To spur stock market rebound post-COVID-19, experts have called for the removal of Value Added Tax (VAT), and stamp duty on capital market transactions.
Also, they urged regulators to review upward the current N5billion investors’ compensation claims in the Investor Protection Fund (IPF), to boost stockholders’ confidence.
IPF is to a fund created to compensate investors with genuine claims of pecuniary losses against dealing member firms resulting from, insolvency, bankruptcy or negligence of a dealing member firm of a securities exchange.
Specifically, a Professor of Capital Market at the Nasarawa State University, Keffi, Uche Uwaleke, said to stimulate activities in the market and make it contribute meaningfully to capital formation, government must remove VAT and Stamp Duty on capital market transactions, which was reinstated some months ago.
Recall that stakeholders had in 2019, condemned a Federal Government’s directive to return VAT on all stock market transactions, saying the action is disincentive to investment.
Dealing member firms of the Nigerian Stock Exchange (NSE), were directed to charge VAT on all commissions applicable to market transactions effective July 25, 2019.
A notice to stockbroking firms by then Head, Broker-Dealer Regulation, NSE, Olufemi Shobanjo, recalled a circular dated October 27, 2014, referenced: BDR/CIR/GOI/10/14, on VAT exemption on commissions on stock transactions order.
This was granted by then Coordinating Minister for the Economy and Minister of Finance, Ngozi Okonjo-Iweala in 2014, as published in the Government’s Official Gazette No. 95, Vol. 101 issued on July 30, 2014.
Against this backdrop, Uwaleke said: “There is no doubt that transactions cost in our market is quite high relative to many other countries. The issue of non-competitive pricing in the Nigerian capital market has always been there.
“In terms of transactions costs, it is relatively cheaper in jurisdictions like India and Malaysia and ditto for the cost of primary and secondary issues processes.
“Regulatory charges are comparatively high and the situation is not helped by the high interest rate environment in Nigeria with MPR as high as 13.5 per cent, whereas it is single digit in these other countries including, South Africa.
“The government can help in this direction by once again removing VAT and Stamp Duties on capital market transactions, which was reinstated some months ago,” he added.
In regards to investors, whose companies were delisted, Uwaleke said: “The fact remains that investment in the capital market like every other investment, involves risk and every investor should be made to realise that.
“Having said that, such investors can benefit from the IPF put in place by the regulatory authorities. I also think the size of the fund should be increased from the current level of N5billion as doing so, will help boost investor confidence in the capital market.”
The President, Ibadan Zone Shareholders Association, Eric Akinduro, said: “Government must reconsider its stance on VAT to encourage local investors, who are already bowing to sell pressure due to the poor state of the economy and low purchasing power.
“Also, the market is saturated with various taxes and commissions on transactions; therefore, including VAT will further send a wrong signal to investors and discourage them from investing in the market.
“Recent statistics showed that the returns on investment and capital appreciation have reduced drastically and in view of this, and on behalf of the entire members of the Ibadan Zone Shareholders Association, we hereby request that the Federal Government should extend the VAT exemption pending the time the economy recovers.”
The Managing Director, Highcap Securities Limited, David Adonri, said the elimination of VAT in 2014, was a deliberate action to reduce the high cost of transaction in the market, which was one of the major disincentives to investment.
He recalled that when government took the action, the capital market was already showing signs of fragility arising from economy-wide distress as witnessed presently, saying the return of VAT and contract stamp will put equities at a competitive disadvantage.
He added: “For the equities market to flourish and contribute meaningfully to capital formation, withholding tax, VAT, and contract stamp should be abolished from the capital market, Nigeria should stop subsidising consumption, and also stop penalising investment through counter-productive taxation.”
The Chief Research Officer, Investdata Consulting, Ambrose Omodion, said the restoration of VAT on all transactions will discourage investors’ participation in the market. He described the move as multiple taxes, considering the withholding tax on dividend being collected by government, and other charges paid to regulators, and instead called for policies that will spur market activities and resuscitate the economy.