All dealing member firms of the Nigerian Stock Exchange (NSE) have been notified to resume charging of 5 percent Value Added Tax (VAT) on all NSE transactions effective next week Thursday, July 25, 2019.
Retail and institutional investors are expected to bear the brunt of the new charges, leading to higher transaction costs.
This follows the expiration of Order for Exemption of VAT from all NSE transactions which was granted in 2014 by Ngozi Okonjo-Iweala, then coordinating minister of the economy and minister of finance.
As part of the Federal Government’s policy measures to encourage investments in the Nigerian capital market, the Order which became effective on July 25, 2014 was to operate for five years. It expires on July 24, 2019.
Following this development, VAT on commissions will now be charged on transactions conducted on the NSE.
Read More: Vat on securities dealings near as 5-year exemption set to expire
Federal Government had five years ago exempted from VAT commissions earned on traded value of shares payable to Securities and Exchange Commission (SEC); payable to the Nigerian Stock Exchange (NSE); and payable to the Central Securities Clearing System (CSCS).
At the NSE, despite that prices remain attractive across the board, investors are not positioning in anticipation of an impending market reversal and have not shown the willingness to take advantage of beaten-down prices.
Market analysts had noted VAT on NSE transactions would impact negatively on the market that is already down and struggling to recover.
For instance, the domestic investors are not buying stocks as they should and the foreign investors are not playing big here. The stock market is down by -9.83percent year-to-date (Ytd).
Reacting to this new development, Obinna Igwe, a Lagos-based stockbroker, said the new directive was coming at the wrong time when activities in the equities market were at their lowest run.
“This could further dampen the morale of investors, the market is waiting for the right policies to spur growth and not this kind of policy,” he said.
Emeka Uzom, a stockbroker, said the order of exemption for VAT on all NSE transactions conceived in 2014 did not really achieve its aim.
“There has to be more robust policy thrust by the government to drive the capital market,” he said.
Uzom lamented that months after the general elections, the Presidency was yet to constitute the National Executive Council.
Many emerging markets try to limit taxes on their capital markets in a bid to make them more attractive for investors to participate.
For South Africa, securities transfer tax is payable at a rate of 0.25 percent of the purchase consideration for the relevant security, unless that consideration is less than market value, in which case the securities transfer tax is based on the market value. Securities transfer tax is also payable on the redemption or repurchase of securities. The tax is payable by the company whose shares are redeemed or repurchased.
Iheanyi Nwachukwu & Olufikayo Owoeye
