Nigeria’s federal government will on Tues commence the collection of income tax on bonds and short-term securities.
This followed the expiration of a 2012 gazette which exempted Companies Income Tax (CIT) from bonds and short-term securities in the past 10 years.
The federal government had in 2012 granted tax waiver on all bonds and debt instruments issued by all tiers of government and corporate entities.
But the Securities and Exchange Commission (SEC) had last month introduced a 0.025 per cent charge on fixed income (Bonds) secondary market transactions, which was expected to become effective today.
The capital market regulator had in a circular explained: “It will charge 0.025 per cent of the total value of all secondary market transactions on bonds, while the Securities Exchange on which the transaction occurs will charge an amount not exceeding 0.025 per cent of the total value of secondary market transactions on bonds while bond transactions by dealing members will attract a single regulatory fee of 0.0001per cent of the total value of the secondary market transactions on bonds, and are exempt from the 0.025per cent fee charge earlier stated.”
Reacting to the development, capital market operators which included the Chartered Institute of Stockbrokers (CIS) and the Association of Securities Dealing Houses of Nigeria (ASHON) have expressed support for the move by the federal government.
President, Chartered Institute of Stockbrokers (CIS), Mr Olatunde Amolegbe said the introduction of the policy by the apex capital regulator would bring significant regulation to the market.
According to him: “The regulator’s decision comes at significant cost which needs to be covered by the ultimate beneficiaries which are the investors. Therefore, there is no issue with the introduction of a regulatory charge on transactions.
“However, whether it should be as high as 0.02 per cent is open to discussion. We can’t lose sight of the fact that such will definitely increase the net yield on instruments, reduce spreads and might impact trade volumes. I am sure the market ecosystem will ultimately arise at a point of equilibrium for all participants.”
Also, the Chairman, Association of Securities Dealing Houses of Nigeria (ASHON), Mr. Sam Onukwue said: “I do not think it’s out of place for the SEC to do so.
“The Commission has been charging on equities all along. The proposed charges on fixed income securities should not discourage investors from the asset class.
“Investors have their preferences and would always weigh their risk tolerance and other fundamentals in making investment decisions.”
Speaking further, he said: “We have risk-takers and risk averters. The former invest more in equity while the latter have a strong hold in fixed income securities.”
In his contribution, the President of the Association of Capital Market Academics (AMAN), Prof. Uche Uwaleke said the introduction of the fee would empower SEC to carry out effective regulation and enhance the capital market.
According to him: “The charge is on transactions in the secondary segment of the bond market and it is very much in order as it is already in place in the secondary segment of the equities market.
“It will financially empower the SEC to carry out effective regulation and development of the Nigerian capital market. Besides, 0.025per cent is not significant to the point of discouraging transactions in the bonds market.”
On the other hand, some market operators disagreed with the policy, arguing that it would discourage investors from federal government debt instruments.
Speaking with THISDAY, the oldest trading stockbroker on the Nigerian Exchange Limited (NGX), Mr. Rasheed Yusuf noted that the new fee would hike the cost of transactions in the fixed income instruments.
“Both the buyer and seller of fixed income instruments will have to pay the additional cost. Will it make prospective investors mull on the additional cost and conclude that the yield is no longer attractive? These are the things we will be looking out for.
“We will need to find out if the additional cost is sufficient to discourage players in the fixed income market or it will bring about a marginal effect.
“However, it will be a function of the volume an investor is buying from the fixed income market. Can you imagine 0.025 per cent fee on N1billion worth of investors transaction in the fixed income market unlike someone buying N1 million in the same market?” he queried.
On his part, the Vice President, Highcap Securities, Mr. David Adnori said the implementation of the policy would affect liquidity in the capital market.
“With the imposition of fees and income tax, it will escalate cost on the capital market, which is expected to discourage investment.
“What is happening is irrational and it seems that every arm of the government is imposing tax and levies on investment. In other countries, the government gives incentive to enable investment.
“What the government should have tax is consumption not on investment. When you tax investment, your destroying investment flow into the economy and indirectly injuring economy entities that should have provided employment and drive economy growth,” he added.
A Lagos-based analyst, Mr. Moses Ojo noted that the introduction of tax income on government securities would further reduce activities.
Kayode Tokede
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