The Federal Government has made just N38million from Value Added Tax (VAT) on commissions earned by stockbrokers for equities trading in one month.
The VAT charged on the commissions earned by stockbrokers is remitted to the Federal Inland Revenue Service (FIRS) following the nonrenewal of a five-year VAT exemption on such transactions which expired on July 24, 2019.
The Federal Government had granted exemption from Value Added Tax (VAT) such commissions earned as stated in an “Exemption of Commissions on Stock Exchange Transactions Order (Order)” issued on July 25, 2014 by the then Coordinating Minister for the Economy and Minister of Finance.
Barring any further extensions from the Federal Government, VAT is now charged on all commissions applicable to the market’s transactions. It became effective on July 25, 2015,
The VAT is charged on commissions earned by Dealing Members on traded values of shares; and payable to The Nigerian Stock Exchange (NSE) and the Central Securities Clearing System Plc (CSCS).
These are commissions: earned by Dealing Members on traded values of shares; and payable to The Nigerian Stock Exchange (NSE) and the Central Securities Clearing System Plc (CSCS).
When you want to buy or sell stocks, stockbrokers collect commission of 1.35percent of the equities consideration. With an additional VAT of 5percent on their commission, it brings their total charges to 1.4175percent.
The Nigerian Stock Exchange charges a fee of between 0.3percent and 0.5percent of the purchase consideration. They also charge a VAT of 5percent of the fee.
CSCS charges a fee of 0.06percent of the purchase consideration. An additional 5percent of the fee is charged as VAT.
CSCS charges another 0.03percent of the purchase consideration when you sell and charge a further 5percent of the fee as VAT.
BusinessDay check shows at in one month of trading stocks valued at N56.21billion after the expiration of the VAT exemption, stockbrokers made cumulative N759million as commission. This implies that 5percent VAT on this commission amounts to N38million.
The CSCS automated the deduction of VAT charged on commissions payable to The NSE and the CSCS; and Dealing Members resumed the deduction of VAT on commissions earned; they are remitted to the Federal Inland Revenue Service (FIRS).
As at that week, investors exchanged 759.266million units of equities valued at N14.038billion.
In this week alone, stockbroker earns N189million as commission. The accrued 5 percent VAT on the review week’s commission payable to Federal Government was N9.45million. In the week ended August 9, the brokers traded 1.08billion shares valued at N12.014billion.
As at that week, they earned N162million as commission, and the 5 percent VAT on this earned commission is N8.1million. Further check shows that in the week ended August 16, dealers exchanged 726.609million units valued at N10.459billion. The commission they earned was N141million, while the VAT on it N7.05million.
In the week ended August 23, investors traded 2.337billion units of equities valued at N19.712billion. The cumulative commission collected by Stockbrokers on this value of stocks traded was N266million, while the 5percent VAT on this commission was N13.3million.
Looking at the Nigerian Stock Exchange which charges a fee of between 0.3percent and 0.5percent of the purchase consideration, assuming the upper bound holds, it made N281million from charges, while VAT on the charges amounts to N14.05million.
For CSCS which charges a fee of 0.06percent of the purchase consideration, it may have earned N33million from just purchases based on the total value of stocks exchanged and VAT of N1.65million while charges of another 0.03percent for the purchase consideration when you sell, it made N17million and charged N850,000 as further 5percent of the fee as VAT.
The Nigerian bourse had recorded significant decline in investors’ activity during the first-half (H1) period, with average daily turnover decreasing by 29.7percent year-on-year (YoY) in H1’2019.
The average volume of stocks traded in the week ended August 2 declined by 28.7percent, “partly due to the re-introduction of VAT charges on capital market transactions”, according to Lagos-based analysts at United Capital.
Iheanyi Nwachukwu
