Investors could pay about N2.5 billion yearly as additional costs on transactions, following the Federal Government’s resumption of Value Added tax (VAT) collection on stock market transactions.
Investors would pay an average of N2.49 billion yearly or N207 million monthly, based on transactions in the past two years.
A five-year VAT exemption granted to the stock market on July 25, 2014 expired on July 24, 2019. The Federal Government did not renew the exemption, thus the Nigerian Stock Exchange (NSE), Central Securities Clearing System (CSCS) and stockbroking firms added VAT to charges on transactions from July 25.
A check at the weekend indicated that the addition of VAT to market charges increased total costs of transactions-on both buy and sell sides, from 3.7500 per cent as at July 24 to 3.9150 per cent as at July 25. The CSCS, the clearing house for the stock market, automatically deducts VAT on commissions payable to it and the NSE while operators use preconfigured software.
Capital market stakeholders at the weekend described the re-imposition of VAT on stock market transactions as “insensitive”, decrying the seeming disconnect between government’s fiscal policies and its understanding of the importance of a virile capital market.
With the re-imposition of five-per cent VAT, commission payable to stockbrokers increased from 1.35 per cent per transaction to 1.4175 per cent. Commission payable to the NSE also increased from 0.3 per cent to 0.315 per cent while the commission payable to CSCS increased from 0.36 per cent to 0.378 per cent. Besides, investors will pay stamp duty of 0.075 per cent on each transaction.
The NSE and CSCS only receive commissions on sale transactions while operators charge commissions on both sell and buy transactions. Government charges Stamp Duty and VAT on commissions on both sell and buy transactions.
A breakdown of the total costs per transaction indicated that total costs on buy side have increased from 1.7250 per cent as at July 24, 2019 to 1.7925 per cent by July 25, 2019 while total costs on the sell side have increased from 2.0250 per cent to 2.1225 per cent.
Total transactions at the NSE had dropped from N2.543 trillion in 2017 to N2.404 trillion in 2018. Total transactions stood at N1.087 trillion in the first half ended June 30, 2019.
Chief Executive Officer, Sofunix Investment and Communications, Mr. Sola Oni, said the re-imposition of the VAT was a bad omen for the stock market, describing it as another way of using unpopular government policy to stifle the capital market.
“It will obviously increase transaction cost and make our market more uncompetitive. High transaction cost is at variance with global best practices. The policy is an overkill at a period when investors’ confidence in the market is still fragile,” Oni said.
He called on the government to reverse the policy and provide further incentives to stimulate the domestic capital market.
Chief Dealer, Globalview Capital Limited, Mr. Aruna Kebira, said the re-imposition showed the lacuna in the Ministry of Finance and the bureaucratic bottlenecks in the government.
Shareholders have also berated the government for what they described as its unconcerned attitude towards the capital market.
Shareholders under the aegis of Ibadan Zone Shareholders Association (IBZA), one of the six zonal shareholders’ associations promoted by government, stated that the re-imposition of VAT was a bad policy considering persistent decline that has overran activities at capital market. They said the re-imposition showed insensitivity of government to the plight of investors and development of small and medium scale enterprises in Nigeria.
The association noted that in recent weeks, the Nigerian capital market has been experiencing sustained decline which has led to fewer gain and resulted into panic selloff among investors and massive loss of investments.
“The continued market decline is a clear indication that something is critically wrong with the Nigerian economy, especially looking at the mixed macroeconomic indices revealing very weak economic fundamentals, in the form of low market liquidity and absence of a policy direction,” IBZA stated.
They pointed at the decline in transactions at the stock market and continuing deficits in foreign portfolio investments as indications of the challenges being faced by the capital market.
They called on the government to reconsider the re-imposition noting that the market is already overburdened with multiple taxes.
“The market is saturated with various taxes and commissions on transactions, inclusion of VAT will further send negative signal to the investment community, resulting into loss of shareholders value as this will discourage many investors from investing in our market,” IBZA stated in a statement signed by its chairman, Mr Eric Akinduro and General Secretary, Mr Olufemi Ayoola.