of its shareholders are tax exempt as long as, at least, 75 percent of the income is disbursed within a year following the end of the fiscal year in which it was earned.”
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Additionally, profits or losses from business operations are assessed by considering rent and surcharges associated with income-producing land, as well as repairs to income-generating properties, machinery, and equipment, including tool renewals and modifications.
“The proposed revisions raise the exemption threshold for Corporate Income Tax from N25 million to N50 million in annual turnover. A 4-percent development levy will be implemented to finance educational and infrastructural projects. If implemented as intended, this will help to address the supply imbalances in Nigeria’s real estate market,” a report on the reform said.
According to the report, the levy aims to stimulate the growth of the developer-market by reducing the rate to two percent by 2030, thereby attracting more payments.
It clarifies that the chargeable income of an individual is defined as the total income determined under Section 28 of the proposed reforms, minus eligible deductions such as rent relief of N200,000 or 20 percent of the annual rent paid, whichever is lower, contingent upon the individual accurately declaring the actual rent paid.
On withholding tax (WHT) rate applicable to payments made to Nigerian resident contractors for construction services, including roads, bridges, and buildings, the reform says the rate has been decreased from 2.5 percent to 2 percent for local contractors.
“The primary objective is to alleviate the financial strain on local contractors. Nonetheless, for the contractors who are non-resident, this rate has been elevated from 2.5 percent to 5 percent. This will provide the local contractors with an advantage in relation to their international counterparts,” the report explained.
It is expected that the reform will give comfort to the real estate sector which has, over the years, endured Nigeria’s change in fortunes. Household purchasing power has reduced. The gross domestic product (GDP) growth has averaged two percent over the past decade. These factors have contributed to the decline in demand.
Tayo Odunsi, chairman, Northcourt, which compiled the report, noted that due to the unfavourable economic condition, potential buyers appear to prioritise basic survival requirements over investments.
“This has resulted in reduced transaction volumes. Property values have not been spared. This trend has also redirected the market’s attention to housing solutions that are more affordable and cost-effective,” he said.
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The situation, he said, is further exacerbated by investment stagnation, citing the foreign direct investment (FDI), which decreased to $29.83 million in the second quarter (Q2) of 2024. “Corporate divestments have harmed the potential for long-term real estate development. Investors are discouraged, new developments are slowed, and capital is redirected to more stable markets as a result of economic uncertainties,” he said.
However, Taiwo Oyedele, chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, has assured that the Tax Reform is designed to remove excessive tax burdens across the housing and construction value chain, from materials and construction to property sales and rentals.
“These reforms are about making life easier for Nigerians. They’ll reduce tax pressures whether you are buying, building, or renting. The goal is to stimulate economic activities in construction and, by extension, the broader economy”, he stated.
