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Market Digest Nigeria

Finance

NSE may lose N1.8bn monthly to VAT

NSE

EQUITY investors may be parting with about N1.83 billion monthly, in commission and other fees owing to the reinstatement of Value Added Tax, VAT, charges on transactions in the stock market, as well as the proposed 2.5 per cent increase in the VAT rate.

The Nigerian Stock Exchange, NSE, has recorded an average monthly transaction value of N83.23 billion this year, over which equity investors are paying an estimated 2.12 per cent charges, being fees and commission on the sell-side transaction. Domestic investors, who are irked by the development and other taxes imposed on equity investors, have, therefore, called on the National Assembly, NASS, and the Federal Government to reconsider the action and revert to status quo in order to save the market from the further crash. This year alone, the market has slumped by 13 per cent due to weak domestic investors’ participation and risk-off sentiment by foreign portfolio investors and institutional investors.

The huge downturn was moderated by the listing of two telecommunication giants, MTN Nigeria Communication Plc and Airtel Africa Plc, on the local bourse. Prior to the reinstatement of VAT on equities, sell-side transactions attracted 2.01 per cent charges, while buy-side transaction attracted 1.71 per cent charges. However, with the re-introduction of five per cent VAT and proposed increase by another 2.5 per cent, investors seeking to exit the market will henceforth pay 2.12 per cent of the total transaction value, while investors seeking to enter the market will now pay 1.79 per cent charges on fees and commission. Investment analysts at EFG Hermes, an investment banking firm, said the development would exacerbate the woes of the investors who have been battling with an unrelenting bearish run.

They opined that reinstatement of VAT in the stock market and the subsequent increase in the rate is a disincentive and could reduce the competitiveness of Nigeria’s equities market. Recall that following the lull in the equities market, the aftermath of the 2008/2009 global financial crisis and the need to encourage more investors’ participation, the Federal Government, in 2014, announced the suspension of VAT charges and waiver of stamp duty on transactions in the Nigerian stock market for a period of five years. The then Minister of Finance and Coordinating Minister of the Economy, Dr Ngozi Okonjo-Iweala, set up a committee to revive activities in the Nigerian Stock Exchange (NSE).

Following the decision reached by the committee, the minister announced a waiver of stamp duties and exemption of VAT on transactions on the Exchange. The VAT exemption applied with regard to commissions earned on the traded value of shares, commission payable to Securities and Exchange Commission, SEC, the Nigerian Stock Exchange, NSE, and the Central Securities Clearing System, CSCS. The exemption, designed to encourage investment inflow in the market, was effective July 25, 2014. Consequently, the exemption expired on July 24, 2019, and was not renewed by President Muhammadu Buhari. Thus, commissions earned or payable on the above-listed transactions were reinstated.

Breakdown of the fees Prior to the reintroduction of VAT, investors executing sell order-pay 0.3 percent fees to the NSE; 0.3 percent CSCS fee; 0.06 percent CSCS trade alert and 1.35 percent brokerage commission, bringing the fees payable to 2.01 percent. On the other hand, charges for buy order prior to VAT reinstatement include 0.3 percent SEC fee, 0.06 percent CSCS trade alert and 1.35 percent brokerage fee. However, with re-introduction of VAT and proposed increase by 2.5 percent, charges on sell-side transaction has risen to 2.12 percent comprising of brokerage fee (1.35 per cent); stamp duty (0.075 per cent), CSCS fee (0.3 per cent), VAT on CSCS fee (0.023 per cent), CSCS trade alert (0.06), VAT on CSCS trade alert (0.0045 per cent) and NSE fee (0.3 per cent). On the buy-side, charges apply thus: brokerage fee (1.35 per cent), stamp duty (0.075 per cent), CSCS trade alert (0.06 per cent), VAT on CSCS trade alert (0.0045) and SEC fee (0.3 per cent).

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