Between Fiscal Incentives for Quoted Companies and Outright Loss


Afraid that companies may not be motivated to list their shares on the Nigerian bourse if they are not offered by government, the Securities and Exchange Commission is advocating fiscal spurs for firms in the country. Bamidele Famoofo examines at the desired incentives, precedents, and what obtains in other climes

In recent times, the Nigerian Stock Exchange has witnessed an exodus of companies whose shares were listed on it. In a space of 16 years, the number of companies listed on the NSE dropped by 93. This comes to an average of about six per year as at April 2018.

Obviously worried by the rate of exit, Nigeria’s chief capital market regulator, the Securities and Exchange Commission, believes something urgent must be done to stop the worrisome trend. Acting Director General of SEC, Mary Uduk, a few months ago, transferred the responsibility of seeking solution to the problem to the Capital Market Committee of SEC. The committee is to seek out the real reasons why quoted companies are delisting from the NSE.

Uduk has now made a call to government to intervene by offering incentives good enough to keep the companies at the Exchange.


The SEC boss argued that the creation of some form of fiscal incentives for listed entities would add mileage to on-going efforts to improve corporate governance in the country. Uduk spoke through the Director, Zonal Offices Coordinating Department of the commission, Mr. Edward Okolo, at a recent event in Lagos. She said the incentives could equally position the quoted companies to contribute more to national development through improved capacities and job creation potentials.

SEC warned that if companies failed to list their stocks on the stock exchange, it might be out of business with no one to regulate, adding that apart from the reduction of costs, the incentives could translate to huge investment benefits to shareholders.

Besides considering the possibility of further reducing the existing tax incentives for companies to be listed on the capital market, SEC is calling on government at all levels to create a level playing field for both local and foreign companies operating in the country. It said the local firms had always complained about preferential treatment of their foreign counterparts.

“We have had experiences with some investors in the manufacturing sector who claimed that despite fulfilling their fiscal obligations, Nigeria’s public procurement and contractual processes had continued to favour foreign companies to their disadvantage,” the SEC boss alleged. “Our case for fiscal incentives for listed companies on the NSE is actually based on experience. What we are saying is that Nigerian companies doing the same business these foreign companies are doing, if they are listed, should be encouraged in terms of public procurement or whatever government is doing.”

She added, “We don’t want to keep taking from them because they incur a lot of costs and you cannot reduce the costs more than a limited amount of percentage. The best is to begin to give them some incentives and with that you have more companies coming to the market, you have more jobs and then people will have dividends of investing. You must have companies to regulate and if people are not coming to the market, then who are you going to regulate?”

 Other Climes

A number of countries have created actual tax incentives for listed companies. Vietnam applied in 2004- 2006 a 50 per cent reduction on the normal Corporate Income Tax rate (at that time 28 per cent). The effective tax rate of a listed company was, thus, 14 per cent. The tax incentive scheme was introduced when the stock exchange was setup, but it was not continued. In case a listed company also had a reduced tax rate or tax holiday because of its investment project, the 50 per cent reduction would only apply after the other tax holiday.

Thailand applies lower CIT rates for companies that are listed on Thailand’s SET (25 per cent) or the MAI (20 per cent). The normal Thai CIT rate is 30 per cent, but lower rates exist for profits below a certain threshold. The reduced rate for the listed companies applies only for a period of three years. In addition, Thailand provides in an investment tax credit up to 25 per cent of the total qualifying cost of new projects of listed companies (machinery, vehicles, equipment and software).

In Tanzania, withholding tax on interest earned on long term debt securities listed in the Dar-es-Salaam stock exchange during the 2002/2003 fiscal years was abolished.

In Kenya, newly listed companies have been given an incentive to be taxed at a lower rate of 27 per cent, as compared to the standard rate of 30 per cent, for a period of three years following the date of listing. This is also dependent on such companies offering at least 20 per cent of the share capital to the public according to Capital Markets Authority (CMA, 2001). Companies that were to apply and get listed got a tax amnesty on their past omitted income, provided they made a full disclosure of their assets and liabilities and undertook to pay all their future due taxes (CMA, 2001).

Foreign investors in Kenya have been enabled to acquire shares freely in the stock market, subject to a minimum reserved ratio of 25 per cent for domestic investors in each listed company (CMA, 2002). Effective 1 January 2003, newly listed companies were given incentives to pay a lower corporation tax of 25 per cent (i.e. five per cent lower than the standard corporation tax of 30 per cent) for a period of five years following their listing. The new legislation applies to companies that float at least 30 per cent of their issued share capital to the public (CMA, 2002).

Nigeria’s Situation

“The underlying basis for tax incentive to companies operating in Nigeria is to ensure overall growth of the Nigerian economy and even development of all sectors,” Nigeria’s Federal Inland Revenue Service explained. 

It added, “Tax incentives are special arrangements in the tax laws to attract, retain or increase investment in a particular sector. It stimulates growth in specific areas, assists companies or individuals carrying on identified activities.”

Meanwhile, under the Industrial Development Act, Pioneer Status is granted to qualifying companies and/or products and services resulting in 3-5 year tax holidays.

FIRS said, “Under the Companies Income Tax Act, loans granted to Nigerian companies may be exempt from tax, where they meet prescribed criteria. Dividends received from Nigeria are exempt from tax, other than withholding tax deducted at source. Profits of shipping and airline companies subject to tax in Nigeria is restricted to activity carried out in Nigeria, dividends interest, rent or royalty earned by companies outside Nigeria and brought in through specified channels are exempt from tax too.”

FIRS added that interest earned by a foreign company on its bank deposits in Nigeria were exempt from tax, while Nigerian companies with a minimum of 25 per cent foreign equity and within their first four years of operation are exempt from payment of minimum tax.

In Nigeria, the president has broad powers to grant tax incentives to any company or individual.

Industries that qualify to enjoy incentives include those engaged in mining, manufacture of cement, glass and glassware, lime from limestone, ceramic products, rubber, leather, and textile. 

Sectors of industry that are of economic benefit to the country are given priority.

Incentives are sector-based and not granted arbitrarily and Incentives are reviewed regularly as a way of confirming if they are serving the expected purpose.


A research conducted on the effects of tax incentives on the performance of listed firms in Kenya by Jomo Kenyatta University of Agriculture and Technology, Nairobi, revealed that tax reductions and exemptions influenced stock market performance but did not necessarily influence listing.

According to the research result, “A total of 58 per cent of the respondents argued that tax incentives did not motivate their firms to list at NSE. Many respondents disagreed with this illusion that their firms enjoyed tax incentives before listing at NSE. 54.2 per cent of respondents argued that predictable, clear tax laws and transparent tax administration are also important than low tax rates when making listing in NSE.”