Precisely a year and two weeks ago, the Federal Government  through the Ministry of Finance announced intension to cancel payment of Value Added Tax, VAT, and stamp duty from secondary market transactions following outcry from investors, but the directive is yet to be implemented. NKIRUKA NNOROM in this report writes that delayed implementation is undermining progress in the capital market.

Over a year after the announcement by the Minister of Finance and the Coordinating Minister of Economy, Dr. Ngozi Okonjo-Iweala, that Value Added Tax and stamp duty would be removed from transactions in the secondary segment of the Nigerian Stock Exchange, NSE, nothing has been done.

Investors, especially the retail investors, who jubilantly welcome the announcement are still waiting as usual, hoping that the Federal Government would reconsider its silence and go ahead with the implementation. As a result of the delayed implementation, those that patronise the secondary market are still groaning under the weight of over-taxation, which the current scheme of things subjected them to.

Presently, investors that sell and buy shares from the stock exchange are made to pay certain percentage of money to the Securities and Exchange Commission, SEC, Nigerian Stock Exchange, Central Securities Clearing System, CSCS, and the stockbrokers, who are the middle men.

Precisely, the SEC takes 0.3 percent commission of total value of shares an investor sells; the NSE takes the same percentage (0.3 percent) of total value of shares bought; CSCS takes its own percentage both on buying and selling side, while that of stockbroking firms is graduated to between 0.75 percent and 1.3 percent depending on the volume either bought or sold. .

As a result, commission on secondary market transactions, most times, runs into huge sum depending on the volume of purchases or sells made. Besides, investors are also made to pay VAT and stamp duty as part of the commission. For now, total taxes as a percentage of transaction fees are currently as high as 12 percent; seven percent in VAT and five percent in stamp duties, causing high frictional costs on transactions.

It was, therefore, a welcome relief when the announcement for VAT and stamp duty removal was made last year. For those investors, it was supposed to mark an end to what they term over-taxation, which they have severally raised their voices against.

It is therefore, an understandable scenario when some shareholders’ associations once again renewed agitation for quick implementation of the policy. For some, the delay is a reflection of little importance the Federal Government attaches to activities in the capital market, while some believe that it smacks of little knowledge those at the helm of affairs in the country, including people in the House Committee on Capital Market have on issues pertaining to the market and the important role it plays in economic development of any nation.

For those of them that have insistently called for removal of such taxes, they argued that share sold and bought on the NSE are not consumer goods and should not be subjected to any form of taxation. According to them, over-taxation of investments in the market is disincentive to investment.

It is a general believe that the intended removal would unarguably reduce the total cost of transactions within the domestic secondary market and also drive trading activities, and until it is addressed, complete confidence and local patronage would continue to elude the market.

Investors hope raised
While making the announcement last year, Okonjo-Iweala, had said that the decision to waive the levies was part of the second measure taken to support the capital market. She had stated that at 12 percent charges on VAT and stamp duty, transaction fees on NSE was much higher than those in other jurisdictions, stressing that ‘these constitute major disincentive to invest in the Nigerian capital market.’

“I will like to announce that the Federal Government has consented to waive the 0.075 percent stamp duties payable on stock exchange transaction fees; and to exempt from VAT, commissions: (a) earned on traded values of shares, (b) payable to SEC, and (c) payable to the NSE and the CSCS; by including these commissions in the list of VAT-exempt goods and services,” she had said.

SEC, NSE await FG’s approval
Meanwhile, the NSE Chief Executive, Mr. Oscar Onyema, and the SEC DG, Arunma Oteh, had at different fora indicated that non-implementation of the cancellation was due to Federal Government’s delay in gazetting the directive, saying that until it is gazetted and approved, the change would not be effected. According to them, the policy needed the consent of the Attorney General of the Federation and the Federal Inland Revenue Service, FIRS.

Specifically, Oteh said, “We are at the gazetting process and we hope that it would be completed soon to ensure its implementation.”   What has become worrisome is why it is taking the Federal Government so long to give a final go ahead for the implementation.

Stakeholders’ worry
Stakeholders that spoke with Vanguard agreed that the delay is not in the best interest of the market as it is capable of eroding investors’ confidence and discourage foreign portfolio investment.
According to Abayomi Obabolujo, President, Association of Avid Shareholders, AAS, continued delay is unfair to investment and investors, while it also shows that the Federal Government cannot be trusted to keep to its words.

“When you make pronouncement, it is only fair that you follow it up with action,” he said, adding that “This will indirectly be jeopardising foreign portfolio investment and even foreign direct investment into the country as foreign investors will begin to see the government as not being sincere. By this, the government is not only discouraging investment in the capital market, but also destroying investors’ confidence.”

“Now, if the NSE said they are targeting $1trillion market capitalisation by 2016, the least the government should do is to support it by fulfilling its promises, starting with the implementation of VAT and stamp duty removal,” he added. “It is pertinent that those things – VAT, stamp duty – are removed now that we are moving into 2014, because it amounts to double taxation to pay for VAT and stamp duty after paying commission.

“As a matter of fact, the Securities and Exchange Commission, SEC, should begin to look at charging commissions on secondary market transaction based on ‘per transaction’ instead of charging on percentages. In other climes, commissions are charged per transaction regardless of volume of transaction; SEC should think of replicating this in Nigeria. It makes equity investment attractive,” he enthused.

“For stock market to be attractive and grow, charges must be low. Now, if investors sell shares, they are charged commission based on percentage of shares sold, whether they make losses or not; this is disincentive to investment. But if the commission they are removing is negligible, an investor can still take the loss and sell the shares,” he stressed.

Speaking in the same vein, Ambassador Olufemi Timothy of Renaissance Shareholders’ Association of Nigeria, said the Federal Government is not being honest, adding that they hardly keep to their promises. He said, “It is bad; we have been talking about huge charges at the exchange. When an investor is purchasing, he should not be charged SEC, CSCS, NSE and stockbrokers commission. That is why retail investors’ confidence is not coming back to the market.”

“A situation where local investors are not coming back to the market is a dangerous trend, because if any thing happens to the market as it did in 2008, the foreign investors will take their money and flee the market. I think that while they are wooing foreign investors, they should not totally ignore the local investors. We will continue to plead with the Federal Government to change their attitude and policy direction towards retail investors,” he noted.

For David Adonri, Managing Director/CEO, Lambeth Trust and Investment Limited, non-implementation of the directive one year after the minister’s pronouncement is a worrisome development.
He stated that as a result, double taxation, which is a major disincentive to investment in the capital market remains, even as he said that the market has so far not enjoyed the benefit of the policy change.

He further stated that, “It is necessary to bridge the yawning gap between policy pronouncement and implementation in Nigeria so that well intended measures can expeditiously serve their purpose.” he said.
For Mazi Okechukwu Unegbu, Managing Director, Maxifund Investment and Securities Limited, bureaucracy and lack of political will by the government could be the reason for non-implementation of the policy.

While urging the SEC to collaborate with FIRS to jointly facilitate the removal of VAT and stamp duties, he averred that stockbrokers are usually harassed by investors over non-implementation whenever they have transactions.