September 30, (THEWILL) — The Federal Government has introduced a new rule clarifying the application of Capital Gains Tax (CGT) on share disposals, aimed at discouraging capital flight from equities into fixed-income assets.
Under the rule, a 25% CGT will apply if proceeds from share sales are reinvested in bonds, treasury bills, or other non-equity instruments.
However, investors will be exempt if they reinvest in another Nigerian company, whether listed or unlisted.
Taiwo Oyedele, Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, said the measure is designed to retain capital within equities and support businesses, jobs, and long-term growth.
He stressed that 99.9% of retail investors remain exempt, as the threshold for applicability is set at N150 million annually — leaving the rule to target mainly institutional players and high-net-worth individuals.
Nigeria’s equities market has been one of the few bright spots in the economy this year. The Nigerian Exchange (NGX) has posted a year-to-date return of 37.25%, with the All Share Index standing at about 141,157 points.
Analysts warn, however, that such strong gains heighten investor sensitivity to policies that could dampen returns.
Investor Flows Under Pressure
Foreign portfolio investment (FPI) flows remain volatile. In July 2025, FPI surged to N1.81 trillion, nearly triple June inflows of N778.65 billion.
Yet, in the first half of the year, foreign investors sold N576.09 billion in equities — an 85% increase year-on-year.
Domestic investors continue to dominate activity, accounting for 72.92% of total transactions in H1 2025 (N3.06 trillion out of N4.19 trillion).
While this cushions the market, reliance on local participation means any pullback by foreign or institutional investors could quickly hit liquidity and valuations. In March 2025, FPIs alone contributed N699.89 billion, or 62.74% of monthly turnover, underscoring their influence.
Policy Consistency and Market Confidence
Analysts caution that the new CGT may be seen as a short-term revenue measure rather than part of a coherent capital market strategy. Nigeria’s history of sudden policy shifts has already eroded investor confidence.
With inflation still high and the Monetary Policy Committee’s benchmark interest rate at 27%, fixed-income instruments remain attractive. For some institutional investors, absorbing a 25% CGT may still be preferable to the risks of an unpredictable equities market.
Economic Stakes
Supporters argue the measure could keep liquidity in equities, bolstering valuations and funding growth. But critics warn that if investors accept the tax as a cost of safer returns, equities could face reduced participation and weaker confidence.
The broader concern is Nigeria’s ability to attract foreign portfolio inflows, which rose 126.8% to N396.41 billion in 2024 but have shown extreme sensitivity in 2025.
At stake is whether the new CGT will genuinely strengthen the equities market or push capital toward safer havens, undermining the very sector it seeks to protect.
Ogochukwu Onwaeze
