Capital Gains Tax: Will 25% Compromise Calm Nigeria’s Capital Market?
The recent call by operators in the Nigerian capital market to review the proposed 30% capital gains tax on share disposals underscores a critical juncture for the country’s equity market.
As the government, through the Presidential Committee on Fiscal Policy and Tax Reforms (FPTR) chaired by Mr. Taiwo Oyedele, moves to implement this tax from January 2026, market participants have raised serious concerns about the potential impact on investor confidence and overall market dynamics.
In an open letter dated October 2, 2025, capital market stakeholders appealed for a reduction of the proposed rate from 30% to 25%, arguing that the higher rate could exert significant downward pressure on the Nigerian Exchange (NGX) in the closing months of the year as both domestic and foreign institutional investors rush to realise gains under the current tax framework.
This appeal emerges at a time when the Nigerian equity market has been exhibiting remarkable resilience and growth.
The NGX started the year 2025 with a market capitalisation of N62.763 trillion and, driven in large part by the federal government’s foreign exchange reforms which have bolstered investor confidence, surged impressively to close September at N90.581 trillion an astounding increase of N27.82 trillion, which represents 44.3%.
The steady monthly gains, including a 2.04% rise in September alone, reflect a market that is regaining momentum and attracting liquidity despite ongoing economic challenges. Against this backdrop, the prospect of a steep 30% capital gains tax introduces uncertainty that could fundamentally alter investment behaviour and market sentiment.
Investor psychology, especially in emerging market like Nigeria’s, is acutely sensitive to fiscal policy changes that affect returns on investment. The prospect of a substantial tax hike is likely to prompt investors to accelerate profit-taking before the new tax regime’s enforcement.
This rush to liquidate holdings could trigger increased volatility and downward pressure on share prices as investors seek to maximise after-tax returns. Such activity risks eroding the gains realised this year, potentially leading to a dampening of market enthusiasm that could extend well into 2026.
More concerning is the possibility of capital flight, particularly among foreign portfolio investors who often weigh tax rates heavily in their investment decisions. Nigeria’s competitive position relative to other African and emerging market may be compromised if the tax burden is perceived as excessive, diverting funds to more tax-friendly jurisdictions.
The operators’ suggestion to reduce the tax to 25% represents a pragmatic attempt to strike a balance between the government’s legitimate need to broaden the tax base and the capital market’s need to sustain growth and liquidity.
While the introduction of capital gains tax is an inevitable step towards fiscal consolidation and economic diversification, a lower rate could mitigate the risk of market disruption. A 25% rate would still mark a significant policy shift but would be less punitive, signaling to investors that the government is mindful of the delicate ecosystem underpinning capital market development.
Beyond immediate market reactions, the tax rate will likely influence longer-term investment horizons and capital formation. A higher tax rate can diminish the attractiveness of equities as an asset class, reducing participation from retail and institutional investors alike.
This reduction in participation would adversely impact liquidity, depth, and the overall vibrancy of the NGX, counteracting efforts to deepen financial markets as engines of economic growth.
Conversely, a more moderate tax regime could enhance predictability and stability, encouraging sustained investment inflows and supporting Nigeria’s broader economic reform agenda.
As Nigeria navigates the complex interplay between fiscal reform and capital market development, the outcome of this appeal will be a litmus test of policy sensitivity to market realities.
The impressive gains in market capitalisation so far this year reflect a cautious optimism among investors, one that could be easily unsettled by abrupt or harsh fiscal measures.
A recalibration of the proposed capital gains tax from 30% to 25% would not only alleviate immediate market pressures but also reinforce confidence in Nigeria’s commitment to creating an investor-friendly environment conducive to long-term growth.
The government’s willingness to engage with capital market stakeholders on this issue will therefore be critical in sustaining the momentum of Nigeria’s emerging equity market. GTCO Delivers 63% YTD Return Ahead of Dividend Payment
