Omodele Adigun
As the Federal Inland Revenue Service (FIRS) steps up campaign to meet its N8 trillion revenue target, the expiration of the Value-Added Tax (Exemption of Commissions on Stock Exchange Transactions) Order of 2014 on Wednesday has thrown its tax net wider.
According to its Chairman, Babatunde Fowler, “as the fastest tax type in the world, VAT collection has been on the increase “. And the expiration of the exemption may be a boon to the tax authority to surpass its 2018 VAT receipt of N1.1 trillion.
However, some investors are calling for extension, arguing that it would encourage more people to consider joining the stock market at this moment.
The Nigerian Stock Exchange (NSE) had, in a July 10 circular informed stockbrokers of the resumption of the VAT payment.
Mrs Ngozi okonjo-Iweala, the then Co-ordinating Minister of Economy and Minister for Finance had exempted VAT deductions from commissions earned on the traded value of shares, commissions payable to the Securities and Exchange Commission (SEC), commissions payable to the NSE and commissions payable to the Central Securities Clearing System(CSCS).
At the time, Okonjo-Iweala said the purpose of the exemption was to encourage investments in the Nigerian capital market.
“The Order, which became effective on July 25, 2014, is valid for a period of five years, and thus the exemption granted in the Order is set to expire on July 24 , 2019.
“To that extent, all Dealing Members of the Nigerian Stock Exchange are to note that effective 25 July 2019, barring any further extensions from the Federal Government:
“VAT is to be charged on all commissions applicable to capital market transactions. These are commissions: (a) earned by Dealing Members on traded values of shares; and (b) payable to The Nigerian Stock Exchange (NSE) and the Central Securities Clearing System (CSCS) Plc.
“The CSCS will automate the deduction of VAT charged on commissions payable to the NSE and the CSCS; and Dealing Members are required to resume the deduction of VAT on commissions earned.
“Consequently, Dealing Members are required to engage their software vendors for the automation of VAT deductions, and communicate to their clients the above ahead of the effective date.
“Furthermore, Dealing Members are reminded to ensure that the VAT charged on the commissions earned are remitted to the Federal Inland Revenue Service (FIRS) as and when due; and that the corresponding evidence of remittance is retained for future reference,” the circular from the NSE had stated.
VAT is a type of consumption tax placed on a product at every stage of processing/value addition. The cost is usually paid by the consumer.
The order, which was a result of the powers conferred on the minister of finance in section 38 of the Value Added Tax (VAT) Act, was to be effective for five years.
The section of the act empowers the minister to amend the rate of tax chargeable; and amend, vary or modify the list of exempted goods and services set out in the first schedule to the act.
Applauding the Federal Government for implementing the elimination of VAT on stock market transaction fees then, Chief Executive Officer of the Exchange’, Oscar N. Onyema, had said that investments should not be categorised as consumer goods purchases, but as a platform to promote a long term savings culture that could be channeled towards economic growth and development. Onyema added that “the elimination of VAT on stock market transaction fees will ultimately reduce the cost of transactions for investors, and will encourage investments in the Nigerian Capital Market”.
Already, some stockbrokers have been sending notifications to their clients, informing them that from this week, they would begin to pay extra money for transactions carried out on their behalf.
A notice sent to investors by one of the stockbrokers in Lagos read:
“Dear Esteemed Client,
We trust that you are keeping well.
Please be notified that Value Added Tax (VAT) on commissions will now be charged on transactions conducted on the Nigerian Stock Exchange (NSE).
The order for exemption of VAT from all NSE transactions was granted by the Coordinating Minister of the Economy and the Honorable Minister of Finance in 2014. The order became effective on the 25th July 2014 for a 5 -year period, which expires on the 24th July, 2019.
In this regard, all Dealing members of the Nigerian Stock Exchange have been notified to resume charging of VAT on all NSE transactions effective 25th July 2019 (please click to download circular from the NSE).
Subsequently, a 5% VAT on brokerage commission earned, NSE fees and CSCS fees will be restored effective 25th July 2019.
Thank you for your valued patronage”.
However, some investors are calling for an extension of the five percent VAT exemption, saying it would further encourage more people to consider joining the stock market at this moment.
in 2014, when the federal government introduced, the initiative, it was to encourage more investors into joining the capital market.
But some investors want this to continue for another five or three years “Government should consider extending the VAT exemption for another five or three years. The present state of the economy in Nigeria is not encouraging, I can guarantee you that more people will exit the market,” said an investor.