No to 5 per cent VAT charges on NSE transactions

The Value Added Tax (VAT) exemption on equity transaction was granted by the Federal Government in July, 2014 for five years during President Goodluck Jonathan’s administration; it exempted brokerage commission and transaction fee charged by Security Exchange Commission (SEC), Nigerian Stock Exchange (NSE) and Central Security Clearing System (CSCS) Plc from five per cent VAT.

The exemption was for five years and following the expiration of the exemption, the NSE notified stock brokers that effective from July 25, 2019, five per cent VAT would now be charged. We appeal that the Federal Government rescinds this harsh policy as this will amount to multiple taxation to shareholders, even if the market is bullish.

A five per cent VAT means an investor who wants to invest N100m in equity will have to pay N5m as VAT; this is too high; equity investment is not a commodity to sell like cement but an investment in which the returns cannot be predicted, sometimes it could go negative (hence total commission charged VAT inclusive should not exceed 1.7 per cent of buying purse). Is this the amount other developing countries collect, compared to the participation of the citizens in equity business?

For Nigeria, less than 5 million citizens do equity business which is about 2.5 per cent of her population, which is rather low, compared to about 10-15 per cent participation in most developed nations. The Federal Government already collects 30 per cent corporate tax from companies, another 10 per cent withholding tax from dividend and for every share purchased 1.8 per cent fee is collected, every share sold another 2 per cent fee is collected (NSE is already working to reduce this as it is still too high, then government wants to add another five per cent VAT).

• The state of Nigeria

Just last year in the United States of America, the corporate tax was reduced from 30 per cent to 10 per cent by the U.S government and this has caused a boom in the U.S stock market. Why can’t we emulate this noble idea? Since investment in the equity market is business and not charity, how much is the investor going to make from capital appreciation if government collects 8.8 per cent (five per cent VAT + 1.8 per cent +2 per cent NSE charges) from shareholders, added to interest rate from bank loans about 25 per cent per annum (as most large stock transactions are financed with bank loans) and 11 per cent annual inflation rate. Our policy makers should always consult widely; they should first understudy other developing countries like Kenya, South Africa, Ghana, Malaysia, India, Indonesia e.t.c before enacting any economic policy.

This VAT idea is not viable; it will further drive investors away from the already deserted and bearish market which is already 20 per cent negative this year.

David Atta,

Abuja.