By Dipo Olowookere
On Thursday, July 25, 2019, the payment of five percent Value Added Tax (VAT) on commissions earned by dealing members on traded values of shares, resumed after being suspended five years ago by federal government.
Weeks before the resumption, stockbrokers had been sending notices to their clients on the development and there had been calls for an extension of the ‘tax holiday’.
One of the registered shareholders groups in the Nigerian capital market, the Ibadan Zone Shareholders’ Association (IZSA), has urged government to suspend the VAT payment for now, especially when the market is battling with bearish runs.
The organisation warned that if government refuses to do something about this issue urgently, there could be consequences for the stock market and the economy at large.
In a statement jointly signed by its Chairman and General Secretary, Mr Akinduro Eric Akin and Mr Ayoola Gilbert Olufemi respectively, the group said the present low business activity in the market was a good reason for government to reconsider it stand on VAT and put it on hold so as to continue to encourage local investors bowing to hit of selling their shares.
It noted that the continued market decline was a clear indication that something was critically wrong with the Nigerian economy, especially looking at the mixed macroeconomic indices revealing very weak economic fundamentals, in the form of low market liquidity and absence of a policy direction.
According to the organisation, the market was already saturated with various taxes and commission on transactions and the inclusion of VAT would further send negative signals to the investment community, resulting in the loss of shareholders value, which will further discourage many investors from investing in the market.
“Recent statistics shows that return on our investment has been discouraging vis-à-vis capital appreciation.
“In view of this and on behalf of the entire members of the Ibadan Zone Shareholders Association, we do hereby request that the Federal Government of Nigeria should extend the VAT exemption pending the time we have robust economy,” the group said in the statement obtained by Business Post.
Commenting on the negative effect the VAT could have on the market if government refuses to listen, IZSA said “the shareholders community is of the opinion that the news on the resumption of value added tax by the government portrays a bad policy for the growth of the Nigerian capital market in recent times considering persistent decline that has overrun activities at capital market.”
“Also, [it] signals the insensitive of government to the plight of investors and development of small and medium scale enterprises in Nigeria.”
The group noted in the statement that since the year began, foreign investments inflow into the Nigerian stock market stood at N41.2 billion for the month of June 2019 compared with N37.9 billion in the month of May.
“This is the highest foreign investment inflow into the stock market this year. Unfortunately, this is not what matters.
“Foreign Investors shipped out N52.4 billion in investments out of the country compared to the inflow of N41.2 billion.
“In fact, foreign investment outflow has outpaced foreign investment inflow every month since January 2019. The Nigerian stock market has come to rely on foreign investment to drive up market values,” it said.
“In total, foreign investor outflow for the period between January and June 2019 stood at N257.8 billion compared to N214.9 billion in inflows over the same period.
“Domestic retail investor investment was N329.6 billion compared to N285 billion June 2019 year to date,” it added.
Adedapo Adesanya