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      In December 2011, the Federal Government (FG) issued the Companies Income Tax (CIT) (Exemption of Bonds and Short-Term Government Securities) Order, 2011 and Value Added Tax (VAT) (Exemption of Proceeds of the Disposal of Government and Corporate Securities) Order, 2011 (collectively referred herein as Exemption Orders), which exempt the interest earned and proceeds from disposal of short-term FG securities and bonds, from CIT and VAT respectively.  These include bonds issued by the Federal, State and Local Governments and their agencies, and by corporate and supranational entities.

      Based on the gazetted copies of the Exemption Orders, the above incentives will be effective for a period of 10 years starting from 2 January 2012 (the commencement date of the Orders).  However, bonds issued by the FG will continue to enjoy the CIT and VAT exemptions after the expiration of the 10-year term.  Based on the foregoing, the 10-year exemption period expired on 2 January 2022.  Therefore, interest income and proceeds from the disposal of the following bonds and short-term securities will no longer enjoy CIT and VAT exemption status:

      • short term FG securities such as treasury bills and promissory notes, 
      • bonds issued by corporate bodies (including supra-national bonds), and 
      • bonds issued by State and Local Governments and their agencies.

      We commend the efforts of the Federal Government to encourage the growth of the capital market and provide a platform for improved funding for both the private and public sectors. There is no gainsaying that the tax-exemption has served as an investment incentive and contributed significantly to the sustained increase in the Nigerian domestic bond market capitalisation and investments over the past decade.  Statistics show that the Nigerian economy recorded a 55.61% increase in bonds market capitalization within one year of implementation of the Exemption Orders, and within 5 years the bonds market capitalization grew to ₦10.2 Trillion.

      With the expiration of the Orders, and consequently the exemption incentives, interests accruing to already issued debt instruments will now be subject to withholding tax (WHT) and CIT, effective from 2022 Year of Assessment.  However, with the amendment of the definition of goods in Section 46 of the VAT Act by Finance Act, 2020, to exclude “money and securities”, proceeds from disposal of already issued securities will continue to be exempt from VAT, as debt securities do not constitute goods for VAT purposes.  Likewise, bonds issued by the FG will continue to enjoy the CIT and VAT exemptions, in line with the provisions of the Local Loan (Registered Stock and Securities) Act and the Exemption Orders.

      Further, it should be noted that the expiration of the tax exemption does not affect personal income tax (PIT) as the exemption from bonds introduced in the PIT Amendment Act, 2011 was not time-bound.  Therefore, individuals, sole proprietorship and partnership businesses that invest in bonds and short-term FG securities will continue to enjoy exemptions from WHT and PIT.

      Based on the above, taxpayers are advised to assess their investment portfolio and make appropriate tax provisions to ensure continued compliance with the tax laws to avoid incurring unnecessary interest and penalties for non-compliance.  Also, investors would need to re-evaluate their investment and treasury management strategies in order to optimize their tax positions.

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