Property consultants and experts in taxation in the private sector believe the real estate sector in Nigeria is bogged down by too many contentious taxes and charges with ambiguous applications that the government needs to align for the good of the nation’s economy.
They are particularly concerned that the ambiguity of these taxes and charges impedes government’s desire to grow the nation’s housing stock. But, some tax regulators insist that it is not necessarily so, as taxes charged in the sector would increase government’s earnings from the prosperity of the people in the country.
These were some thorny issues discussed by tax experts and real estate consultants, as well as government representatives, assembled by Fine and Country West Africa, to help clear contentious tax issues and ambiguous statutory provisions, at a recent Tax Webinar titled, “Understanding Nigeria Real Estate Taxes and Statutory Charges.”
Specifically, they discussed the opposing perspectives of the government and the private sector on the applicability of VAT to sale of land and buildings, stamps duty, the revocation of Land Use Charge 2018, and multiple taxation, generally.
These issues were addressed by a team of panelists made up of tax experts from the private sector and from government agencies, including the Federal Inland Revenue Service (FIRS), Lagos State Inland Revenue Service (LIRS) and Lagos State Lands Bureau; represented by Mr. Matthew Gbonjubola, Director, Tax Policy, FIRS; Mr. Igho Orienru, Assistant Director, Directorate of Personal Income Tax, LIRS; and Mr. Ojikutu Olawale, Deputy Director of Lands, Lagos, respectively.
The private sector was represented by Mrs. Lolade Ososami, Partner at Udo Udoma & Belo Osagie and Mr. Taiwo Oyedele, Head of Tax and Regulatory Services at Price Water Cooper (PwC). Moderation was by Ms. Esiri Agbeyi, Partner at PwC, and the host was Mr. Onajite Shamedje, Head Legal & Transactions, Fine & Country West Africa.
Setting the tone for the discussion, the Chief Executive Officer/Chairperson Fine & Country West Africa, Mrs. Udo Maryanne Okonjo, said the tax webinar was an attempt to provide stakeholders a clearer understanding of tax and statutory charges, as applicable to real estate in Nigeria.
According to her, “Clarity and confidence for real estate investors/purchasers and stakeholders, in relation to accurate statutory/regulatory position and the attendant implication on their respective transactions is the starting point of all solid investments.”
Okonjo charged the panelists to address the taxation multiplicity conundrum in light of the nation’s housing deficit and the current economic realities, taking note of the practical question of VAT application to real estate transactions, particularly in respect of finished buildings. She further solicited the advice of the panelists, in respect of purchases of built-up properties by investors.
“It is as important to also address the impact, negative or otherwise, of the perceived multiple taxation in the real estate sector against the back drop of the looming recession in relation to the novel Finance Act of 2019 and the FIRS secular policy.
“It is important for the state and federal government to recognise that real estate plays a major role in economies and to be mindful of any unintended consequences of these charges, especially for first time home buyers and ex-tenants who typically require property as collateral to grow their businesses. “As stakeholders in the real estate sector, we all lend our voices both individually and collectively through constructive conversations aimed at positioning the industry to thrive by providing clarity and confidence to real estate investors and stakeholders.”
She said an investor in property that is armed with accurate regulatory information could confidently embark on transactions without fear of conflict based on statutory ambiguities. “A typical example of one of the confusing aspects is the application of VAT to the sale of land and buildings which has over the years created conflict between transacting parties due to lack of clarity of this particular statutory provision.” She said clarity on mandatory statutory charges also help investors in their budgeting and financial projections for transactions and gives them a high degree of precision as they have a better picture in terms of their financial outlay.
Regardless, the regulators at the event stated that tax collection was an age-old practice and that it was necessary to shore up government’s coffers.
According to the Assistant Director, Directorate of Personal Income Tax, Lagos State Internal Revenue Service (LIRS), Mr. Igho Orienru, “Tax is an imposition by government on persons, properties, income, commodities, transactions, etc to provide for general public goods and services,” adding that “every citizen must declare their income honestly to appropriate and lawful agencies and pay his tax promptly, if they do not then it is an offense and our lawyers can take them up.”
He made a distinction between tax and fee/charge/rate, which he said are payment for service, listing taxes collected by the Lagos State government as; Personal income tax; Withholding Tax; Capital Gain Tax; Stamp Duty on instrument executed by individuals; Business Premises Permit; Development Permit, among others.
He said, “For us, stamp duty executed by individuals will also have the backing of the stamp duty Act and also the amendment of the finances tax. Some of the real estate stamp duty items that we handle are: sales/purchase of properties; lease/rental properties; real estate construction contracts; process of title documents, and the like. This is an approved rate charges in all the local governments, it is an agreement that was made by the government and is on the website of Lagos State government.”
The Director, Tax Policy, FIRS, Mr. Matthew Gbonjubola, added that “the taxing rights in Nigeria are shared between the states government and the federal government. The federal government collects taxes in form of enterprises, that is, incorporated corporations and States collect from residents.”
He said the FIRS collects VAT, stamp duties and other major taxes and levies as approved by the Act. “Coming to the specifics of the issues of real estate/properties taxes in the real estate sector of the economy has also always been there, mostly in the form of capital gains, in the form of stamp duties and these are the principal VAT.
“Stamp duty is unlike other taxes, where you don’t expect to get anything back, because in stamp duty, you get something back. You expect the government to be a witness on a dutiable instrument. You make an agreement with another person and if you want to make that agreement reliable, then you bring in the government as a witness and so the stamp duty paid in respect to that instrument is that invitation of the government to come and be your witness. It’s like someone has taken insurance that if issues should arise, then you have something to fall back on.”
The Deputy Director of Lands, Lagos State, Mr. Ojikutu Olawale said, “We can’t be talking about real estate taxes without recourse to the Land Use Act of 1978. Although stamp duty registration predates the Land Use Act itself, but it’s been in existence for long and they are part of real estate transaction. “The land Use Ac of 1978 gives control and management of land to the state and the implication of this is that the government generates revenue from real estate and land tax. The State government is also empowered by the same law to legislate on whom and what is taxable.”
He explained that people who buy land from the government or are getting land allocation from government, part of the payment they make also includes stamp duty and registration.
He said, “Consent fee is not a tax. It is a charge for the service government is rendering in Lagos State. What we have done recently is what is called market value, to have a fair market value of all locations in Lagos State in conjunction with the Nigerian Institution of Estate Surveyors and Valuers, to bring transparency and certainty to our charges such that when you are getting the governors consent, you already know what you are going to pay. So, consent fee in Lagos is now 1.5 per cent of the fair market value of the property, hitherto it used to be about 13%. It shows that government is really working to reduce the tax audit on land and landed property transactions for ease of doing business.”
On the Land Use Charge 2018 that was revoked recently, he said the government decided to listen to the various arguments against its increase before it took its decision. “If you have not paid, with that agitation, a lot of people did not pay 2017, 2018, 2019, the state government is now saying just pay that your (former) land use tax, there will be no penalty.”
Countering these arguments, Mrs. Lolade Ososami, Partner at Udo Udoma & Belo Osagie said “The major controversy has been whether or not VAT is chargeable on the transfer of landed property,” and distinguished the different types of real estate transactions.
Ososami said stated that first is the transfer of landed property and that “we are aware that there are times when VAT has been charged on the transfer of a landed property just because of an ambiguity that existed in the Value Added Tax Act. That was prior to the Finance Act of 2019 where landed property was not listed as an exemption. But, the issue is about landed property which is not a good or service because the Act of that time did not determine what a good or service was,” stating that there is a clear distinction in the Finance Act 2019. “So, I think the Finance Act 2019 has settled that aspect of VAT being applicable to transfer of land. So, if I am buying land, then I am not supposed to pay VAT.”
She added that VAT could be charged on the fee of professionals engaged in the improvement of the land, in the form of building construction, for resell. “I think with VAT, what we need to do is go back to the root of the tax itself and see whether value is being added and then to balance that with policy.”
Stating his view, Mr. Taiwo Oyedele, Head of Tax and Regulatory Services at Price Water Cooper (PwC), said, “It is important for Nigeria, as a country, to have a strategy in real estate and some of us think that the real estate sector presents the biggest opportunity for growth.”