Nigeria: Tax treatment of interest income, proceeds from disposals of bonds and securities

Interest income and proceeds from the disposal of certain bonds and short-term securities no longer qualify as tax-exempt.

Interest income and proceeds no longer qualify as tax-exempt

Interest income and proceeds from the disposal of certain bonds and short-term securities no longer qualify as tax-exempt for purposes of the companies income tax and value added tax (VAT).

Specifically, the affected bonds or securities include:

  • Short-term federal government securities, such as treasury bills and promissory notes
  • Bonds issued by corporate bodies (including supra-national bonds)
  • Bonds issued by state and local governments and their agencies


Nigeria’s federal government in December 2011 issued “exemption orders” providing that interest earned and proceeds from disposal of short-term federal government securities and bonds were exempt from companies income tax and VAT. The exemption orders (offered as incentives) were effective for a period of 10 years, beginning from 2 January 2012 (the commencement date of the orders).  Accordingly, the 10-year exemption period expired on 2 January 2022. 

Bonds issued by the federal government, however, continue to be eligible for the tax exemption after expiration of the 10-year period. 

With the expiration of the exemption orders, interest accruing to already-issued debt instruments will now be subject to withholding tax and companies income tax, effective from the 2022 year of assessment.  However, with an amendment of the definition of goods in section 46 of the VAT law by Finance Act, 2020, to exclude “money and securities,” proceeds from the disposal of already-issued securities continue to be exempt from VAT, as debt securities do not constitute goods for VAT purposes. 

Expiration of the tax exemption orders does not affect individual (personal) income tax treatment. Individuals, sole proprietorship, and partnership businesses that invest in bonds and short-term federal government securities will continue to be eligible for exemptions from withholding tax and individual income tax.

Read a January 2022 report prepared by the KPMG member firm in Nigeria


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