Capital gains tax testing investor confidence

Nigeria’s move to bring back capital gains tax on equity investments has gone beyond a routine fiscal discussion, revealing underlying weaknesses in the country’s capital market. As investors reassess risk, foreign participation wanes, and liquidity providers pull back, the policy prompts deeper questions about Nigeria’s capacity to align revenue generation with sustainable, long-term market growth, writes TEMITOPE AINA

The normally bustling trading floors were unusually quiet in November. Dealers who were once animated by ringing phones and fast-moving prices sat back, watching screens flicker with red. As Nigeria’s government prepared to restore capital gains tax on equity transactions for the first time in decades, investors, both domestic and foreign, paused, recalculated, and reconsidered their exposure.

The policy, which imposes a 30 per cent tax on profits above N150 million, was framed as a necessary revenue-raising measure at a time of fiscal strain. But in a market already weakened by years of volatility, currency pressures and fragile confidence, the announcement landed like a shockwave. For many investors, it was not just another tax; it was a signal that the cost of investing in Nigeria’s capital market was about to rise significantly.

At stake is confidence, the invisible currency that sustains financial markets. Long regarded as the stabilising force in Nigeria’s equities market, institutional and foreign investors are now openly questioning whether the country can still compete with other emerging markets where capital gains taxes are either minimal or non-existent. Each naira taxed from investment returns, some argue, is a subtle warning that the balance between risk and reward may no longer favour Nigeria.