How the new finance law will impact real estate, by experts | The Guardian Nigeria News

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Professionals have said that the 2022 finance law is a blessing in disguise for the real estate sector, as it will give real estate investors leeway to explore relevant incentives and reduce tax burdens to grow their investments.

President Muhammadu Buhari approved the Finance Bill 2021, thereby introducing the Finance Act 2021, which came into force on January 1, 2022. The law amended 12 laws, including the Corporate Income Tax Act, personal income tax law, capital gains tax law, stamp duty. Act, Higher Education Trust Fund (Establishment) Act, Value Added Tax Act, Insurance Act, National Agency for Science and Engineering Infrastructure Act.

According to Wole Obayomi of KPMG Nigeria, the law updates some of the amendments introduced in previous finance laws and introduces additional changes to several existing tax laws and other legislation.

Key highlights listed by Obayomi include the restriction of the capital cost allowance that can be claimed by a business that earns both taxable and tax-exempt income, when the tax-exempt income is more than 20% of the taxable income. during any tax year. Depreciation deductions calculated on eligible assets used to generate taxable and tax-exempt income will be calculated on a pro rata basis and only the part relating to taxable income will be allowed as a deduction for depreciation on the company’s taxable profit.

“Resolving the hitherto impossible tax situation of mutual funds and real estate investment trusts (REITS), to incentivize investments in such business structures which currently serve as capital aggregation platforms under scrutiny SEC regulatory,” he said.

Specifically, REITs and mutual funds will now function as conduit vehicles for tax purposes. This will help facilitate the administration of these vehicles for the benefit of investors and capital markets.

Clarification of companies subject to the National Agency for Scientific and Technical Infrastructure tax of 0.25% of pre-tax profit. Affected companies include companies operating in banking, mobile telecommunications, ICT, oil and gas, aviation and shipping companies with a turnover of ₦100,000,000 and above.

Introduction of a 10% rate of Capital Gains Tax (CGT) on gains derived from the disposal of shares of any Nigerian company where the gross proceeds of such sales in any 12 consecutive months exceeds US$100 million ₦ – except where the proceeds are reinvested in shares of the same or another Nigerian company in the same valuation year. However, gains from the transfer of shares in a securities lending transaction regulated by the Securities and Exchange Commission (SEC) are exempt from CGT.

The Senior Partner and Managing Director of Knight Frank Nigeria, Mr. Frank Okosun explained that the essence of the law is to increase its revenue generation. “The FG is struggling to meet its capital and operating expenditure obligations, which is why they are exploring ways to increase the revenue generated for Nigeria’s growth. The law has a positive or negative impact on different sectors, it just depends on the divide you are in.

“It does not affect the real estate sector. It is expected that with the new law, investors will benefit from the changes made in particular to the Capital Gains Tax Act (CGTA) as well as the tax advantages of the Corporation Income Tax Act ( CITA) to further stimulate investment in the sector.

He said: “The finance law does not hinder the growth and development of the sector. On the contrary, it has created leeway for real estate investors to explore relevant tax incentives and reduce tax burdens to grow their investments.

Okosun advised companies to hire tax advisors to help them analyze the provisions of the law to better understand how they can benefit from them.

For the Vice President of the Lagos Branch, Nigerian Institution of Property Surveyors and Valuers (NIESV), Mr. Gbenga Ismail, said CGT and Asset Depreciation Allowance are indirect changes which can impact on real estate.

Ismail, who also serves as Vice President of the Lagos Chamber of Commerce and Industry (LCCI), said: “It will not slow development at this time, the most impactful amendment before was the removal of VAT on real estate transactions”.

Managing Director of NISH Affordable Housing Limited, Dr Yemi Adelakun, noted that the REIT provisions under the law are essential for equity and fixed income portfolios and promote diversification, higher returns with shared risks in construction and real estate development.

“The provision of the Finance Act 2021 to facilitate the growth of REITs is a step in the right direction with great prospects for real estate development in Nigeria.

“This has the potential to attract much-needed private equity funds to the real estate sector in both domestic and international markets, as opposed to the current high cost debt financing.”

Adelakun explained that financing housing needs through equity-based innovation could provide the best solution to Nigeria’s liquidity crisis in housing. For example, public-private capital (PPE) offers the prospect of more stable funding than debt financing and has the ability to deliver at scale in a sustainable manner.

According to him, “all housing players, whether public or private, can become shareholders in a construction project or a cluster of projects by investing in a Special Purpose Vehicle (SPV) approved by the Security Exchange Commission. .

However, he revealed, “This provision, however, falls far short of the coordinated policy measures needed to transform the housing sector and provide affordable housing to all Nigerians.

“This initiative and other similar uncoordinated initiatives are unable to address some deep-rooted problems in the real estate sector, particularly high interest and inflation rates as well as short-term debt which are unsuitable for real estate development. long term and financing needs.

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