Outrage as government makes N60b from new equity tax regime


• Stakeholders accuse FG of double taxation
• Say reintroduction is disincentive to investment

With the resumption of Value Added Tax (VAT) collection from stock market transactions, investors will return at least N60.11 billion into government coffers in one year. The move, however, has drawn criticism from some stakeholders who said it would amount to double taxation.

The Federal Government had in 2014 granted a tax holiday on all stock market transactions, a deliberate attempt at reducing the high cost of transaction in the market and making it more attractive to investors.On the expiration of the tax exemption on July 24, 2019, dealing members were mandated to charge VAT on all commissions applicable to capital market transactions with effect from July 25, 2019.

The estimate, based on the N1.20 trillion total equity turnover of 2018, is in addition to the Withholding Tax (WHT) of 10 per cent applicable to dividend payments in Nigeria. The tax is deducted by the investee company before remittance of dividends to shareholders in line with Section 80 of the Companies Income Tax Act (CITA).

Analysts, operators and investors however argued that the development is equivalent to multiple taxation; citing the withholding tax on dividend being collected by government and other charges paid to regulators.

The stakeholders estimated that investors might lose about N2.47 billion yearly, especially with the listing of high cap stocks like MTN Communications and Airtel Africa, both of which have increased the capitalisation of the stock market.VAT is a tax on consumption especially of luxury items. Essentials like basic foodstuffs, healthcare and education are exempted.

The Federal Government, meanwhile, has assured that it is tackling the issues of stamp duties collection and the extension of VAT exemption on capital market transactions. Vice President Yemi Osinbajo, at the Awards Night of the Association of Issuing Houses of Nigeria (AIHN) in Lagos recently, said these and other problems were being addressed and a resolution would be announced very soon.

But the stakeholders insisted that urgent measures must be taken to forestall further loss of investment especially at a time investors’ confidence in the market has been eroded due to macroeconomic headwinds and other external factors.They said the return of VAT would further dampen investors’ appetite for stocks, trigger migration of investment to money market instruments, and deter foreign participation in stock market.

They noted further that transaction cost in the Nigerian capital market is one of the highest in the world, saying this has made it difficult to attract global investors to the equity market, thus reducing its capacity to contribute meaningfully to capital formation in Nigeria.The managing director of Highcap Securities, Imafidon Adonri, said the elimination of VAT in 2014 was a deliberate action to reduce the high cost of transaction in the market, which was one of the major disincentives to investing. According to him, at the time government took the action, the capital market was already showing signs of fragility arising from economic distress.

He posited that the return of VAT and contract stamp would continue to put equities at a competitive disadvantage. “At the twilight of the President Goodluck Jonathan administration, when the Nigerian economy was threatened with stagflation, the Federal Government suspended charging of VAT and contract stamp for transactions in the secondary market of the capital market.

“The policy was a fiscal measure enunciated to reduce the cost of transaction, prevent capital flight, and make the Nigeria capital market attractive. It was to secure the capital market against the adverse consequences of a falling economy,” Adonri said.He continued: “Transaction cost in the Nigerian capital market is one of the highest in the world. Strangely, the capital market in Nigeria is an arena for fees to government, regulators and various operators, all loaded on the investors.

“As a result, it is overcharged and globally uncompetitive. Huge transaction cost has made it difficult to attract global investors to the equities market, thus reducing its capacity to contribute meaningfully to capital formation in Nigeria.”He added: “For the equities market to flourish and contribute meaningfully to capital formation, withholding tax, VAT and contract stamp should be abolished from the capital market. Nigeria should stop subsidising consumption and also stop penalising investment through counter-productive taxation.”

The head of research, FSL Securities, Victor Chiazor, said the reintroduction of the tax charge on market transactions was expected to cause some form of lethargy towards the already bearish market.“The tax exemption granted to the NSE in 2014 was done towards improving market participation and encouraging interest from the investing public, especially given that the market performance prior to that period had been largely bearish.

“Going forward, the reintroduction of the tax charge on the market is expected to cause some form of lethargy towards the already bearish market as a few investors already complain of the high transaction charge on their stock market transaction. If this cost is added, it will further drive the cost of each transaction higher.

“We are aware of the government’s need to increase its revenue base but we believe that for a market like ours, which still suffers from low public interest and participation, an extension for at least two years would be fair enough to aid market penetration and further increase interest in the market,” Chiazor said.

The director, Centre for Economic, Policy and Research, University of Lagos, Prof. Ndubuisi Nwokeoma, admitted that the nation’s tax-to-GDP ratio is relatively low when compared to other emerging countries. He, however, maintained that imposing taxes on an impoverished population is unacceptable.
“We do not need to tax a very poor population. If you look at tax-to-GDP ratio in Nigeria, it is about six per cent but you do not tax an impoverished population. This is because the economy is not growing. If you do, you might get to a limit where you try to discourage production in the system,” said Nwokeoma.

In this article:
taxYemi Osinbajo
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