Companies hoping to enjoy tax holidays and import duty waivers without making any tangible investments in the economy should have a rethink as the federal government is making moves to change the fiscal incentives.
In a bid to encourage companies to invest in the Nigerian economy, the government gives incentives such as import duty waivers and tax holidays.
However, the Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, has said going forward, the government would design and implement fiscal incentives that reward investors after they have invested.
Speaking during a visit to the Nigerian Stock Exchange (NSE) in Lagos on Monday, Ahmed said: “Going forward, we are committed to moving away from blunt and expensive fiscal incentives – like Import Duty Waivers or lengthy Tax Holidays – that reward investors merely for their intention to invest. Rather, we will design, and implement targeted and more efficient fiscal incentives that reward investors after they have kept their promises to invest, create jobs, deepen our capital markets, and abide by applicable rules and regulations.”
According to her, government’s fiscal reforms would increasingly complement its trade and monetary policies, noting that the government had made tremendous progress in the effort to create a conducive business environment for all investors.
“Our target is to move the Nigeria into the top 100 on the 2020 World Bank’s Doing Business Rankings. It is our expectation that this enabling business environment will spur the industry, innovation and investment that our people, world over, are renowned for and accelerate our industrialisation in the light manufacturing, agro-processing, petrochemicals and construction sectors, which seek capital for investment from the NSE,” she said.
Meanwhile, the minister said now that tax laws are consistent with the Securities and Exchange Commission (SEC)’s regulations for securities lending transactions, they expect to see increased growth in secondary and tertiary trading in shares on the NSE.
“The Finance Act, 2019 provides targeted tax incentives for SEC-regulated securities lending transactions, which are often called “Stock Loans”. A stock loan occurs when a long-term holder (for example, a pension fund or other institutional investor) of a share creates a secondary income stream for itself by lending its share, for a short period to brokers who are building portfolios of such shares for their clients.
“As shares are fungible, the client can return an equivalent share of the same company, through its broker, to the share’s lender, at the end of the stock loan. To guarantee that the share will be returned at the end of the stock loan, pension funds and long-term institutional investors require brokers, and their clients, to put up cash collateral that is equivalent to the value of the shares lent,” Ahmed said.
She explained that at the end of the stock loan, the broker returns the lent share from its client to the pension fund or long-term institutional investor and the lender returns the cash collateral to the client, through its broker.