VAT charges: Negligible impact seen on NSE daily market turnover
Despite that the Nigerian stock market is already down and struggling to recover, the recently reintroduced 5 percent Value Added Tax (VAT) charges on all commissions applicable to capital market transactions is yet to fully impact negatively on daily stock market trading activity.
The stock market is down this year by -13.12 percent as investors (foreign and local) largely remain on the side-lines in search of clear cut policies to guide investment decisions.
Lagos-based CardinalStone Research had said there will be negligible impact on market turnover following the expired Value Added Tax (VAT) exemptions placed on equities.
Stock market data show that as at July 26, investors in the market exchanged 130.845 million units in 2,749 deals; on July 29, it was 93.112 million units in 3,056 deals; while on July 30, they exchanged 155.213 million units in 3,192 deals.
Likewise, on July 31, 251.930 million units were
exchanged in 3,937 deals; on August 1, it was 97.359 million units in 2,936 deals; and on August 2, in 3,088 deals 161.650 million units were exchanged.
The mixed trend continued on August 5 when in 3,314 deals, equity dealers exchanged 280.695 million units; on August 6, it was 170.723 million units in 3,614 deals; on August 7, the market recorded total volume of 39.422 million units in 699 deals; while 220.800 million units were traded on August 9 in 2,702 deals.
The Value Added Tax exemption of Commissions on stock exchange transactions Order (Order) granted on July 25, 2014 by the then Coordinating Minister for the Economy and Minister of Finance expired on July 24, 2019.
This initiative was aimed at reducing the cost of transactions for investors and to encourage investments in the Nigerian Capital Market.
VAT is now charged on all commissions applicable to capital market transactions.
These are commissions: earned by Dealing Members on traded values of shares; and payable to The Nigerian Stock Exchange (NSE) and the Central Securities Clearing System Plc (CSCS). The CSCS automated the deduction of VAT charged on commissions payable to The NSE and the CSCS; and Dealing Members resumed the deduction of VAT on commissions earned; they are remitted to the Federal Inland Revenue Service (FIRS).
The Federal Government said recently at the Association of Issuing Houses of Nigeria (AIHN) event that it is already tackling the issues regarding stamp duties collection and the extension of the VAT exemption on capital market transactions.
The Vice President Yemi Osibanjo who was represented by Mary Uduk, Acting Director General of the Securities and Exchange Commission (SEC) said these and other issues are being addressed currently “and a resolution would be announced very soon.”
He Nigerian bourse had recorded significant decline in investors’ activity during the first-half (H1) period, with average daily turnover decreasing by 29.7percent year-on-year (YOY) in H1’2019.
The average volume of stocks traded in the week ended August 2 declined by 28.7percent, “partly due to the re-introduction of VAT charges on capital market transactions”, according to Lagos-based analysts at United Capital.