Ten percent of the profit before tax of Nigerian banks, insurance companies and pension fund administrators could go into a National Housing Fund promoted by lawmakers, according to an exclusive document seen by BusinessDay.
The so-called National Housing Fund (Establishment) Act, 2018 was secretly passed by the Senate on November 6, 2018, following its passage by the House of Representatives on July 17, 2018.
An approval by the presidency is all that stands in the way of the secret Act, which managed to elude private sector lobby groups, from becoming law, after it quietly made it through the National Assembly in 2018.
“When you put such a financial strain on private companies, they are forced to cut costs by sacking staff and freezing new investments,” a senior business person who did not want to be named said.
“This regulation will be poorly timed as it is happening when other countries are lowering corporate tax rates to incentivise investments,” the person said.
The levy will probably see some of the companies pass on the cost to consumers, thereby triggering a surge in inflation.
A race to cut spiralling operation costs created by the new levy could also force companies to lay off staff while barricading new investments in the economy.
That would be a tough blow to take on an economy still recovering from a contraction in 2016.
“Buhari has a chance to be the hero here if he refuses to assent to the Bill, but given his welfarist ideology, that may not happen,” a company CEO said on condition of anonymity.
The Act repeals the National Housing Fund Act Cap. N45, Laws of the Federal Republic of Nigeria, 2004 to provide for additional sources of funding for effective financing of housing development in Nigeria and was sponsored by Ahmad Kaita (APC, Katsina North).
The Act provides among others for every commercial or merchant bank, insurance company, and Pension Fund Administrator (PFA) to invest 10 percent of its profit before tax (PBT) into the Fund at an interest rate of 1 percent above the interest rate payable on current accounts of banks.
The Fund will also forcibly collect contributions from Nigerians, both in the public and private sectors, manufacturers and importers.
The Federal Government is to contribute to the Fund at its discretion.
Employees and self-employed Nigerians, who earn above the minimum wage, must contribute 2.5 percent of their monthly salaries to the Fund. Manufacturers and importers are also to contribute 2.5 percent to the Fund.
There’s also a levy on locally-produced and imported cement, which will be 2.5 percent ex-factory price before transportation cost for each bag of 50 kilogramme or its equivalent in bulk.
In the end, this levy may not be restricted to cement alone, as the Act provides that the President, by an executive order, could add, delete, amend or substitute consumer goods, services or products and approve rates for the levy as and when he thinks fit in the circumstance.
The Federal Mortgage Bank will manage the pooled funds, Section 15 (1) of the Act provides.
“The proceeds from the fund will be used to finance the housing sector of the economy through wholesale mortgage lending to primary mortgage banks,” section 15 (2) of the Act reads.
The failings of the former National Housing Fund and the track record of similar funds managed by government cast a cloud over how efficiently the new Fund will be managed and the chances that it achieves the primary objective for which it was created.
Industry players, who are worried that the provisions of the Bill overrule carefully-crafted regulatory guidelines that guarantee the safety of depositors’ funds sitting in the banks and pension funds, were critical of the Act and warned it would have dire consequences on the economy and investor confidence.
Boniface Okezie, national coordinator, Progressive Shareholders Association of Nigeria (PSAN), calls the Act a “fraud”.
“How can we be talking about extorting companies to fund something without seeking their consent,” Okezie said.
“This is unacceptable. Companies should not comply; rather they should rely on the provision of the Companies and Allied Matters Act (CAMA),” Okezie added. There are severe punishments for defaulters.
In the event that a company fails to pay the levy 60 days after it was due, it warrants a demand notice to be accompanied by a penalty of an additional 2 percent levy on the 10 percent that should have been paid.
If payment drags for another 60 days after the demand notice, the company pays a flat rate of N100 million and the CEO of the company risks spending three years in jail in addition to a personal fine, separate from the company fine, of N10 million.
In the case of importers, a two-month delay is all that is required before the importer is slammed with a N100 million fine, which the Bill says is the minimum.
A fine of N10 million could be slapped on individuals who fail to make their contributions as and when due.
The banks are expected to pay the levy to the Central Bank while the insurance companies and pension funds will pay to the National Insurance Commission and National Pension Commission, respectively.
For manufacturers and importers, the levy will be collected by the tax authority, the Federal Inland Revenue Service.
Sources say some private sector interest groups are planning to engage the Presidency with a view to stopping the implementation of the Bill which, they say, is inimical to the private sector and the economy at large.
The equities market would be directly affected if this Bill becomes law as investors worried about the impact the levy could have on company profitability may dump stocks at a frantic pace.
The document obtained by BusinessDay was signed February 19 by Mohammed Ataba Sani-Omolori, a clerk at the National Assembly.
Shareholders of companies, particularly the banks, insurance companies and PFAs, have kicked back.
Issues ranging from accountability to accessibility were raised and they advised their companies’ Boards of Directors not to approve any form of contribution into the Fund.
“The Act does not make sense because the contributors won’t have control over the Fund. Why do we scare investors? I don’t think it is good idea as it will scare away investors, so it must be jettisoned,” Sunny Nwosu, national coordinator emeritus, Independent Shareholders Association of Nigeria (ISAN), told BusinessDay on phone.
Moses Igbrude, publicity secretary, ISAN, said, “You can’t make companies to contribute to the NHF without letting them have access to it. President Buhari should not sign it.
The shareholders own the companies and we need to ask the companies whether they were represented at the public hearing on the Bill before its passage at the National Assembly.
If they were represented, they will need to explain to shareholders the benefits and who manages the funds.”
Attempts to reach the chairman, Senate Committee on Housing and Urban Development, Barnabas Gemade (APC, Benue), proved abortive as he did not pick his calls.
However, a member of the committee, Matthew Uroghide (PDP, Edo), told BusinessDay on Tuesday that he would check on the Bill before commenting on it.
“When I am in the office, I will go through the Bill before commenting on it. I will be in the office by next week,” he said in a telephone interview.