Wednesday, November 29

Finance Act: 10% capital gains tax may discourage investment in the capital market – Taiwo Oyedele

The recent change to the Finance Act 2021 that requires Investors on the Nigerian Stock Exchange to pay a Capital Gains Tax of 10% on the sale of shares applicable on the disposal of shares worth N100 million and above, may discourage investment to the capital market and shift focus towards government securities.

This was disclosed by Taiwo Oyedele, Partner, Fiscal Policy Partner and Africa Tax Leader at PwC, at the Nigerian Economic Outlook 2022 organised by the King’s Court Parish of the Redeemed Christian Church of God (RCCG), in a webinar themed, “The Finance Act for 2022 – Nigeria Fiscal Guide.”

On the notable change to the Capital Gains Tax, Oyedele also stated that there would be conditional taxation of gains on disposal of shares.

What Oyedele is saying

He stated that gains on disposal of shares in any Nigerian Company worth N100 million or in any 12 consecutive months are liable to CGT at 10%, with the returns to be rendered annually even for disposal proceed less than the threshold.

He also added that notable exemptions would include cases where the amount is “reinvested in the same or other company and the shares are transferred between an approved borrower and lender in a regulated securities lending transaction.”

Gains accruing on the disposal of the Nigerian government securities are exempted.

On implications for the changes, Oyedele highlights that there would be a likely shift of focus from equity investments to government securities, as revenue generation is likely to be minimal.

He also stated  that “it may discourage investment in the capital market given the expiration of tax exemption also on corporate bonds.”

What you should know

What the Nigerian Finance Act says about tax on shares is captured under Part 1 Section 1. Of the Act, which states as follows;

Without prejudice to any other applicable law, the gains accruing to a person on disposal of its shares in any Nigerian company registered under the Companies and Allied Matters Act shall be chargeable gains under this Act except where —

(a) The proceeds from such disposal are reinvested within the same year of assessment in the acquisition of shares in the same or other Nigerian companies, provided that tax shall accrue proportionately on the portion of the proceeds which are not reinvested in the manner stipulated in this subsection;

(b) The disposal proceeds, in aggregate, is less than N100,000,000 in any 12 consecutive months, provided that the person making the disposals shall render appropriate returns to the Service on an annual basis; or

(c) The shares are transferred between an approved Borrower and Lender in a regulated Securities Lending Transaction.”

The act also specifies a capital gains tax of 10% on the disposal of the shares.

Without prejudice to the provisions of section 2 of this Act, the rate of capital gains tax on disposal of shares under this section shall be 10%.”