Following the expiration of the Value Added Tax (VAT) waiver on commissions of transactions done on the Nigerian Stock Exchange (NSE) July 24, 2019, the domestic bourse notified dealing members and other players in the nation’s capital market of a reintroduction of the VAT charges.
The 5-year VAT exemption order, which became effective July 25, 2014, was granted in 2014 by the then Coordinating Minister of the Economy and Honourable Minister of Finance, Ngozi Okonjo-Iweala, in an attempt to encourage investments and resuscitate the Nigerian capital market by reducing the cost of transactions for investors.
This waived VAT on commissions was earned on traded values of shares and payable to the apex regulator of Nigeria’s capital market, the Securities and Exchange Commission (SEC), the Nigerian Stock Exchange and the Central Securities Clearing System (CSCS).
But with the new development, it is important for the investing public within the nation and across the world to take note of the implications of a reintroduced 5 percent VAT on commissions just before any further extensions from the Federal Government.
When an order is initiated by an investor on the NSE either to Buy or Sell some units of a particular company’s stock, some trading fees are levied on the investor depending on the kind of transaction requested by the individual.
These fees comprise the NSE Fee, CSCS Fee, Trade Alert Fee, SEC Fee, Stamp Duty and Brokerage Commission earned by the stockbroking firms mandated to execute a transaction.
No NSE fee or CSCS fee is charged on a Buy order, according to information obtained from the NSE. However, N4 is billed on each transaction as Trade Alert Fee, stockbroking firms are permitted to charge between 0.75 – 1.35 percent of the traded value of shares, while 0.3 percent and 0.075 percent of the worth of your transaction are deducted as SEC Fee and Stamp Duty, respectively.
On the flipside, no SEC fee is levied on any Sell order on the NSE. However, 0.3 percent of the traded value of shares is charged each as NSE and CSCS Fees with Brokerage Commission, Trade Alert and Stamp Duty Fees retaining the same rates as obtained for share purchase.
The expiration of the 5 percent VAT waiver means for a broker that charges 1.35 percent of transaction value, an additional 5 percent of brokerage commission (5% of 1.35%) would be levied on the investor, bringing the payable rates on brokerage to 1.42 percent regardless of whether you Buy or Sell stocks.
The VAT is not only payable on commissions earned by dealing members (brokers) of the Exchange but also payable to the NSE and CSCS, according to the NSE. This implies by NSE trading structure, no VAT is charged on NSE and CSCS Fees from the Buy side. But for the Sell side, 5 percent of NSE Fee (5% of 0.3%) and an additional 5 percent of CSCS Fee (5% of 0.3%) are billed for every transaction.
In simple terms, anytime you attempt to buy some shares of a company’s stock, N4 would be charged as Trade Alert Fee, 0.3 percent as SEC Fee, 0.075 percent as Stamp Duty, while 1.42 percent (if your broker charges 1.35%) on Brokerage Commission including VAT.
But when you attempt to sell your holdings in a listed firm, N4 would also be charged as Trade Alert Fee, 0.075 percent as Stamp Duty, 0.32 percent each for NSE and CSCS Fees including VAT, and 1.42 percent (if your broker charges 1.35%) on Brokerage Commission including VAT.
By BusinessDay calculations, investors would pay 1.795 percent of their trade value on NSE charges for every Buy transaction excluding N4 Trade Alert Fee from 1.725 percent, while 2.135 percent would be paid for every Sell transaction as against 2.025 percent charged earlier. This is based on the assumption that the broker charges 1.35 percent for Brokerage Commission.
