Chinwendu Obienyi

Despite the recent move to implement the new Finance Act, the law on excessive dividend tax has continued to generate controversy as shareholders of quoted companies on the Nigerian Stock Exchange (NSE) and market analysts have given diverse views as to how it would affect the economy.

The Bill,according to the Federal Government, is primarily focused on raising additional revenues in order to meet its 2020 budget targets.

Furthermore, as part of a continuing trend in recent years, the government, supported by the Federal Inland Revenue Service (FIRS), seeks to reform the domestic tax laws to better align them with international practices. Other objectives of the Bill are to promote fiscal equity, support small businesses and encourage investments in infrastructure and capital markets through tax incentives.

According to the stakeholders, the changes, for the most part, are encouraging and suggest the government’s willingness to promote business growth, particularly with the exemptions introduced for small and medium sized enterprises (SMEs), and the reduction of the scope of Section 19 on Excess Dividend Taxes thereby eliminating the effects of double taxation.

However, it is important to note that there are still some key areas in the tax regime that are yet to be significantly reformed such as the Stamp Duty Act, particularly with respect to uncertainties as to the party that should bear the stamp duty in many instances. Also shareholders are of the opinion that the changes will not entirely erase the taxes as the government should focus solely on tax after profit.

Under the Corporate Income Tax (CIT) provision, profit of companies that are already subject to tax under one of the following: Capital Gains Tax (CGT) Act, Petroleum Profit Tax (PPT) Act and Personal Income Tax (PIT) Act will not be taxable under the CIT Act.

Furthermore, the CIT provision states that there will not be additional CIT on: dividends paid out of retained earnings, provided that the dividends are paid out of profits that have been taxed.

Speaking to market stakeholders during a recent symposium tagged, “Finance Act 2019” at the Nigerian Stock Exchange (NSE) in Lagos , Chief Executive Officer, NSE, Oscar Onyema, noted that the signing of the Finance Bill into law represents a landmark achievement for the Nigerian capital market while adding that the Exchange alongside Securities and Exchange Commission (SEC) as well as other capital market stakeholders have been at the forefront of advocacy with policy makers and tax authorities for favourable tax structures for primary and secondary markets activities.

Onyema stated that the elimination of double taxation in Collective Investment Schemes (CIS) including Real Estate Investment Structures as pronounced by the act is expected to have a significant impact on the growth of the currently nascent $2.77 billion asset management industry in Nigeria.

He further said it is expected that there would be an exponential growth in securities lending activities which will further boost market liquidity, given the elimination of tax on manufactured dividend arising from securities loan transaction.

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Corroborating him, Manager, Tax Regulatory and People Services at KPMG, Ikechukwu Eneh, said the Finance Act has increased the definition of interest  and dividend income to include transactions that has to do with securities lending and urged market operators to engage with the SEC in drafting out a framework that will aid growth in that segment.

According to Eneh, the Federal Government created the exemptions to eliminate the risk of double taxation. He noted that, in line with  the Federal Government’s efforts to encourage local investments/support businesses by the elimination of double taxation i.e., via the Section 19 excess dividend tax on dividend distributions in excess of current taxable income, the list of income exempt from additional CIT has been expanded.

“This has been one of the most controversial provision in the tax law currently. What government has realised that if people are complaining of the excess dividend tax rule leads to double taxation, what do we do in order not to tax people on the same income twice? Thus, through the Finance Act, they have created exemptions on this dividend tax issue and the exemptions include that, once that income that you are using to declare dividend has suffered tax before, it should be exempted in applying that excess dividend tax rule.

So if the income is exempted from taxes, then it should not also form the basis of the taxable profit that will be considered under excess dividend tax rule. I think with this recent finance act and clarification, the issues surrounding excess dividend tax will drastically reduce”, he said.

Eneh explained that with such clarification, investors (domestic and foreign) should now be encouraged to reinvest profits into their businesses without fear of double taxation upon eventual repatriation of such previously taxed or exempted income.

But in an interview with Daily Sun, President, Progressive Shareholders Association of Nigeria (PSAN), Boniface Okezie, said the Finance Act does not address the issue adding that all taxes except taxable profit should be scrapped.

His words, “You charge 10 per cent for Withholding Tax from a company that declares dividend, you also charge shareholders Withholding Tax of 10 per cent. The same company pays tax regarding education, government levy. It is excessive and we had complained earlier about this, but we were told that it is the policy of the government that any individual that owns shares in a company must pay tax as long as the company is declaring dividend.

My take is this, all taxes regarding education, government levy and other taxes except the tax removed after the company has made profit should be scrapped. The government should concentrate on that and not others because this Finance Act has not yet addressed the issue of excess dividend tax”.

For his part, National President, Constant Shareholders Association of Nigeria (CSAN), Mallam Shehu Mikail, noted that the Finance Act would not take away the burdens of the masses considering that they have never enjoyed the benefit of the taxes they are paying for.

“This finance act has not address anything. Firstly, a government that has few directions on what to do is not going to address issues because these problems keep mounting.