New VAT rate triggers rise in stock market transaction cost

0 375

STOCK market investors and operators will from today pay more as transaction cost for shares traded on the Nigerian Stock Exchange, NSE following the commencement of the implementation of the new Value Added Tax, VAT of 7.5 percent.

Meanwhile, the Nigerian equities market suffered its first weekly loss of the year, 2020 as the impact of the Central Bank of Nigeria, CBN’s hike in the Cash Reserve Ratio (CRR) by 500 bases points, bps to 27.5 percent prompted selloffs in banking stocks.

Consequently, the NSE All-Share Index plummeted by 2.7 percent, the largest weekly loss since the week ended April 5, 2019 (-4.6 percent) bringing the Year to Date, YtD return to 7.5 percent.

Analysing by sectors, the Banking index recorded its largest decline of 5.2 percent since the week ended August 9, 2019 when it fell by 6.1 percent, while the Industrial Goods (-2.8 percent), and Oil & Gas (-1.1 percent) indices following suit. Conversely, the Insurance (0.9 percent) and Industrial Goods (0.1 percent) indices were the only indices to post positive performances.

Analysts at Cordros Research said: “In our view, the trend witnessed this week is likely to persist, as the dual impacts of the weakening sentiment and mixed earnings performances during earnings season are expected to pressure market return. Nonetheless, we advise investors to focus on taking positions in fundamentally justified stocks.”

Meanwhile, the Minister of Finance, Budget and National Planning, Zainab Ahmed had announced recently that the VAT increase will commence from February 1, 2020 following the passage of Finance Act 2019 by President Muhammadu Buhari.

Consequently, given this scenario, the cost of transaction in the stock market will increase as follows: Sell side- Stockbrokers fee 1.46 percent from 1.42 percent; NSE fee 0.33 percent from 0.32 percent; Central Securities Clearing System, CSCS and Trade Alert fee 0.39 percent from 0.38 percent. On the Buy side: Securities and Exchange Commission, SEC fee 0.33 percent from 0.32 percent; CSCS Trade Alert and VAT Alert fee 0.07 percent from 0.06 percent and Brokerage fee 1.46 percent from N1.42 percent.

Analyses of the entire transaction fees on the NSE indicate an increase by 0.12 percent for both the Buy and Sell side after the 7.5 percent increase. It will be recalled that the FG reintroduced VAT on capital market transactions on July 25, 2019 after the exemption of VAT announced in 2014 expired in July 24, 2019.

Reacting to this development, Managing Director, APT Securities & Funds Limited, Mallam Kasimu Kurfi said: “The increase in VAT will definitely increase the cost of transactions in the capital market and therefore continue to affect the bearish situation of the market. The increase of the cost of production is one of the causes of less participation of foreign investors.”

In his reaction, Head of Research and Investments, FSL Securities Limited, Victor Chiazor said: “Given the reintroduction of VAT charges on stock market transactions, we estimate that investors would lose more of their money annually especially with the listing of high cap stocks like MTN Communications, Airtel Africa and BUA Cement, all of them have increased the market capitalisation of the stock market.”

Leave A Reply