You may be subject to tax on your previously exempt investment income as of January 2, 2022
Sunday 02 January 2022 / 6:50 p.m. / by PwC / Header image credit: PwC
There are various tax changes affecting government securities, corporate bonds, and equity investments that you should be aware of.
- On January 2, 2012, the federal government issued the Corporate Income Tax (Exemption from Short-Term Government Bonds and Securities) Ordinance, 2011. The ordinance granted exemption from corporate income tax. corporate income on all bonds and debt securities issued by all levels of government and legal persons. from January 2, 2012 for a period of 10 years. Due to the sunset clause, the exemption is no longer applicable as of today.
- The Capital Gains Tax Act (CGT) provides an exemption from capital gains tax on the disposal of Nigerian government securities, including federal, state and federal government bonds, stocks and stocks. and local. However, an amendment via the 2021 finance law aims to impose the CGT on the sale of shares subject to a specified threshold and other refinancing conditions.
- The capital gains exemption does not cover gains that are considered income or trading profits depending on the frequency, period of holding and nature of the investor’s transactions, among others (generally referred to as principles business principles).
- Personal Income Tax Law (Amendment)
[PITA] 2011, which was published in the Official Gazette on June 24, 2011 with an effective date of June 14, 2011, grants tax exemption to taxable persons under PITA for income from bonds and short-term securities issued by federal, state and local governments and their agencies; companies and supranationals. The exemption clause does not have a sunset clause. Therefore, the exemption remains.
- The 2011 Ordinance on Value Added Tax (Exemption of the Proceeds from the Disposal of Public Securities and Companies) of January 9, 2012 was published with an entry into force date of January 2, 2012 valid for 10 years in order to to exempt from VAT the disposal of public securities and companies. However, under the 2019 finance law, the VAT law was amended to specifically define property as excluding securities. It should be noted that commissions on stock market transactions were previously exempt from VAT via the 2014 Ordinance on value added tax (Exemption from commissions on stock market transactions) published in the Official Journal of July 30, 2014 with an entry date in force on July 25, 2014 for a period of 5 years. which expired on July 24, 2019.
1. Private investors are now subject to income tax on their income from corporate bonds and government securities. This means that the 10% WHT will be applicable as a down payment on the 30% CIT in addition to the 2% school tax for resident companies, while the 10% or 7.5% WHT will be the final tax. for non-resident investors. This will increase the cost of borrowing for issuers.
2. Based on the Local Loans (Shares and Registered Securities) Act 1946 (as amended), the Minister of Finance may issue registered shares, government promissory notes or bearer bonds specifying, among other things, exemption from all or part of the taxes payable under any other law in force in Nigeria. The exemption under the Local Loans Act has not historically been used to cover treasury bills and government bonds.
3. Individuals will continue to benefit from tax exemptions on income from government securities and companies. This means that WHT will not apply either.
4. Capital gains tax will not apply to government securities while corporate bonds will be subject to capital gains tax (if applicable). Capital gains on shares provided for by the 2021 finance law will also be subject to the CGT.
5. VAT will not apply to the proceeds from the sale of public securities and companies. However, VAT will apply on fees and commissions on these transactions.
Although it is not clear whether the time-out of the exemption should only affect securities issued after the expiration date or all income accrued after the expiration, regardless of the date of issue of the instrument , the latter will be the case.
What to do
You need to be aware in order to take the necessary steps to ensure tax compliance and optimization. You may need to track income from various securities and separate taxable income from income exempt for tax purposes. Any expense incurred to generate taxable income will be tax deductible.
You may be subject to tax on your previously exempt investment income today PwcNigeria.com
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