The government has decided to test another experiment on our already fragile capital markets.
This time, it comes in the form of a 25 per cent capital gains tax on listed equities, charged if the proceeds are reinvested outside the stock market into fixed income or other non-equity assets.
On paper, it looks like a clever nudge; actually, it is not. Sell your shares and take the money into bonds? Fine, but you must hand over a quarter of your gain to the taxman. Keep the money in equities? You are spared. The theory is that this will redirect capital back into companies, create jobs and stimulate growth. This is us living in our own Cinderella world, drinking Kool-Aid.
But the truth is that elegant theories don’t move markets. Investors do. And when you look at this proposal through the eyes of those who actually provide the capital, it starts to look less like smart policy and more like another wasted bullet.
So what exactly are we dealing with?
The new rule would slap a 25 per cent levy on your gain if you sell shares and move the money into non-equity assets. The only way to avoid it is to reinvest in another Nigerian company, whether listed or not. Inflation doesn’t count in the government’s calculation.
If you bought shares ten years ago and the naira has since eroded half your real return, too bad. The cost basis is your original purchase price, not the reality of what your money is worth today.
Retail investors might shrug because most are exempt. Individuals only cross the line if their annual proceeds are above 150 million naira. Pension funds and other large pools of capital are also exempt.
Which leaves us with the obvious question: who exactly is this law supposed to catch?
The uncomfortable answer is that it is targeting a small slice of local, private investors who trade actively but don’t have the same tax shelters as institutions. In other words, the group most sensitive to market conditions, the very group you would imagine the government should encourage, not penalise.
Foreign investors and the big question mark
Now comes the elephant in the room. Will foreign portfolio investors be forced to pay this tax? If they are, then Nigeria just made itself even less attractive compared to every other frontier market out there. Imagine a foreign investor weighing where to park capital. On one side, you have Kenya, which exempts listed equities from capital gains tax altogether. On the other hand, Nigeria, where the cost of entering is already high, and the cost of exiting now comes with a 25 per cent haircut. Why would you choose Nigeria?
And if the rule doesn’t apply to foreigners, then what exactly is the point of the exercise? Punish your own local investors while letting external players walk free? That hardly sounds like sound economic policy.
The double taxation implication – FPIs pay CGT in their countries. For example, you will pay 21 per cent in the US after paying 25 per cent in Nigeria – this is quite laughable.
Kenya shows a different playbook because South Africa is not our mate
Kenya isn’t perfect, but on this one, it is far more pragmatic. Capital gains are generally taxed at 15 per cent there, but gains on shares listed on the Nairobi Securities Exchange are exempt. Investors know they can enter and exit without penalty. That creates liquidity, builds confidence and keeps capital flowing.
Nigeria, on the other hand, is busy erecting a toll gate at the exit ramp. And the one thing investors value most is the assurance that they can always leave when they want to. Remove that, and you don’t create loyalty, you create avoidance.
The risks we are inviting
The likely consequences of this proposal are straightforward. Foreign participation will fall. Liquidity will dry up. Bid-ask spreads will widen. Valuations will compress. Long-term holders will be punished because inflation isn’t recognised in the cost base. And the overall perception of Nigeria as a place to invest will slide even further.
This is not about textbook economics. This is about psychology. The confidence that you can invest today and exit tomorrow without arbitrary punishment is the bedrock of any market. Take that away, and you guarantee capital flight.
Smarter ways to achieve the goal
If the government really wants to deepen the equity market, there are far better tools. Incentivise long-term holding by offering a tax credit or just leave things as they are, don’t make it worse. Reward reinvestment into priority sectors. Give pension funds and asset managers clearer rules on equity allocation. Strengthen the regulatory framework so investors feel protected. In short, use carrots, not sticks.
Right now, Nigeria needs every drop of foreign and local capital it can get. Putting up a 25 per cent barrier at the exit door is the exact opposite of what we should be doing.
Counting the wounds
Nigeria is not New York, London or Shanghai. We are not yet a deep capital market where investors shrug off friction. Every little barrier matters here. Currency swings, political risk, governance uncertainty ; these already weigh on decisions. Adding a punitive exit tax is a self-inflicted wound.
When you shoot yourself in the foot, you don’t get sympathy from investors. You get avoidance. You get money going elsewhere. And you get another wasted bullet in the long list of policies that sounded clever in the textbook but collapsed in the real world.
