4 December 2012

Nigeria: FG Waives Taxes for Stockbrokers

Federal Government yesterday announced tax waivers to stockbrokers in the country to enable them participate fully in the Nigerian capital market and to make the stock market more vibrant and be able to provide long-term funds to development infrastructure in the country.

Minister of Finance Dr. Ngozi Okonjo-Iweala said at a briefing in Abuja on the recommendations provided by the committee set up to revive the capital market that government has decided to eliminate stamp duties and VAT on stock market transaction fees.

Taxes on stock exchange transactions fees in Nigeria are as high as 12 percent (5 percent in VAT and up to 7 percent in stamp duties). This is much higher than in other jurisdictions and has constituted a major disincentive to invest in the Nigerian capital market.

The minister said the Federal Government has consented to waive the 0.075 percent stamp duties payable on stock exchange transaction fees; and exempt from VAT, commissions "earned on traded values of shares payable to the Securities and Exchange Commission; and payable to the Nigerian Stock Exchange and the Central Securities Clearing System by including these commissions in the list of VAT-exempt goods and services."

Okonjo-Iweala also announced the forgiveness of about N22.6 billion debts incurred though margin loans by 84 stock brokers.

AMCON had purchased these margin loans from banks for about N42.6 billion. The value of the underlying assets or collateral is worth only N19.96 billion today.

The minister said: "In furtherance of AMCON's cleanup of the banking sector, it is necessary to wipe off the debt overhang in the capital market, as this is dampening market activity.

"But let me state clearly that this forbearance will be accompanied with sanctions to discourage excessive borrowing behaviour by capital market operators in the future."

Brokers benefiting from forbearance will not be allowed to provide any professional services to AMCON for a period not less than three years.

They will be required to reveal to the Securities and Exchange Commission, any dealings in any security valued at a minimum of N25 million executed in a single deal or multiple deals on the same day on behalf of their clients.

As part of their net capital requirement, no broker that has received forbearance shall permit his aggregate indebtedness to exceed 100 percent of his net capital; and details of the firms will be forwarded to the Credit Bureau Agency.

There is also a strict requirement that imposes separation of assets and control for brokerage services and/or future margin facilities through the use of custodians; and the brokers will be prohibited from taking proprietary positions or trade on their own account for one year.

She said that there were some other stock brokers who did not partake in any market infractions, including over-exposure to margin loans, and who managed their stock broking businesses well.

"The Ministry of Finance and the Central Bank plan to celebrate the good standing of these stock brokers in due course," she said.

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