January 02, 2022 /
06:50 PM / by PwC / Header Image Credit: PwC
There are various tax changes affecting
government securities, corporate bonds, and equity investment that you should
be aware of.
- 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. Due to the
sunset clause, the exemption is no longer applicable effective from today.
- The Capital Gains Tax (CGT) Act provides
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 is seeking to impose CGT
on the disposal of shares subject to a specified threshold and other conditions
for roll over relief.
- Exemption from capital gains does not cover
gains which are considered to be of revenue nature or trading profit depending
on frequency, holding period and nature of investor's trade, among others
(generally referred to as badges of trade principles).
- The Personal Income Tax (Amendment) Act
[PITA] 2011 which was published in the 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
supra-nationals. The exemption provision does not have a sunset clause.
Consequently, the exemption subsists.
- The Value Added Tax (Exemption of Proceeds of
the 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
exempts disposal of government and corporate securities from VAT. However, by
virtue of the Finance Act 2019, the VAT Act has been amended to specifically
define goods as excluding securities. Note that commissions on stock market
transactions was previously exempted from VAT via the Value Added Tax
(Exemption of Commissions on Stock Exchange Transactions) Order 2014 published
in the 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.
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 advance payment against CIT of 30% in addition
to Education Tax of 2% for resident companies while WHT at 10% or 7.5% will be
the final tax for non-resident investors. This will raise the cost of borrowing
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
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 proceed of
government and corporate securities. However, VAT will apply on fees and
commissions on such transactions.
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.
What To Do
You need to be aware in order to take
necessary steps to ensure compliance and tax optimisation. You 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
The post You
May be Liable to Tax on Your Previously Exempted Investment Income Effective today first appeared in PwcNigeria.com on January 02, 2022.
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