Oct 1 (Lagos) - As the deadline for the implementation of the new Tax laws draws closer, there is palpable anxiety among long term investors in the Nigerian stock market regarding how it is going to affect them.
The law introduces a highly controversial Capital Gains Tax (CGT) of 25% which is unheard of even in developed markets like USA and E.U. The proponents of the tax laws use fancy words like 'progressive' to push their narrative but only people highly aligned with the ruling dispensation would fall for that narrative.
What they are talking about is that if someone makes N 10 million gain on any stock, they would be subject to this CGT or if your overall gains exceed N 150 million you would be subject to the CGT.
There are obvious exemptions if you re-invest the funds which are elementary level things but they are being pushed by the officials like some major exemptions. However the fact remains that if you want to cash out your earnings after making huge profits after all your hard work, you are going to pay a quarter of your gains to the tax people.
How will this affect the market in the closing quarter of this year and in the next year?
It would greatly affect the high net worth individual (HNWI) investors but also institutional investors albeit on a lower scale.
We could see heavy selling in the fourth quarter from HNWI's as investors try to take their funds out of the market rather than get subjected to this huge tax bill. Remember, many long term investor are sitting on huge gains they have made in Naira terms because they were willing to invest in Nigerian equities when no one was willing to invest in Nigeria. Now they are going to get punished for taking that risk and many would consider the only way out as to liquidate the investments.
They could eventually return next year and start from a higher cost base. But that could be one strategy many HNWI would adopt to try and lower the damage this bill is going to cause to their dreams and plans.
In our view here at Easykobo - we feel the government should take another look at this aspect of the bill. Let us not push people away from investing in the Nigerian stock market. People already pay heavy fees and commissions to trade in the Nigerian market and introducing this tax could prove to be a detrimental towards the financial inclusion goals.
There should also be a distinction between short-term capital gains and long-term capital gains. Short term should be tax-free while long-term 10% CGT is something everyone would welcome.
A more reasonable 10% CGT would serve the purpose of adequate taxation as it is done in other much bigger stock markets.