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Government extends waivers on bonds
By Bassey Udo
March 17, 2010 06:19AM
Mansur Muhtar, Minister of Finance. Phot: NEXT
The federal government has extended the tax waivers it granted on sub-national and corporate bonds to develop the domestic bond market.

The waiver already approved on taxes under the Companies Income Tax Act will now include the Personal Income Tax Act, Value Added Tax, Capital Gains Tax, short term Federal Government securities as well as request for a reduction in stamp duties for re-issue of debentures.

Acting President Goodluck Jonathan gave the approval after, the Bond sub-committee of the Bankers' Committee asked the Federal Inland Revenue Service to reduce taxes and statutory fees by waiving taxes on corporate bonds as is done on state government bonds.

The Central Bank of Nigeria committee also asked the Securities and Exchange Commission to facilitate the amendment of the Investments and Securities Act to permit the issuance of government bonds and registration of financial markets dealers' association to empower trade on corporate revenue bonds over the counter.

Bringing down transaction costs
Mansur Muhtar, the Minister of Finance, said at the launch of the restructured Nigeria International Debt Fund and the 2010 Nigerian Bond Market Report yesterday in Abuja that this will not only deepen the domestic bond market and reduce federal government dominance, it will also help bring down transaction costs.

Acknowledging the existence of vibrant government bond market as a necessity for the development of a robust corporate bond market, Mr. Muhtar said the former provides the latter with a reasonable basis and benchmark for valuation and pricing of bonds.

The recent issue of $500 billion sovereign bond for the development of infrastructure in the nation's power sector, he said, is demonstration of renewed interest by the Federal Government. He added that a proposal has been included in this year's budget to facilitate a successful bond issue.

'The dollar denominated bond issue will help create a benchmark for subsequent issues by the Federal Government, sub-national government and the private sector, while raising the profile of Nigeria's debt instruments as a credible investment option for international investors seeking to diversify their portfolio into emerging markets,' the minister said.

Reviewing the progress recorded so far, Mr. Muhtar said government's decision to embark on the reform to ensure macroeconomic stability in the wake of the global economic crisis has helped reduce the decline in year-on-year headline inflation from 15 per cent in December 2008 to 11 per cent in the corresponding period last year.

Within cautious limits
Similarly, he said the country's external debt stock has remained below $4billion as at last October, adding that with the country's 2010 planned borrowing programme, Nigeria's total public debt is expected to be less than 15 per cent of the gross domestic product.

'This is well within cautious limits, when compared to the globally established threshold of 40 per cent for countries in our peer group,' he said.

Abraham Nwankwo, the Director General, Debt Management Office, said the Nigeria International Debt Fund was first introduced in 1997 to give Nigerians and public institutions opportunity to invest in promissory notes being traded in the international capital market, adding that restructuring fund will provide investors more access to the domestic government debt market.

Hayford Alile, the chairman of Afrinvest West Africa Limited, said the development of the domestic bond market is one key ingredient need to strengthen the country's financial system and save it from depending on external fiscal shock in the future.