Stock market
Stock market investors now to pay 10% tax on sale of shares
Investors on the Nigerian Stock Exchange are to pay a Capital Gains Tax of 10% on the sale of shares according to provisions of the signed Finance Act 2021. The tax is applicable on the disposal of shares worth N100 million and above.
The tax also extends to anyone selling shares of any company even if the shares are not listed on the stock exchange which inadvertently includes the sale of shares by private equity firms, startups, venture capitalists, or any shareholder looking to sell shares in Nigeria.
The law however exempts anyone who sells shares and reinvests the proceeds in purchasing another company’s shares or the shares of the same company within the same year. However, this is provided that you invest all the proceeds within a year. Any part of the proceeds not reinvested will be taxed while the balance reinvested will not be taxed.
This was 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%.”
For anyone selling shares: If you are an investor looking to sell shares then you pay a 10% tax on the capital gains you make selling the shares if you do not reinvest the proceeds into shares.
For example, if you sell shares you bought for N100 million for N150,000,000 and decide not to reinvest the entire N150 million, you pay tax on the gain of N50 million you made. This means you pay a tax of N5 million.
If you reinvest just N130 million, then you pay tax on N20 million which is N2 million in tax. If you do not make a profit (or gain), you do not pay any tax.
Individual Investor: This is anyone other than a registered company who is selling shares in any company. Taxes are paid to the state inland revenue service via the personal income tax. For example, if you reside in Lagos, then that tax goes to the Lagos State Inland Revenue Service. This will mostly be high net-worth individuals.
Corporate Investor: For foreign investors, pension funds, private equity firms, venture capitalists, or any corporate that invests in startups, the taxes will be paid to the Federal Inland Revenue Service.
For the first time in decades, investors in Nigerian companies will pay tax when they sell shares they own without reinvesting the proceeds within a year.
This will definitely affect investors in the Nigerian stock market whose capital gains can easily be administered through stockbrokers or any intermediaries.
Currently, the only tax that is applicable on the equities market is the 10% withholding tax on dividend payments. This tax is deducted at the source.
Investors will now have to be smarter about how they manage their portfolios deploying more tax avoidance tactics to reduce the tax paid when they takeout profits from investments.
