Corporate bonds

Nigerian Tax Issues: Tax Implications of Income from Disposal of Corporate Bonds and Shares – Tax

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Uche Matthew1Olukolade Ehinmosan

Nigerian Tax Problems: Income Tax Implications

From the transfer of bonds and shares of companies2


In 2011, the Federal Government of Nigeria (FGN), in an effort to stimulate bond investment in Nigeria, issued the Corporation Income Tax (Exemption of Bonds and Short-Term Government Securities) Order 2011 (“CITEOor “the Order”).3 From the start date of CITEO – 2n/a January 2012 – the Decree grants corporation tax4 exemption on all bonds and debt securities issued by all levels of government, corporations and supranational entities, including accrued interest thereon. As such, income from the disposal of government and corporate bonds and short-term government securities was exempt from income tax. In particular, the exemption was to last for a period of 10 years.

This situation changed in 2022 and the exemption has since lost its effectiveness, having become inapplicable from midnight of the 2n/a January 2022. This has created an era of relative uncertainty regarding the tax treatment of income from the sale of corporate bonds. Accordingly, the Federal Inland Revenue Service (FIRS) has issued a public notice to clarify its position on the administration of income tax laws in this regard and to address any related controversy.

This article examines the specific tax situation generated by the public notice of the CITEO and the FIRS, taking into account corporation tax, personal income tax, capital gains tax and value added tax.

What are bonds?

Generally, a bond is a debt certificate with which the issuer undertakes to pay the principal sum to the bondholder on a specified date after the date of issue. A major characteristic of a bond is that it is a debt security constituted by means of a transferable instrument with a medium or long term maturity. In Nigeria, bonds are generally a cheaper means of short/long term debt financing, especially because they are virtually tax free.

the Corporation Income Tax (Exemption of Bonds and Short-Term Government Securities) Order 2011 (“CITEO”)

In the exercise of the powers conferred on him by section 23(2) Corporation Income Tax Act,5 then-President Goodluck Jonathan issued CITEO in 2011 which exempted from corporation tax for a period of ten (10) years, the following persons:

  1. Treasury bills, promissory notes and other short-term FGN securities.

  2. Bonds issued by all levels of government.

  3. Bonds issued by legal persons and supranational entities.

  4. Interest earned on 1 – 3 above.

However, by the Ordinance, bonds issued by the FGN will benefit from an unlimited exemption, unlike the ten (10) year exemption for corporate bonds.6 This provision of the Ordinance relating to the expiry of the tax exemption for corporate bonds is considered in law to be the Termination clause. A sunset clause is a provision in a statute or subsidiary legislation stating when and how a particular provision of that statute will expire. In other words, it stipulates an expiry date for a provision of a law.

Corporate income tax (IRS) on income from bonds and short-term securities

A sunset clause showing the expiration of the tax exemption is contained in Citeo Order 2. Thus, from 2n/a Since January 2022, the corporate tax exemption only applies to bonds issued by the FGN but does not extend to the following:

  1. Short-term FGN securities such as treasury bills and promissory notes.

  2. Bonds issued by state and local governments and their agencies.

  3. Obligations by legal persons, including supranational entities.

  4. Interest accrued on these bonds and short-term securities. Such interest no longer benefits from the exemption from corporation tax imposed under the CITA.

Capital Gains Tax (CGT) on gains accruing to a person on disposal of shares

Prior to the entry into force of the Finance Act 2021 (FA 2021), profits/gains accruing to a person from the disposal of Nigerian government securities including bonds, stocks and shares of all levels of government , were exempt from the CGT.7 However, FA 2021 imposes CGT on stock disposal gains subject to a specified threshold and other rollover relief conditions.

Specifically, Article 30(2) of the amended CGTA provides as follows:

“Without prejudice to any other applicable law, gains accruing to a person on the disposal of his shares in any Nigerian company registered under the Companies Act and related matters shall be taxable gains under this Act, unless –

(a) the proceeds of such disposal shall be reinvested in the same year of assessment in the acquisition of shares of the same company or other Nigerian companies:

Provided that tax accrues proportionately on the part of the proceeds which is not reinvested in the manner provided in this subsection;

(b) the proceeds of the assignment, in aggregate, are less than N100,000,000 in any 12 consecutive months, provided that the person making the assignment provides appropriate returns to the Service on an annual basis; or

(c) shares are transferred between an approved borrower and lender in a regulated securities lending transaction as defined by corporation tax law. »

The CGTA taxes proceeds from the sale of shares generally at 5%.8 Meanwhile, according to the above provision, any investor seeking to sell shares pays a 5% tax on capital gains realized on the sale of shares of a company if these proceeds are not reinvested in shares. The tax also applies to anyone selling shares of any company in Nigeria, even if the shares are not listed on the stock exchange, which includes the sale of shares by private equity firms, startups, capitals – venture capitalists or any shareholder seeking to sell shares in Nigeria.9

Personal income tax (PIT) on income from bonds and short-term securities

Per paragraph 31A of the Third Schedule to the Personal Income Tax (Amendment) Act 2011 (“PITA”)ten which started on the 14thand June 2011, income from the following sources is exempt from IRP:

  1. Bonds issued by any or all of the three levels of government.

  2. Bonds issued by legal entities, including supranationals.

  3. Interest earned by holders of bonds and short securities of bodies/entities in (1) and (2) above.

It should be noted that this exemption by PITA does not have a sunset clause. Thus, the exemption continues to apply.

Value added tax (VAT) on income from bonds and short-term securities

The VAT (Exemption of Proceeds of Disposal of Government and Company Securities) Order 2011 has been published with an effective date of 2n/a January 2012. This VAT Order does not contain a sunset clause. It exempts from VAT for 10 years, income from the sale of state and corporate securities. However, Section 46(g) of the FA 2019 specifically excludes money and securities from the scope of vatable property.

Furthermore, the Exemption of Commissions on Stock Exchange Transactions (VAT) Order 2014 exempted commissions on stock exchange transactions for a period of 5 years – 25and July 2014-24and July 2019.

By implication, VAT does not apply to proceeds from the sale of public and corporate securities since the “securities” are no longer valid. Meanwhile, fees and commissions arising from these transactions are vatable services.


The FIRS Public Notice of February 2022 does clarify any issues that may arise regarding any business income arising from the disposal of bonds. Similarly, state tax authorities may issue public notices to clarify the situation regarding personal income tax, although this article already shows that the situation is rarely controversial.


1 Partner, Corporate Finance and Capital Markets, SPA Ajibade & Co, Lagos, Nigeria.

2 Partner, Tax, Real Estate and Estates, SPA Ajibade & Co, Lagos, Nigeria.

3 A replica of this initiative is the Value Added Tax (Exemption of Proceeds from Disposal of State and Corporate Securities) Ordinance (VATEO), 2011 which exempts proceeds and income from the disposal of short-term corporate, federal, state and local bonds and securities from the charge of value-added tax.

4 tax imposed under the Income Tax Act Cap Corporate income. C21 LFN 2004 (“CITA”).

5″The President may exempt by order – (a) any company or class of companies or any of the provisions of this Act; or (b) any taxes, or profit of any company or category from any source companies whatsoever, on any ground that appears sufficient to him. “

6 Command 2, Citeo.

7 Section 30 of the Capital Gains Tax Act Cap. C1 LFN 2004 (“ACCAT”).

8 Paragraph 30 (3) of the amended Law on the tax on capital gains.

9 13and January 2022.

10 This schedule to the PITA governs exempt income.

Originally published February 28, 2022

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.