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Investors and dealers are now required to pay Value-Added Tax (VAT) for transactions carried out on the Nigerian Stock Exchange (NSE), following the expiration of a five-year exemption. The previous order on exemption of the tax was enforced by former Finance Minister, Ngozi Okonjo-Iweala. 

During her tenure, the minister exempted VAT deductions from commissions earned on the traded value of shares, commissions payable to the Securities and Exchange Commission (SEC), and commissions payable to the Central Securities Clearing System (CSCS). 

The move to exempt VAT at that time was aimed at reducing the cost of transactions for investors and to encourage investments in the Nigerian capital market. The five-year exemption became effective on Friday, July 25, 2014, and thus ceased on Wednesday, July 24, 2019.

In a circular issued by the Nigerian Stock Exchange (NSE), Head of Broker-Dealer Regulation, Olufemi Shobanjo, stated that barring any further extensions from the federal government, VAT was to be charged on all commissions applicable to capital market transactions effective July 25, 2019. Thus, dealing members are required to resume the deduction of VAT on commissions earned. 

Specifically, the commissions on which the tax is applicable include those earned by dealers on traded values of shares as well as those payable to the NSE and CSCS. Also, the exchange revealed that CSCS would automate the deduction of VAT charged. Consequently, dealing members are to engage their software vendors for the automation of VAT deductions.

Furthermore, the NSE directed all dealing members to ensure that the VAT charged on the commissions earned are remitted to the Federal Inland Revenue Service (FIRS) as and at when due; and that the corresponding evidence of remittance is retained for future reference.

A Value-Added Tax is an indirect tax which is borne by the final consumer. In relation to capital market transactions, any VAT charged on commissions is passed on to issuers and investors, as the case may be. 

With the expiry of the exemption, it is expected that capital market transaction costs for retail investors, stockbrokers and institutions will rise. The development also means an increase in compliance costs for operators such as stockbrokers and the regulators in accounting and remitting VAT to the FIRS.

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