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Mounting anxiety over proposed VAT on stock market transactions



  • Analysts project N2.5billion loss annually


A cloud of uncertainty and despair seems to the hanging over the prospect of the Nigeria Stock market as the federal government reinstates the suspended Value Added Tax, VAT on transactions. The anxiety over the matter stems from the continuing poor performance of the market in the past four years since the suspension of the tax in 2014.

The VAT was earlier suspended following the down turn in the economy and by extension the market as a result of slump in oil price in 2014 to prevent the free fall in the market and encourage trading activities. The tax was suspended for a period of five years in the first instance but the government decided not to renew it.

At a recent meeting with the vice President, Prof. Yemi Osinbajo, the Capital operators’ Association, had enjoined him to support them in continuing with the suspension to improve the transactions in the market. They had lamented the worsening market condition compounded by political challenges such as insecurity. However, Osinbajo had assured them that government is still reviewing the matter and a committee, which reports to him is dealing with the issue presently.

BusinessHallmark gathered from dealing members of the Exchange that the commissions payable to stockbrokers have increased to 1.41 percent from 1.35 percent per transaction; commission payable to the NSE also increased to 0.31 percent from 0.3 percent, while the commission payable to Central Securities Clearing System, CSCS Limited rose to 0.38 percent from 0.36 percent.

In the main, the total cost per transaction on the buy side increased from 1.72 percent to 1.79 percent while total costs on the sell side rose from 2.02 percent to 2.12 percent, making the total transaction cost in both buy and sell side to rise by 0.17 percent

Findings also show that investors pay stamp duty of 0.075 percent on each transaction.

Recall that the then Minister of Finance, Dr. Ngozi Okonjo-Iweala, had in 2014 exempted VAT deductions from commissions earned on the traded value of shares, commissions payable to the Securities and Exchange Commission, SEC and commissions payable to the CSCS and commission payable to the NSE. The exemption expired on July 24, 2019 and the NSE resumed charges on July 25, 2019.

Earlier, this development was disclosed in a circular by NSE’s Head, Broker-Dealer Regulation, Olufemi Shobanjo.

Henceforth, the commissions that attract VAT include the ones earned by Dealing Members on traded values of shares and the ones payable to the NSE and the Central Securities Clearing System (CSCS).

In the circular, the NSE also disclosed that CSCS would automate the deduction of VAT charged on commissions payable to the NSE and the CSCS. Dealing Members are required to resume the deduction of VAT on commissions earned.

Reacting to this development, the chief operating officer at Investa, Ambrose Omordion told this newspaper that ” the overall effect it will have is persistent bearish situation. As far as I am concerned, this is the greatest disservice to the capital market by this administration. It is better they have a rethink.”

Mr. Abayomi Obabolujo, a financial analyst and stock market expert, who doubles as publisher of Stockswatch magazine, told BusinessHallmark that “The development is not good for the capital market, the policy should have been extended to shore up the return of bullish trend.”

On his own, the Managing Director, APT Securities & Funds Limited, Mallam Kasimu Kurfi said: “Since the extension of the exemption on VAT has not been extended it has definitely increased the cost of transactions in the capital market and therefore continues to affect the bearish situation of the market. The increase of the cost of transactions is one of the causes of less participation of foreign investors.”

In his reaction, Head of Research and Investments, FSL Securities Limited, Victor Chiazor said: “Given the reintroduction of VAT charges on stock market transactions, we estimating that investors would lose about N2.47 billion annually especially with the listing of high cap stocks like MTN Communications and Airtel Africa both of which have increased the capitalisation of the stock market.”

Dr. Olufemi Omoyele, a financial analyst told BusinessHallmark that, “contemplating an increase in VAT now is wrong on right timing and inconsistent with current economic reality. For instance, it will further depress stocks’ prices and increase transactions cost in the Nigerian Stock market.

“For now, every purchase or sale of shares by stockbrokers to investors attracts five per cent VAT as commission on the Nigerian Stock Exchange (NSE). There are fears that further increment would cause more apathy on the already depressed market and reduce investors’ patronage. When investors’ patronage on the market is reduced, then there will be a free fall in the share prices of companies which, of course, will impact negatively on the stock market. Since stockbroker already charge five per cent, further increase in VAT may be a disincentive to investing in the market.


Checks on the NSE fee structure in its ‘Green Book’ revealed an array of fees like c, Value Added Tax, Stamp Duty, and Brokerage Commission, which exclude securities-tied fees also payable by the listing or delisting corporates.

Further investigations show that transaction costs across global markets appear highest in Nigeria and Ghana while the United States (US) has the least transaction cost with no charges on stock trades.

Hence, lower cost of transaction appears consistent with the level of market development and by implication, market efficiency, as costs are lower in U.S., China, India and South Africa, which is more developed compared with Nigerian and Ghanaian markets.

It is also noted that a comparative cost analysis embarked on across markets in Africa showed that Nigeria’s statutory fees (exclusive of brokerage commission) remain the highest not only in Africa but also across major emerging markets across the globe (save for Ghana, which is almost at same level with Nigeria at 0.7 per cent).

For instance, stockbrokers earn only 1.350 per cent of the total cost of 4.04 per cent charges on the equity transactions. The rest goes to Securities and Exchange Commission (SEC), Central Securities Clearing System (CSCS), NSE and statutorily charges such as stamp duty and VAT.



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