Introduction

It is now a well-established norm that tax laws are periodically reviewed in Nigeria in compliance with the National Tax Policy adopted by the Federal Executive Council in 20181. Starting from 2019, the National Assembly has always accompanied the Appropriation Act with the Finance Act with a view to stir the annual budget performance and control the economy using the fiscal tool. The Finance Act, depending on the macro-economic policy of the federal government in any financial and fiscal year, amends relevant tax laws and related statutes including the Capital Gains Tax Act2. The Finance Act (FA) 2021 is not an exception.

Pursuant to his constitutional powers, the Finance Act, 2021 which amended thirteen laws of the federation was assented to by the President of the Federal Republic of Nigeria on 31st December 2021. The amendment took effect from 1st January, 20223 and shall remain in force as the existing legal order guiding the administration and management of all the provisions of tax laws so amended. For the record, the Finance Act, 2021 amends the following laws:

  1. Capital Gains Tax Act
  2. Companies Income Tax Act
  3. Customs, Excise Tariffs, Etc, (Consolidation) Act
  4. Federal Inland Revenue Service Establishment Act
  5. Finance (Control and Management) Act
  6. Fiscal Responsibility Act
  7. Insurance Act
  8. National Agency for Science and Engineering Infrastructure Act
  9. Nigerian Police trust Fund (Establishment) Act
  10. Personal Income Tax Act
  11. Stamp Duties Act
  12. Tertiary Education Trust Fund (Establishment) Act
  13. Value Added Tax Act

The scope of this article is limited to current amendments made to capital gains tax in relation to the capital market, i.e., the financial system involved in raising capital through dealing in shares, bonds, stocks, saving certificates, securities, and other long-term investments. The following persons and bodies are the major stakeholders in the Nigerian capital market: Nigerian Stock Exchange (NSE), Securities and Exchange Commission (SEC), Individual Local and Foreign Investors and corporate investors. This article will examine the current legal framework of capital gains tax in relation to disposal, acquisition and or sale of shares, bonds, stocks, or securities in Nigeria's capital market.

Capital Gains Tax (CGT) is the levy imposed on the gains arising from the disposal of chargeable assets under the principal legislation i.e., Capital Gains Tax Act (CGTA) at the flat rate of 10%4. Chargeable assets include:

  1. options,
  2. debts
  3. shares and stocks
  4. incorporeal property generally;
  5. any currency other than Nigerian currency; and
  6. any form of property created by the person disposing of it, or otherwise coming to be owned without being acquired,

Putting it in perspective, any form of property created by the person disposing of it, is wide enough to accommodate so many intangible assets such as goodwill and franchise rights. It is important to note that CGT is not enforced as a matter of course by the relevant tax authority. There are three conditions that must be met5:

  • disposal of a chargeable asset;
  • chargeable gains or profit must have been made from the disposal;
  • the person that owns the asset or the asset is not exempted by the law.

A disposal of an asset will exist where any capital sum is derived from a sale, lease, transfer, an assignment, a compulsory acquisition or any other disposition of assets, notwithstanding that no asset is acquired by the person paying the capital sum.

CHARGEABILITY OF CGT ON SHARES, STOCKS, BONDS AND SECURITIES UNDER THE OLD LEGAL ORDER

As earlier stated, this article focuses on the application of capital gains tax to the profits or gains made from the disposal of shares of any company in Nigeria or government stocks, bonds, or securities. It is essential to examine the old legal order being the CGTA 2004 to gain a proper understanding of the paradigm shift in what constitutes the new legal order on tax liability of investors in the Nigerian capital markets, stocks, and shares. Capital gains tax was first introduced in Nigeria in 1967 as a federal law and has become part of the revenue generating statute till date. This was later compiled into the Laws of the Federation of Nigeria, 1990 and 2004 respectively; hence, the Capital Gains Tax Act (CGTA).

By the combined reading of Sections 2 and 3 of the CGTA, 2004, shares, stocks, and securities (except bonds, stocks and securities issued by the Federal Government) are subject to capital gains tax at the rate of 10%. However, in furtherance of its macro-economic policy, the Federal Government exercised its power under the Companies and Allied Matter Act (CAMA) and issued an exemption order from CGT in favour of duly registered companies in Nigeria. This exemption order6, which took effect from 2nd January 2012 expressly suspended the charging of CGT on all disposal of shares of companies duly registered under CAMA for a period of ten years from the commencement date. By effluxion of time, the 10-year exemption automatically lapsed on the 1st of January 2022.

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Footnotes

1. The federal executive Council adopted the National Tax Policy (NTP) on the 7th February, 2018. By the content of the NTP, tax laws are meant to be reviewed in line with the macro-economic reforms of the federal government periodically.

2. In 2019, the Finance Act amended pursuant to Section 49 substituted a new section 32 of CGTA to the effect that transfers of shares in any re-organization of companies such as mergers and takeovers shall not be subject to capital gain tax.

3. See Federal Official Gazette No. 10 Vol 109 dated and published 18th January, 2022.

4. See Section 2(1) of the CGTA. The same rate is retained for disposal of shares in Section 2(3) of the FA 2021 which amended the provision of Section 30 of the CGTA

5. The federal High Court espoused the law in the case of United Investment Ltd v Attorney General of the Federation (1922 - 2014) 3 All NTC 207 at 221 – 222 to the effect that no capital gain tax is due if there was no disposal of asset under the CGTA.

6. The exemption is known as Companies' Income Tax (Exemption of Bonds and Short-Term Government Securities) Order, 2011.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.