Don’t tax capital gains – GSE

Kofi Yamoah, Managing Director of the Ghana Stock Exchange (GSE), says he will be ‘disappointed’ if the Minister of Finance introduces taxes on capital gains in the 2016 budget to be presented to Parliament today.

“I will be disappointed if capital gains are taxed. That is one thing we are impressing upon the Ministry of Finance not to touch, because it has been an incentive that has lured many individuals to invest in listed companies,” he said at the launch of the Ghana Stock Exchange’s 25th-anniversary celebration.

Capital gain is the profit that results from a sale of a capital asset — such as stock, bond or real estate, where the sale price exceeds the purchase price. The gain is the difference between a higher selling price and a lower purchase price.

Ever since establishment of the GSE in November 1990, capital gain has been tax-free, and that status is expected to expire this month, November.

But with government looking at increasing its revenue base, it might well be tempted to slap a tax on capital gains — but Mr. Yamoah explained it will be a disappointment if this is done.

To substantiate his point further, Mr. Yamoah noted that the practice of making capital gains tax-free is not just in Ghana but all over the African continent.

“Recently Egypt wanted to go back and tax capital gains, but it has abandoned that idea and made it free again. Across the market in Nigeria and everywhere, it is free. It is meant to bring individuals to the marketplace.”

He stated that he expects the Minister, Seth Terkper, to maintain the tax incentive status for companies coming to the market for the first time.

“Companies listing on the exchange have a 3 percent rebate for the first three years to cover part of the listing cost, and we are expecting that to be continued. We will be disappointed if that is not continued because it serves as some incentive to encourage companies to list on the market,” he added.

Touching on achievements of the bourse over the past 25 years, Mr. Yamoah explained that from an initial listing of 11 equity securities worth GH¢3.05million in 1990, the market as at 31st October 2015 had 40 share securities with a capitalisation of GH¢62billion: companies have over the years raised over GH¢2.1billion in equity and GH¢194million debt securities from the investing public.

Also, the bourse now has 14 corporate debts of value of GH¢97million; 98 Government notes and bonds valued at GH¢11.05billion; two sovereign bonds with secondary listing of US$3billion; and several listed corporate and Government bills worth GH¢18billion.

“In short, the GSE has become a market for all instrument classes. The thin and shallow one market segment is now a three market segments: the main equity board, the alternative market or GAX dedicated to SMEs, and a fixed income market with quite a number of securities on them.”

In 1990, the GSE had three licenced dealing members but now it has 21 dealing members, and the Securities and Exchange Commission has licenced many fund managers, custodians and trustees — numbering about 100 with total fund under management of GH¢6.6billion at the end of December, 2014.

Return to investors

Mr. Yamoah noted that for the 20 years from January 1995 to end December 2014, the GSE has on compound basis returned 5,400 percent to investors, compared to a return on dollar investment of 2,900 percent, with a return based on inflation of 3,100 percent and return on 91-day Treasury bills of 8,100 percent.

“For the most recent five-year period, January 2010 to December 2014, the stock exchange has on compound basis returned 199 percent to investors compared to a return on dollar investments of 124 percent, return based on inflation of 70 percent and return on 91-day Treasury bill of 126 percent.”

He noted that these gains has made the GSE win a number of awards with the most recent being the best-emerging markets in 2013 with a return of 78 percent.

Future

The GSE wants to consolidate the achievements of the recent past and focus efforts at improving all three market segments as far as liquidity, efficiency, transparency and sustainability are concerned.

He urged students who visit the bourse to consider careers in finance and investment banking, since it is interesting, challenging and satisfying all at the same time, and in the years ahead it will certainly pay extremely well.