Federal Government yesterday disclosed that it has approved tax waivers on corporate bonds and those issued by states and local governments in the country. This is to reduce transaction cost as well as encourage activities in the bond sector of the Nigeria capital market. The Minister of Finance Dr. Mansur Muhtar said ‚ÄúTo consolidate on these gains, we are addressing some of the issues militating against the development of a vibrant sub-national and corporate bond market.
‚ÄúAs part of the effort to fast-track the process, the Acting President and Commander-in-Chief has approved the extension of tax waivers on Sub-national and corporate bonds, already approved under the Companies Income Tax Act (CITA) to include the Personal Income Tax Act (PITA), Value Added Tax (VAT), Capital Gains Tax (CGT) and short-term Federal Government of Nigeria securities; as well as a request for a reduction in Stamp Duties for re-issues of debentures. The obvious intention is to reduce transaction costs in the bond market, which would have positive multiplier effect on the overall economy‚Äù.
Muhtat further said ‚ÄúAs correctly noted in the Bond Market Report and based on evidence from the BRIC Countries (Brazil, Russia, India, China),‚Äùa healthy government bond market is a necessary condition for the development of a robust corporate bond market, since a well-functioning government bond market provides the corporate sector with a reasonable basis and benchmark for valuation and pricing of its bonds‚Äù.
‚ÄúIn this regard, it is noteworthy that the Federal Government has renewed its interest in issuing the US$500 million sovereign bonds. Work has been initiated towards the successful issue of the bond, with the proposal being incorporated into the 2010 Appropriation Bill. This dollar denominated bond issue, will help create a benchmark for subsequent issues by the Federal Government, Sub-national governments and the private sector, while raising the profile of Nigeria‚Äôs debt instruments as a credible investment option for International investors seeking to diversify their portfolio into emerging markets.
‚ÄúWith the understanding that a robust bond market is unlikely to evolve in a volatile macroeconomic environment, this administration had a proactive response to the Global economic crisis and this ensured that macroeconomic stability was achieved in 2009, as evidenced by the following indices.
‚ÄúYear on year headline inflation showed a sustained decline, falling from 15 percent at the December 2008 to 11 percent in December 2009; The external reserve levels at about US$43 billion remains quite comfortable in view of the external liabilities of the private and public sector as well as import coverage.
‚ÄúThe naira exchange rate has been relatively stable over the last 12 months, following the depreciation experienced in the fourth quarter of 2008.
The government‚Äôs debt position remains sustainable with external debt stock of under $4 billion as at the end of October 2009. With the 2010 planned borrowing programme, Nigeria‚Äôs total public debt will be less than 15 percent of GDP, well within cautious limits, when compared to the globally established threshold of 40% for countries in our peer group.
‚ÄúThe Government is also committed to improving fiscal transparency and responsibility in order to institute a culture of probity and accountability and also improve the government‚Äôs revenue situation. In this regard, reforms and increased revenue generation efforts are ongoing at both the FIRS and Nigeria Customs Service, some of the key revenue collection agencies. Process audits are also being initiated at select MDAs to ensure that returns are being made to the treasury as appropriate. In addition to increasing revenue generation, the government is committed to the judicious utilisation of the country‚Äôs resources. To this extent, we are enhancing the transparency and efficiency of the budgetary process‚Äù he said.