The Federal Government has clarified how the newly introduced Capital Gains Tax (CGT) on share disposals will apply, following concerns raised by capital market stakeholders.
Speaking at an engagement organized by the Nigerian Exchange Group (NGX), Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, Taiwo Oyedele, explained the new rule on share disposals.
He said a 25% CGT will be charged on sales of shares where the proceeds are reinvested in fixed income securities or other non-equity assets.
He, however, noted that individual investors will largely not be affected, as the exemption threshold of N150 million annually puts 99.9% of retail investors outside the scope.
“Only very few big investors cross that threshold, mostly institutional players or high net-worth individuals,” Oyedele said.
Exemption rules
According to him, the exemption is available only if proceeds from share sales are reinvested in another Nigerian company, whether listed or unlisted.
Where investors exit equities and move their funds into government bonds or other fixed income assets, the tax becomes payable.
This, he explained, is designed to encourage reinvestment in productive equity capital that supports companies, jobs, and long-term economic growth.
Treatment of share cost and inflation impact
On the thorny issue of cost determination, Oyedele stated that the purchase price at the time of acquisition remains the reference cost, even if the shares were bought several years ago.
He admitted this creates distortions because inflation makes historical costs “almost unreflective of real value,” while proceeds look bigger in nominal terms.
“We recognize that this looks unfair, but this is a temporary problem due to the adjustment period,” he said.
He added that the committee had considered indexation adjusting costs for inflation but found it too complex given data limitations at this stage.
Exchange rate depreciation
Oyedele also addressed concerns about exchange rate movements, noting that investors who entered the market before May 2023 had already made significant foreign-exchange gains due to the naira’s steep depreciation.
“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 further pointed out that over the last decade (2014–2024), the naira depreciated 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.
Long-term policy outlook
While acknowledging the pain for some investors exiting in the short term, Oyedele emphasized that the reforms were designed to prioritize medium- to long-term outcomes.
“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 urged stakeholders to simulate the policy using real data and models, arguing that the balance of considerations made this direction the most sustainable choice for Nigeria’s fiscal future.
NGX’s role
The NGX said the engagement was part of its broader effort to provide clarity, transparency, and a collaborative platform for capital market operators.
The Exchange noted that such dialogue is vital to build investor confidence, safeguard market efficiency, and ensure that Nigeria’s capital market plays its role as a driver of sustainable economic prosperity.
Why this matters
For retail investors, the exemption threshold means most will not face CGT on share disposals.
- The bigger impact will fall on institutional players and high-net-worth individuals who regularly move large funds between equities and fixed income.
- In practice, this could influence asset allocation strategies for pension funds, asset managers, and portfolio investors.
- It also highlights the government’s broader intent at using tax reforms not just to raise revenue, but to nudge capital towards sectors that support long-term economic growth.