REDUCTION of Value Added Tax (VAT) on houses built and sold by National Housing Corporation (NHC) is a debatable matter that may be considered in the next budget. However, an outright waiver is not possible, President Jakaya Kikwete, has said.
"I will support your bid to reduce VAT and the government may deliberate on it in the next budget, but it will not be possible to scrap VAT on the houses altogether," Mr Kikwete told the NHC Board of Directors and management in Dar es Salaam.
The Head of State made the remarks after laying the foundation stone for construction of 290 low-cost houses at Kibada in Kigamboni in the city.
The state-of-the-art housing estates will include basic infrastructure and recreational facilities. The scheme is among 14 projects being implemented by the housing corporation countrywide.
The corporation targets constructing 15,000 housing units by the year 2015. Mr Kikwete also took issues with interest rates of between 15 and 20 per cent charged on loans by financial institutions, saying that these were too high for most Tanzanians.
"I am also not impressed by the number of banks that are currently issuing loans through Tanzania Mortgage Refinancing Company (TMRC). The eleven banks are too few. I call upon other financial institutions to join TMRC. "I am not even sure whether the public is aware of the company and whether or not it issues loans to low-income earners," Mr Kikwete said.
He have directed the Ministry of Lands, Housing and Human Settlements Development, the Ministry of Finance and the Bank of Tanzania (BoT) to chart out ways of reducing interest rates so that more people can access mortgage facilities.
Earlier, NHC Director General Nehemiah Kyando- Mchechu and the Deputy Minister for Lands, Housing and Human Settlements Development, Mr Goodluck Ole-Medeye, had expressed concern that a number of factors, including VAT, were to blame for higher prices of its houses.
"In this project, for instance, a two bedroom selfcontained house would have been sold at 38.9m/- without VAT but they will have to be sold at 45m/-. The same applies to three bed-roomed houses which will be sold at 52m/- and yet they could have been sold at 44m/- without VAT," Mr Mchechu complained.
The NHC boss had proposed to the government to consider waiving VAT on houses with a value of less than 100m/- to make them affordable to ordinary people. Mr Mchechu had also complained that the corporation is forced to cough-up additional money to put in place infrastructure such as water, roads and electricity in its projects, which again accounts for about 18.5 per cent of the total cost of a respective project.
"If you add a VAT of 18 per cent and the 18.5 per cent for infrastructure facilities, it makes 36.5 per cent and these costs have to be passed on to the customer," he noted. He added: "It gives us a very difficult situation to construct affordable houses in the environment we operate.
This is also due to higher taxes on building and construction materials." Given the environment, Mr Mchechu as well proposed that the government provides 100bn/- in subsidy to the NHC in three years time, which he said would enable the corporation to put up 10,000 housing units.
Through the arrangement, the corporation will be able to construct houses and sell them on "tenants purchase agreements," to customers who do not meet requirements set by financial institutions, he explained. The NHC Board Chair, Eng. Kesogukewele Msita, said the corporation has improved collection of rent from tenants by about 98 per cent.
"At the time the new board and the management took office some few years ago rental fee collection was just 2.6bn/-, but the amount has more than doubled to 5.8bn/-," he said. And despite complaints from some of its tenants regarding increment of rental fees, Eng. Msita said NHC tenants pay just 60 per cent of fees charged in the market.
He hinted, however, that the corporation plans to increase the fees to about 85 per cent of the market price by the year 2015 to enable it conduct its operations smoothly.