Multiple taxation, especially double taxation of dividends has always been a burning issue in the Nigerian capital market. In this interview with Financial Vanguard, Mr. Godwin Anono, Chairman, Nigeria Professional Shareholders Association, NPSA, said it is disincentive to investment in the stock market and called on the federal government to cut tax.
By Nkiruka Nnorom
WHAT is your view on taxation of dividends by the government and other taxes in the equities market?
The issue is that of multiple taxation on individual investors is worrisome because whenever a company declares dividend, before it gets to you, they will deduct 10 percent withholding tax and this is after the government must have taxed the company’s profit.
If a company makes profit of N10 billion and declares a dividend. On that N10 billion profit, government will collect their tax. Now, the owners of the company, who are the shareholders, when they are being paid dividend, the government will collect another 10 per cent withholding tax. This amounts to 10 per cent taxation from the shareholders and another 10 per cent tax from the company. So, when you look at it, the government collects 20 per cent tax from a particular company’s profit, that is if the company declares dividend.
The load is too much and it is cheating. The withholding tax was formerly five per cent before the era of General Ibrahim Babangida, but it skyrocketed from five per cent to 10 per cent in the era of VAT and other multiple taxation. This is why you have accumulation of deferred tax in companies’ books. Many of these companies have huge amount of deferred tax that they will pay one day. These are extra loads on the companies themselves. It is not fair; it scares investors away.
How do you think that this should be resolved?
Government should look for incentives to encourage foreign and local investors by bringing down withholding tax and tax on companies’ profit back to five per cent each. Government should think of ways of encouraging investors to come back to the equities market. In some countries, companies are given up to three to five years tax moratorium.
I was an audit committee member in Secure Electronic Technology Plc. Their business is gambling and government during Olusegun Obasanjo’s tenure as president gave the company tax concession and the tax authority was still writing and demanding for tax from them.
Today, the matter is still in court with the tax authorities. 10 per cent tax on a company’s profit and 10 per cent withholding tax on dividend is a lot of money, it is too much. Another thing is that some companies even deduct the withholding tax without remitting them. This is a matter of corruption in tax system in this country. If the government wants the capital market to come back to where it was, the tax should be slashed down to five per cent. If this is done, local investors will come; they will plough the money back into the market and the market will continue to grow. Companies themselves will plough the money back into their operation and they will continue to grow.
How do you think investors confidence could be retained in the stock market?
The Securities and Exchange Commission should be more stringent in enforcement of market rules. Stockbrokers, who still engage in one market infraction or the other should have their licences revoked. A situation where a stockbroker will defraud an investors and is still allowed to operate without appropriate sanction meted on them discourages investors.