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Previously Exempted Investment Income may now be Liable to Tax Effective from 2 January 2022

Recall that on 2 January 2012, the federal government issued the Companies Income Tax (Exemption of Bonds and Short-Term Government Securities) Order, 2011. The Order granted corporate income tax waiver on all bonds and debt instruments issued by all tiers of government and corporate entities effective from 2 January 2012 for a period of 10 years. Owing to the sunset clause, the exemption is no longer applicable effective from January 2, 2022. The 2021 Finance Bill brought with it various tax changes affecting government securities, corporate bonds, and equity investment that you should be aware of, as detailed below. 


Specific Details

Specific details justifying the taxability of investment income are highlighted below:

  • The Capital Gains Tax (CGT) Act provides an exemption from capital gains tax on the disposal of Nigerian Government securities including Federal, State and Local government bonds, stocks and shares. However, an amendment via the Finance Act 2021 has brought about the imposition of CGT on the disposal of shares subject to a specified threshold and other conditions for  rollover relief.


  • Capital gains exemption does not cover gains which are viewed to be of revenue nature or trading profit depending on frequency, holding period and nature of investor’s trade, among others which are generally referred to as badges of trade principles.



  • The Personal Income Tax (Amendment) Act [PITA] 2011 which was published in the official gazette on 24 June 2011 with a commencement date of 14 June 2011, grants tax waiver to persons taxable under PITA in respect of income earned from bonds and short-term securities issued by Federal, State and Local Governments and their agencies; corporates and supranational. This exemption provision does not have a sunset clause, consequently, the exemption remains applicable.


  • The Value Added Tax (Exemption of Proceeds of Disposal of Government and Corporate Securities) Order 2011 dated 9 January 2012 was issued with an effective date of 2 January 2012 valid for 10 years to exempt disposal of government and corporate securities from VAT. However, under the Finance Act 2019, the VAT Act has been amended to specifically define goods as excluding securities. Recall that commissions on stock market transactions were previously exempted from VAT via the Value Added Tax (Exemption of Commissions on Stock Exchange Transactions) Order 2014 published in the official gazette dated 30 July 2014 with a commencement date of 25 July 2014 for a period of 5 years which expired on 24 July 2019.


Implications of This Development on Taxpayers

  1. Corporate investors are now liable to income tax on their income from corporate bonds and government securities. This means WHT at 10% will be applicable as an advance payment against CIT of 30% in addition to Education Tax of 2% for resident companies while WHT at 10% or 7.5% as the case may be will be the final tax for non-resident investors. This undoubtedly will raise the cost of borrowing for issuers.
  2. Based on the Local Loans (Registered Stock and Securities) Act of 1946 (as amended), the Minister of Finance may issue registered stocks, Government promissory notes or bearer bonds specifying, among others, the exemption from all or any of the taxes and duties payable under any other enactment in force in Nigeria. The exemption under the Local Loans Act has not historically been used to cover Treasury Bills and state government bonds
  3. Individuals will continue to enjoy tax exemptions on income from both government and corporate securities. This means WHT will also not apply.
  4. Capital gains tax will not apply on government securities while corporate bonds will be subject to capital gains tax (where applicable). Gains on shares as specified in the Finance Act 2021 will also be subject to CGT.
  5. VAT will not apply on the disposal proceeds of government and corporate securities. However, VAT will apply to fees and commissions on such transactions.


Our Commentaries

  • While it is not stated whether the exemption sunset should only affect securities issued after the expiration date or all income accruing after the expiration regardless of when the instrument was issued, the latter will be the case.
  • Taxpayers need to be aware to take necessary steps to ensure compliance and tax optimisation. Companies may need to track the income on various securities and segregate taxable from exempt income for tax purposes. Any expense incurred in generating taxable income will be tax-deductible.

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