Minister of Finance, Budget and National Planning visits NSE: The Major Subjects

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The Minister of Finance, Budget and National Planning, Zainab Shamsuna Ahmed was on Monday on the floor of the Nigerian Stock Exchange on a rewarding working visit to the Exchange and for the Minister.

This visit marking the first appearance of the Minister at the engine room that helps to drive the Nigerian’s economy; as she remarked, gave her the right medium to pledge her support for the Nigerian Capital Market and highlight some of the economic policies reform and provisions that are directed at expanding the output of the Exchange.

The CEO of the Nigerian Stock Exchange Oscar Onyema adequately seized the opportunity to score the policy reforms and economic achievements while raising critical fissure in the economy to demanding concerted effort.

What are the main issues?

Oscar Onyema set the tone for the minister’s speech of achievements especially in the area of tax reform by commending the

1) Return to the January – December Budget Cycle, which raises the chances of higher budget implementation; as well as

2) The signing into law and subsequent implementation of the Finance Act 2019, which contains incentivizing clauses for investment in the capital markets.

While these are truly commendable, the NSE Boss draw the attention of the honorable Minister’s attention to IMF recent remarks on the health of the economy that; 1) (Nigerian economic) growth is still recovering, inflation is increasing, and external vulnerabilities are rising and 2) major policy adjustments remain necessary to contain short-term vulnerabilities and unlock Nigeria’s growth potential

Oyema rightly weighed the IMF remarks with the Q4 2019 GDP growth of 2.55% and equated it to the nation’s annual population growth rate of about 3%. He concluded; “the message still remains that we have our work cut out for us as a nation and the economy must grow at over 8% – 10%; and control inflation to single digit rates, if we must enjoy robust real per capita income growth”.

Highlighting some of the numerous transformations in the Exchange over the past 2 months, Oscar Onyema listed the following:

1. the NSE All Share Index which outperformed Exchanges globally, with a return of 7.5% ytd in January 2020. The Exchange is still posting positive returns of 2.04% ytd as at Friday.
2. the recently launched the NSE Growth Board to encourage companies particularly SMEs with high growth potential to be able to raise long term capital and promote liquidity in the trading of their shares. The Board is designed to offer relaxed entry criteria as well as less stringent ongoing listing requirements and allows for greater accessibility to capital flows, global visibility, and credibility through corporate disclosures.
3. NSE journey to becoming a demutualized entity. With a Court-Ordered Meeting and an Extraordinary General Meeting slated for March 2020, NSE plan to transform operationally and institutionally to become better positioned to support the government in raising the right-sized and long-term developmental capital required for financing its economic objectives.

Finance Act, 2019 Incentives for Real Estate Investment Trusts (‘REITs’)

The Honorable Minister based her presentation on the Real Estate Investment Trusts (‘REITs’) vis-à-vis performance enhancement incentives in the newly signed Finance Act, 2019.

[Also read] Buhari signs Finance Bill into law; here are the changes

After taken a thorough enlightenment on the Real Estate Investment Trusts (‘REITs’), the Minister broke down the incentives provided by the Finance Act, 2019 thus;

“Prior to the Finance Act, 2019, Equity REITs that were structured as Groups of Companies, were subject to multiple layers of taxation. Every time the Project SPVs paid dividends to the Intermediate SPVs, and ultimately to the Holding Company or Parent SPV, the FIRS could apply an “Excess Dividend Tax” rule to subject the redistributed dividends, at each and every corporate level, to Companies Income Tax at 30%. So, while Corporate or Equity REITs were the most optimal type of REITs for raising debt capital or ring-fencing projects from insolvency events or defective land titles, the multiple corporate taxation was a major disincentive to using this type of corporate structure for REITs.”

Now the Finance Act 2019 has done the following:

eliminates the multiple taxation of SEC regulated REITs that are structured as Groups of Companies, by taxing the rents and dividends distributed through Equity / Corporate REITs just twice –

1. Firstly, at the bottom, when the rents are paid by tenants at the Project SPV or Intermediate Holding Company level; and
2. Secondly, at the top, once the ultimate dividends are paid to the ultimate shareholders of the Parent or Holding Company.

eliminates the multiple corporate taxation under the “Excess Dividend Tax” rule – but only for approved REITs duly regulated by the SEC. As your financial advisers and tax consultants unbundle the technical details of reforms of the Finance Act, 2019 for REITs, we expect to see:

1. A significant increase in REITs listed on The NSE;
2. Higher flows of debt and equity capital being deployed in large-scale commercial, residential and other real estate projects nationwide; and
3. The attendant multiplier effects from job creation, wealth aggregation, deepening capital markets and increased socio-economic development.

Narrowing down, the Finance Act, 2019 simply allows the FIRS to ignore the tax liabilities arising from the intermediate steps of a Stock Loan, and only tax the counterparties’ income at the end of the Stock Loan, or the counterparties’ gains or losses in the event of the insolvency of any of the counterparties during the Stock Loan.

Being an underlying objective of the tax reform, the Honorable Minister expressed a committed to move away from blunt and expensive fiscal incentives – like Import Duty Waivers or lengthy Tax Holidays – that reward investors merely for their INTENTION to invest. Focus is now on designing, and implementing 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.

The Minister rounded up her speech thus; “our fiscal reforms will increasingly complement our trade and monetary policies. We have 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”.