Barely two years after the resumption of Value Added Tax to the stock market, investors have returned about N30 billion into government coffers. The amount includes the 10 per cent withholding taxes remitted to the government, despite market operators groaning under the weight of double taxation.
Against this backdrop, stakeholders have urged the Federal Government to abolish the withholding tax and VAT from the market to enable it to contribute meaningfully to capital formation. They recalled that when the government took the action, the capital market was already showing signs of fragility arising from economic distress, saying the return of VAT and contract stamp has put the market at a competitive disadvantage.
As at 2014, the all-share index , which measures the performance of listed equities, stood at 41,329.14 points. Unfortunately, as at the close of trading on Wednesday, July 14, 2021, the index closed at 37,872.55 points. This represents 3,456.59 points or 9.13 per cent loss.Chief Research Officer of Investdata Consulting Limited, Ambrose Omordion said the reduction of some taxes on capital market activities and the abolition of others would enhance investment in Nigeria.
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 while inappropriately designed tax framework tends to impede the development of the nation’s capital market Findings revealed that tax structure in other jurisdictions showed various African exchanges have continued to ensure that listings do not create any additional tax burden and have instead offered several tax incentives aimed at encouraging listing.
Also, the Nairobi Stock Exchange Kenya enjoys exemption from stamp duty upon creation of new and increase of authorised share capital and stamp duty exemption on the transfer of shares and other securities. 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.
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. “This in my view is a preferred option to VAT given that the rates are usually very low ranging from 0.001 per cent to 0.01 per cent on taxable securities including equities, bonds, ETF and Derivatives contracts. Any effort geared toward reducing this cost is welcome.”
He decried the withholding tax on dividends, after taxing the corporate income from which the dividend was paid, also describing it as double taxation.
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