Finance Act will boost securities lending, REITs investment on capital market — Onyema

The Nigerian Stock Exchange (NSE) says securities lending will witness exponential growth with the elimination of tax on manufactured dividend arising from securities loan transaction by the Finance Act.

Mr Oscar Onyema, NSE’s Chief Executive Officer, made the assertion at a symposium on the Finance Act, organised by the exchange in partnership with KPMG in Lagos.

Onyema said an exponential growth in securities lending activities would further boost market liquidity, given the elimination of tax on manufactured dividend arising from securities loan transaction.

Securities lending is the act of loaning a stock, derivative or other security to an investor or firm. Securities lending requires the borrower to put up collateral, whether cash, security or a letter of credit.

When security is loaned, the title and the ownership are also transferred to the borrower.

The NSE’s boss explained that the multiple taxation embedded in securities lending business arrangement had slowed down its adoption in the Nigerian capital market despite being a 2.44 trillion dollars market globally.

According to him, there have been some improvements with 20 million units of shares currently available for lending in the Nigerian capital market.

“The recent amendment to the tax laws by the Finance Act 2019 is in line with global best practices for Securities Lending.

“And, I want to seize this opportunity to enjoin capital market operators and asset owners to take advantage of the benefits,” Onyema said.

He said the elimination of double taxation in Collective Investment Schemes (CIS) including Real Estate Investment Structures as pronounced by the Act would have significant impact on the growth of the currently nascent $2.77 billion asset management industry in Nigeria.

“We have convened committees and conferences to dimension the real estate industry and the necessary policy changes required to jump-start financing into the sector.

“So, this positive policy announcement is a good start towards increasing the viability of REITs for issuers and investors.

“With the nation’s housing deficit put at 17 million units as estimated by the African Development Bank, I believe strongly that REITs and other real estate investment vehicles will play a critical role in funding real estate and infrastructure development in Nigeria.’’

Onyema added that exemption of micro and small enterprises with an annual turnover of N25 million ($70,000) or less from paying company income tax by the Act aligned with the Exchange’s commitment to SMEs.

According to him, SMEs and growth companies in our ecosystem can now enjoy tax benefits, thereby improving their operational efficiency.

He noted that the signing of the Finance Bill into law was a landmark achievement for the Nigerian Capital Market.

Onyema said the NSE, the Securities and Exchange Commission (SEC) and other capital market stakeholders had been at the forefront of advocacy with policy makers and tax authorities for favourable tax structures in the Nigerian capital market.

Also speaking, Mr Wole Obayomi, Partner & Head, Tax, Regulatory and People Services, KPMG, said, “Finance Act 2019 is a landmark legislation that should be embraced by all stakeholders to ensure it achieves its laudable objectives.

Obayomi said removal of multiple tax footprints for securities lending and real estate investment schemes would stimulate activities in those segments of the market.

He stated that the generous incentives for SMEs in the Finance Act coupled with the launching of the Growth Board for capital raising by that sector from the NSE, were timely interventions.

According to him, these will drive the growth of the economy through the SMEs.

Also, Mr Ikechukwu Ene, Senior Manager, Tax, Regulatory and People Services, KPMG Nigeria, speaking on the implications of the Act to Nigerian corporates, financial markets and economy, said people needed to study the Act to understand it better.

Ene highlighted essential areas in the Act for additional revenue generation as VAT increment, from five per cent to 7.5 per cent, changes in excise duty and global tax reforms, among others.

On global tax reforms, he said that Nigeria had realised that it was important to follow global trends in global tax.