Multiple Taxation: A Threat on Stocks’ Investment
As efforts are being made by Securities and Exchange Commission (SEC)and Nigerian Stock
Exchange(NSE) to revive the capital market UDO ONYEKA reports shareholders call for
review of taxation on investment.
Some shareholders in the Nigerian capital market have decried the multiple taxation on their investments, saying it was one of the factors affecting the low patronage the market is witnessing. They therefore, called on the federal government to remove the 10 per cent withholding tax charged on dividends.
Withholding tax is tax deducted at source from income earned by a taxpayer on a qualifying transactions, investment or income stream. It is designed to capture tax and information on transactions to prevent tax evasion.
According to them, they pay tax on their dividend despite the fact that the companies that pay them are also taxed when buying and selling shares. They said their companies' profits were also taxed at source.
According to professor Famous Izedonmi, lecturer, University of Benin, multiple taxation is said to occur when the same income is subjected to more than one tax treatment. Noting that double taxation and triple taxation is common examples of multiple taxation. "The main issue here is that the same income or money is taxed more than once. If it is taxed twice, then we have double taxation phenomenon. When it is taxed thrice, we have triple taxation", he said.
Izedonmi said the most common forms of multiple taxation involves a situation where a company's profit is subject to CITA at corporate level, and at the same time opened to withholding tax and PAYE as income tax in the hands of the investor as dividend income receivers.
CITN on Multiple Taxation
Mr. Femi Jegede, president, Chartered Institute of Taxation of Nigeria has said that the multiple taxes being paid by individuals and businesses are affecting foreign direct.
He said that despite series of recommendation made by the institute to the federal government on how to tackle multiple taxation, the problem persisted. "The issue of multiple taxation is mostly prevalent in the local government, and one of our recommendations is that currently, the set up of Joint Tax Board does not include the local government making it very difficult for them to be sanctioned. So, we are recommending that, there be representatives of the local government in JTB so that any decision that is taken by the JTB, the local government will be carried along."
He noted that multiple taxations are making it very difficult and very costly to do business in Nigeria. This is one of the factors militating against investment in Nigeria and it has to be addressed, so that an investor when conducting his business in Nigeria will only pay one tax to a state or local government," he said.
Jegede also said that the institute frowned at the practice where consultants were used to collect taxes by states and local government, noting that such moves had usurped the powers of the tax authorities.
Mr. Abdulhamid Adi, a former chairman, Association of National Accountants of Nigeria, Kwara State chapter, also said multiple taxation is inimical to business growth in Nigeria.
He stated that multiple taxation increase cost of production, reduce profits for organisations and make it difficult for business to expand and employ more people, adding that, "it discourages direct foreign investments into the economy".
Some Arguments on Multiple Taxation
Experts however do not agree completely on the issue of multiple taxation. A school of thought sees the equity individual investor as being cheated or punished twice. After all, the corporate profit belongs to the investors. This is because he ceded the investment willingly to the company.
Thus if the investments were lost, he would also lose everything, Therefore some experts say, taxing the income twice is regarded as unhealthy and a punishment to the taxpayer. On the other hand, some experts say the company is a separate legal entity from the dividend income receiving investors. Izedonmi gave an example with earnings of citizens, which after being taxed under P.A.Y.E go through other taxes. "This income will be subjected to VAT if you purchase vatable items. If you buy fuel, air tickets, imported goods, alcohol, tobacco, sleep in hotel etc that same income in your hand will be subjected to various forms of taxes or levies. Not many people are aware of this".
Shareholders' Position
Mr. Boniface Okezie, chairman, Progressive Shareholders Association of Nigeria (PSAN), said that investors in the capital market are over taxed, and that such is not in the interest of the capital, since it would only discourage those that want to invest. "Investors in the capital market are over taxed.
This is very unhealthy for the market. For a single transaction an investor does in the secondary market or the Exchange, he is taxed by SEC 0.3 per cent, NSE 0.3 per cent, VAT 5 per cent, Stockbroker charges and withholding tax of 10 per cent is also charged on dividend paid to the investor.
I believe that the investors are multiply taxed and this does not encourage investors," Okezie said.
In the same vein Dr. Faruk Umar, president, Association for the Rights of Nigerian Shareholders (AARNS), corroborated with Okezie that investors in the nation's capital market are over taxed. He said in trying to revive the capital market SEC should first look at the issue of multiple taxation.
" I believe that the first place to begin in addressing the activities in the capital market and reviving it, is by looking for ways and means to encourage investors, so that their participation in the capital market would increase."
He said, "I have the believe that the capital market will soon rebound. However, I know it will only rebound when the regulators do the right things. In fact, this is why am happy with the National Assembly investigations on the activities in the sector."