The Nigerian government has provided clarity on the application of the new Capital Gains Tax (CGT) on share disposals, addressing concerns from capital market participants.
During a dialogue hosted by the Nigerian Exchange Group (NGX), Taiwo Oyedele, Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, outlined the details of the policy.
Oyedele explained that a 25% CGT will apply to profits from share sales when the funds are redirected to fixed income securities or non-equity investments.
However, he emphasized that the policy includes a N150 million annual exemption threshold, meaning the vast majority of retail investors—approximately 99.9%—will be unaffected.
“Only very few big investors cross that threshold, mostly institutional players or high net-worth individuals,” Oyedele said.
To qualify for the exemption, proceeds from share disposals must be reinvested in Nigerian companies, whether listed on the Nigerian Stock Exchange or not. If funds are shifted to government bonds or other fixed-income assets, the tax will apply. This approach aims to promote investment in equity capital that drives business growth, job creation, and long-term economic development.
On the issue of determining the cost basis for shares, Oyedele noted that the original purchase price will be used, even for shares acquired years ago. He acknowledged that inflation distorts the real value of historical costs, making nominal proceeds appear larger.
“We recognize that this looks unfair, but this is a temporary problem due to the adjustment period,” he said.
Although the committee explored adjusting costs for inflation (indexation), Oyedele explained that data limitations made this approach impractical for the time being.
Oyedele also addressed concerns about the naira’s depreciation, noting that investors who entered the market before May 2023 have benefited significantly from foreign exchange gains due to the currency’s sharp decline.
“For some, the ready-made dollar gains are in addition to normal share gains. But we cannot use the tax system to solve all macroeconomic problems,” he stressed.
He highlighted that over the past decade (2014–2024), the naira has depreciated at a rate six-and-a-half times faster than the Kenyan shilling or South African rand.
“This is not because our fundamentals are worse, but because of mismanagement. Imagine if we had their level of stability—the naira might be closer to N300 today, and this wouldn’t even be an issue,” he said.
Oyedele acknowledged short-term challenges for some investors but emphasized that the reforms prioritize long-term benefits.
“For equity investors, the goal is higher company profitability and stronger cash flows, leading to better valuations. Even if you pay 25% instead of 10%, the net outcomes will be better over time,” he said.
He encouraged stakeholders to analyze the policy using real-world data, asserting that the reforms strike a balance for Nigeria’s fiscal sustainability.
The NGX emphasized that the engagement reflects its commitment to fostering transparency, collaboration, and clarity in the capital market. Such initiatives are critical for boosting investor confidence, enhancing market efficiency, and positioning Nigeria’s capital market as a catalyst for sustainable economic growth.
For most retail investors, the N150 million exemption threshold ensures they are unaffected by the CGT. However, institutional investors and high-net-worth individuals, who frequently shift large sums between equities and fixed income, will feel the policy’s impact.
This could reshape asset allocation strategies for pension funds, asset managers, and portfolio investors. The policy also underscores the government’s intent to use tax reforms to steer capital toward sectors that foster long-term economic growth, beyond merely generating revenue.
