Omolola Akinyemi

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  • 21st August, 2023

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      The Effect of Multiple Taxation on Nigeria’s Real Estate Sector

      Is multiple taxation a reason for rising property costs in Nigerian real estate?

      The Effect of Multiple Taxation on Nigeria’s Real Estate Sector

      Taxes remain a significant means through which the government generates income to sustain the cost of governance. The business of property sales in Nigeria’s real estate sector, given its profitability, attracts significant and compulsory taxes. However, the effect of multiple taxation on businesses and property prices in Nigeria, when examined as a whole, is a cause for concern.  

      Taxes for each property transaction are levied at all levels of government. This is done through the Federal Inland Revenue Service, State Internal Revenue Services, and local government agencies simultaneously. Essentially, each transaction is taxed three times. 

      The Land Use Act: Its Nexus with Property Taxes 

      Before the colonial era, lands were predominantly controlled by families and community heads. Thereafter, several land tenancy and administration laws were promulgated by the British colonial government to control lands in Nigeria. Following Nigeria’s independence, different land tenancy laws were implemented.   

      The Land Use Act of 1978 vests the authority over lands and landed properties in the hands of state governors. As such, state governors in Nigeria are deemed to ‘hold the land in trust’ on behalf of the citizens. The Land Use Act was an attempt to unify the disparate land administration systems operating between Northern and Southern Nigeria. And to establish equity in Nigeria's real estate. However, the implementation of the Land Use Act in Nigeria’s real estate does not appear fair enough, especially as regards the imposition of multiple property taxes - which is integral to the implementation of the Land Use Act 

      Furthermore, a complicated bureaucratic process is involved in acquiring and holding landed properties. The need to undergo several stages of government permits, approvals and licenses is a big issue. Again, only state governors have the unquestionable (and too much) authority to grant land approvals in Nigeria. And fourthly, the strict rules that govern the use of land are seen as overregulation - which has limited land use to just one purpose at a time.   

      Details of Nigeria's Real Estate Taxation  

      The Economic Confidential website reveals that value added tax (VAT) generated from Nigeria's Real Estate sector increased by 124 percent between 2018 and 2022. Their review of multiple documents from the Nigerian Bureau of Statistics reveals that the real estate sector VAT tax rose from N10bn in 2018 to N22.45bn in 2022. VAT is currently charged at the rate of 7.5 percent of total money spent on goods and services, an increase from 5 percent pre-2020. A further addition which will raise the rate to 10 percent was recommended to the incoming administration, which will further increase the tax burden. 

      A quick breakdown of the year-over-year VAT payments by Nigeria's Real Estate sector is shown below.  

      2018: N10bn  

      2019: N10.17bn 

      2020: N11.38bn 

      2021: N15.89bn 

      2022: N22.45bn 

      Aside from VAT, Nigerian property owners, buyers and brokers are mandated to pay Capital Gains Tax, Stamp Duties, Tenement/Ground Rates, Consent Fees, Withholding Tax, Income Tax, Development Levy, Community Tax, and Television Tax.  

      Real estate transactions also require various document registration fees to be paid. They include fees for Certificate of Occupancy, Joint Venture Agreement, Deed of Agreement, Power of Attorney, and Tenancy/Leases, which attract a stamp duty of about 6 percent. Property buyers are also charged Capital Gains Tax, Consent Fees, Stamp Duty Tax, and property registration fees


      The prices of landed properties continue to soar. Property brokers may insist that these multiple taxes heavily impact real estate costs incurred during property development and consultancy, in addition to administrative fees. It can be argued that in the face of inflation and multiple taxation, property prices will rise inevitably.  

      The disincentives in the Land Use Act need to be reduced, if not eliminated. Mustard Insights has previously discussed how the Nigerian the rising cost of building materials continues to hamper the construction of homes. If the government cannot build homes quickly enough to solve the current housing deficit situation, then the private sector will need to play an increasing role. When faced with the double whammy of expensive land acquisition and high building costs, land and housing become the preserve of the wealthy minority. 


      • Published: 21st August, 2023



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