Introduction
Investment securities are tradable financial instruments such as stocks, bonds, or treasury bills acquired with the expectation of earning returns through income or capital appreciation. They may be held for the short term (e.g., treasury bills and marketable securities) or the long term (e.g., bonds and equities).
Over the years, there has been lingering debate on whether these investment securities should be subject to Withholding Tax (WHT), particularly in cases where the securities are issued by government.
To provide clarity, the Federal Government issued an Order on January 2, 2012, granting a 10-year tax exemption (January 2012 – January 2022) on bonds and short-term government securities. During this period, tax agents were directed not to deduct WHT on interest from such investments.
Post-Exemption Developments
In February 2022, the government released a circular officially confirming the expiration of this incentive.
The circular further advised the public on the new tax implications for investment securities going forward.
Current Tax Position
Following the expiration, tax is now applicable on:
- Short-term Federal Government of Nigeria securities (e.g., Treasury Bills and Promissory Notes).
- Bonds issued by State and Local Governments and their Agencies.
- Bonds issued by corporate bodies, including supra-nationals.
- Interest earned by holders of all the above-listed securities.
However, it is important to note that Federal Government Bonds remain tax-exempt.
Recent FIRS Circular
On Friday, September 19, 2025, the Federal Inland Revenue Service (FIRS) issued a circular as a reminder that the exemption period has fully lapsed (copy attached). Taxpayers, investors, and tax agents are therefore expected to:
- Deduct and remit WHT on interest earned from the securities listed above.
- Ensure compliance with filing obligations to avoid penalties and interest charges.
- Stay updated on changes in tax regulations as further guidance may be issued.
Key Takeaway for Investors and Agents
If you hold or manage short-term government securities or corporate bonds, interest earned on such investment is now taxable.
Only Federal Government Bonds continue to enjoy exemption. Both investors and tax agents have a duty to ensure timely remittance of WHT to the relevant authorities.
Additionally, investors and tax agents are advised to be cautious of this regulation for their investment decisions.
Disclaimer
This newsletter is for information purposes only and does not constitute professional tax advice. For specific guidance tailored to your situation, please contact:
AAwotunde@coronationmb.com,WYusuf@coronationmb.com,JSoleye@coronationmb.com KAkinlotan@coronationmb.com, and UAdeyemi@coronationmb.com.
