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He pointed out that arriving at an investment-friendly tax regime in Nigeria will spur activities in the local bourse, and ultimately bring back Initial Public Offerings (IPOs) while inappropriately designed tax framework tends to impede the development of the nation’s capital market Consequently, he said taxes like VAT and stamp duty should be removed from all capital market transactions to encourage and attract more investors into the market.
“A situation where the government collects from the company and also taxes the investors on the little that is coming from the company is discouraging; it is a disincentive to investment “To attract more investment into the market and encourage listed firms’ growth, the government must remove these taxes impeding the growth of the market and enable the market to play a pivotal role in capital formation and economic development in Nigeria,” he said.
“All of these will help increase capital market transactions as well as increase domestic interest in the market if they become effective,” he said A Professor of Capital Market at the Nasarawa State University, Keffi, Uche Uwaleke, said the cost of transactions in the Nigerian capital market is quite high compared to peer countries to the extent that this discourages participation.
“Over the last four years, we have seen foreign participation in the equities market drop from a high of over 70 per cent to currently below 30 per cent while domestic participation has increased from as little as below 30 per cent to currently over 70 per cent.” Chiazor pointed out that incentives such as the tax exemption enjoyed during the period of tax waiver supported the increase in domestic participation in the equities market.
Head of Research, FSL Securities, Victor Chiazor, said the issue around tax cuts for some segments of the capital market is being discussed on the back of the need to deepen the capital market and incentivize the Nigerian public to invest in the capital market.
“To attract more investment into the market and encourage listed firms’ growth, the government must remove these multiple taxations impeding the growth of the market and enable the market to play its pivotal role of capital formation and economic development in Nigeria,” he said.
According to him, for the equities market to flourish and contribute meaningfully to capital formation, withholding tax, VATs, and contract stamps should be abolished from the capital market.
“After the 30 per cent company income tax, the shareholders are also levied 10 per cent withholding tax on their dividends, which is tantamount to double taxation.
According to him, there is a need for the government to reconsider its stance on the issue of VAT and Stamp Duty on capital market transactions to stimulate activities in the market and make it contribute meaningfully to capital formation.
Therefore, he suggested that rather than imposing VAT on stock market transactions projected to increase in the coming years, the government may consider introducing a Securities Transaction Tax (STT) which is a direct tax levied on every purchase and sale of securities that are listed on licensed Exchanges in Nigeria as is the case in India.
Besides VAT and 10 per cent withholding tax on dividends, there is also a 30 per cent company income tax (CIT) charged in addition to other regulatory charges, which operators described as high and discouraging to investors.
“After the 30 per cent company income tax, the shareholders are also levied per cent withholding tax on their dividends, which is tantamount to double taxation.
The Federal Government, had in 2014, granted a tax holiday on all stock market transactions, a deliberate action to reduce the high cost of transactions in the market and make it more attractive to investors.
He said going by the level of activities in the capital market, it is obvious that the market is still in need of various incentives to attract domestic investors into the market.
He said the issue of multiple taxations will be less debated if the government introduces incentives like tax cuts on company dividends, VAT exemptions on transactions as well as creating products that attract tax cuts when investors decide to invest in such products.
He argued that the amendment limiting minimum tax computation to 0.5 per cent of turnover, and companies with turnover below N25 million to be exempted from minimum tax payment of 20 per cent, now applies to small businesses with a turnover of between N25 million and N100 million may not benefit listed companies.
Consequently, he said taxes like VAT and stamp duty should be removed from all capital market transactions to encourage and attract more investors into the market.
For venture capital companies, dividends paid enjoy tax relief, while gains arising from the trade of shares were exempted from capital gains tax..
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