Nigeria: Tax Waiver On All Bonds And Short Term Government Securities

Last Updated: 3 October 2012
Article by Taiwo Oyedele


In March 2010, the Federal Government through the Debt Management Office announced the approval by the Federal Government of a tax waiver for all categories of bonds (including corporate bonds) and short term government securities such as treasury bills. The announcement also included a reduction in stamp duties for re-issue of previously executed debentures to 20% of the stamp duty payable on a new debenture.

The declaration made in 2010 was at best a statement of intention subject to administrative and legislative processes required to give the necessary legal backing.

Furthermore, the President in the 2012 Budget Speech delivered to the National Assembly in December 2011 again stated government's intention to grant tax waivers on all bonds and debt instruments issued by all tiers of government and corporate entities.

Subsequently, the Personal Income Tax Amendment Act 2011 ("PITA Amendment") was gazetted in January 2012 but effective from 14 July 2011. The PITA Amendment provided the required legal backing to the waiver for persons (essentially individuals) liable to tax under PITA only. To ensure that all investors benefit from the incentive regardless of their legal status, the President and the Minister for Finance have issued a Companies Income Tax Exemption Order and a Value Added Tax (Modification) Order respectively. The Orders which were recently gazetted both have commencement dates of 2 January 2012 to exempt income and proceeds from the disposal of debt securities from income tax and VAT.

We analyse below the key issues in relation to the Orders and the new tax waivers.

Before the PITA Amendment and CITA Gazette

The Local Loans (Registered Stock and Securities) Act of 1946 (as amended) empowers the Minister of Finance to issue bonds specifying the notional amounts, coupon rates, maturity dates and also specify the tax exemptions to be accorded such bonds.

The exemption granted by the Local Loans Act does not cover most debt securities such as Treasury Bills and state government bonds. Corporate bonds were also taxable. However, Section 30 of the Capital Gains Tax Act LFN 2004 provides exemption from capital gains tax ("CGT") for the disposal of Nigerian Government securities (including Federal, State and Local government bonds), stocks and shares. Although the scope of the CGT exemption is wide, it did not provide sufficient comfort as it was only useful where the income was considered capital rather than revenue in nature.

The impact of the PITA Amendment

The PITA Amendment effective from 14 July 2011 exempts the following from personal income tax:

  • Bonds issued by Federal, State and Local governments and their agencies;
  • Bonds issued by corporate and supranationals (including organisations like the world bank, IFC etc); and
  • Interest earned by holders of the bonds, and short term securities listed above.

Impact of the CITA gazette

The CITA gazette grants exemption to companies on their trading income from corporate and government bonds, treasury bills and other short term securities. In this regard, there should be no withholding tax although this is not specifically stated but can be inferred given that withholding tax is an advance payment of income tax except where it is deemed to be a final tax.

Impact of VAT gazette

Previously, proceeds from disposal of debt instruments have not been subject to VAT in practice. The basis for this is that the Nigeria's VAT law imposes VAT on the supply of goods and services and this may not be extended to such instruments as they are neither goods nor services. In addition to this, the Federal Inland Revenue Service ("FIRS") also issued Information Circular No. 9503 in 1995 where they took the position that capital and returns on capital should not be subject to VAT.

The VAT gazette could therefore have far reaching implications if it is interpreted to mean that VAT was previously applicable, if not, a specific tax exemption would not have been required. Also, at the expiration of the 10-year VAT exemption period, there is a high possibility that the tax authorities will seek to impose VAT on disposal of bonds and T-bills. The newly published VAT exemption Order will only become relevant if the new VAT law currently being drafted for consideration by the National Assembly which seeks to VAT such transactions is enacted into law.

Comments and conclusions

Period covered

Apart from the clear exemption for T-bills under the CITA gazette which was not specified in the PITA gazette, one key area of difference between the PITA Amendment and the CITA gazette regarding the tax exemption on bonds is that the PITA exemption is not time-bound unlike the CITA exemption which is only for 10 years.

It is not clear if the commencement date refers to year of assessment or the basis period. It is also uncertain whether the exemption will only apply to instruments issued after the commencement date or whether it will apply to all income accruing after the period including those on instruments issued prior to the exemption. In our view, the exemption period should be with reference to basis period and should cover all income accruing to investors effective from the commencement date regardless of when the instrument was issued. There is therefore a need to track the flow of income from relevant securities and exclude income earned during the exemption period from tax. This should include exemption from withholding tax deduction. However, by implication, any expense incurred in earning the exempt income may not be tax deductible.

Excess dividend tax

By these exemptions, issuers and investors are likely to seek and accept a lower coupon rate than they would without the tax exemption. However, the exemption may create a situation whereby the income earned may be taxed in the company upon redistribution in the form of dividend. This is due to potential excess dividend tax exposure at 30% as a result of having more distributable profit than taxable profit. Where this happens it will nullify the effect of the exemption thereby leading to possible mispricing of the debt instrument.

In our view, it is clearly against the principles of a good tax system to grant a tax waiver with one hand and then subject the income to tax on another hand.


Overall, the tax waiver will reduce the tax burden for investors especially individuals but corporate investors need to consider the real tax cost and effective tax rate of their investments in bonds and other debt securities in view of the potential excess dividend tax exposure and non deductibility of related cost of investment. Without this, such investors are likely to misprice their investment and therefore be worse off under the exemption regime.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Taiwo Oyedele
In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.