Value Added Tax (VAT) exemptions on commissions from stock exchange transactions will cease to apply effective 25th July, 2019. This is due to the expiration of the five-year exemption periods set under the Value Added Tax (Exemption of Commissions on Stock Exchange Transactions) Order of 2014.
The VAT exemption was issued in accordance with Section 38 of the Value Added Tax Act which empowers the Minister of Finance to amend, vary or modify the list of exempt items contained in the First Schedule to the Act.
This was a welcome initiative introduced by the former Minister of Finance, Dr. Ngozi Okonjo-Iweala. The VAT exemption was for the purpose of encouraging investment in the Nigerian Capital market and contributing to Nigeria’s economic development. The exemption specifically covered the following commissions:
- Commissions earned by stockbrokers on traded value of shares;
- Commissions payable to Securities and Exchange Commission (SEC);
- Commissions payable to the Nigerian Stock Exchange (NSE); and
- Commissions payable to the Central Securities Clearing System (CSCS).
The non-renewal of the exemption would appear to demonstrate the Government’s intention to widen the tax net and raise additional revenue. We assume the Federal Government would have carried out appropriate research to determine whether the 5year exemption had the desired effect of stimulating the market, prior to taking such a sweeping decision.
With the expiration of the VAT exemptions what are investors likely to expect?
The lifting of VAT exemptions means that investors will be expected to pay the VAT charged on their transactions in the capital market. This means that the cost of capital market transactions will be slightly higher than it was during the VAT exemptions.
Furthermore, henceforth stockbrokers will be expected to account and remit VAT on their capital market transactions to the Federal Inland Revenue Service (FIRS).
What steps are investors and stockbrokers are expected to take?
It is understandable that the expiration of the VAT exemptions may cause an inconvenience to stakeholders given the prevailing bearish sentiments of the securities market.
However, it is imperative that investors and stockbrokers begin adjusting to the present situation.
For further information and detailed advice, please contact the following persons in our Capital Markets group:
Mr. Abimbola Ogunbanjo
Ms. Simisola Eyisanmi