By the end of last week the Nigerian Stock Exchange All Share Index closed at 20,887, down 0.1% from the previous week. The All Share Index by the way was 20,730.63 at the start of 2012 and 24,770.52 at the start of 2011. Basically we have been on the bearish mode all year long. The NSE Market Capitalisation (Total Value of shares on the Exchange) currently stands at N11.7tr or $73b is still lower that the total amount of cash Apple (the makers of the iPad) have in the bank. Apple is reported to have about $100b in the bank.
What can be done to help reverse the bearish trend that has engulfed the stock market in the last 3 years? Certainly, a lot have been done to reverse the trend but none seems to have worked. Is it now time for a more radical approach?? I think so! One of such that I propose is a tax incentive that can be introduced into payroll taxes as well as Income Taxes. The Personal Income Tax Act currently, allows deductions of contribution to Pension Funds and National Housing Funds before computing how much you pay as taxes. Why can’t we then introduce a a temporary law, say 3year, that will allow tax payers get to deduct investments made on share purchase to the tune of N150,000 per annum (maximum) deductible from their salaries before been taxed. With just 10 million spending N150,000 annually N1.5tr will be injected into the Stock Market yearly and N4.5tr in 3years alone. Imagine what impact this will have on the market. For example, total value of trade yesterday (8/2/2012) was N1.89b, in a year that is like N690.5b assuming things stay the same. If you now add N1.5tr to that what do you think will happen to the economy??.
The State Governments may not like this because they get to loose revenue from taxes. The Federal Government already does not charge Capital Gains tax on sale of shares, so may not have much to gain. Wrong!! An up-tick in volume and value of trade in the stock markets benefits the wider economy. Businesses can be sure to raise money through IPO’s to fund expansions and growth thus creating employment. Government will get more tax revenue from profits of this same companies. Even the Government can access this markets for bonds to funds its developmental projects. The idea isn’t perfect but is worth exploring. I hope to throw more light on it in the future.