FG, state bonds remain tax-free in 2026

Investors in Nigerian government bonds can breathe easy — their bond income will remain completely tax-free in 2026. Despite confusion surrounding the new Nigeria Tax Act 2025, the law does not remove the long-standing tax exemption on Federal or State Government bonds. In fact, it reinforces it.

Effective January 1, 2026, Section 163(1)(n) of the new Tax Act explicitly exempts income from Federal and State Government bonds from tax.

This means coupon payments — the periodic interest paid on these bonds — will continue to be received in full, with no deductions and no withholding tax.

For investors holding FGN Bonds, Sukuk, or State Government Bonds, this confirms that returns remain completely protected.

The Debt Management Office (DMO) will continue paying investors their full coupon amounts without any tax implications.

The law also protects pension fund income, reaffirming that all investment returns, including interest, dividends, and profits, are tax-exempt under Section 163(1)(h) of the Tax Act and Section 10(2) of the Pension Reform Act 2014.

This means Pension Fund Administrators can continue investing confidently in government securities without fear of new tax burdens.

Beyond coupon income, the new Act preserves the existing exemption on the sale or transfer of government bonds from Value Added Tax.

Bond transactions will remain VAT-free both before and after 2026.

The only short transition period applies to capital gains — until December 31, 2025, gains from selling bonds before maturity will still be taxed under the existing Capital Gains Tax (CGT) Act.

However, from January 1, 2026, when the new Tax Act takes effect, the CGT Act will be repealed, and all gains from Federal and State Government bonds will become fully tax-exempt.

This clarification provides certainty and stability for Nigeria’s fixed income market.

It reassures both retail and institutional investors that their coupon payments will continue to be received in full, without deductions.

Pension funds can continue earning tax-free returns, and bond issuers face no new withholding or reporting obligations.

The policy also aligns with global best practices, where sovereign bonds are typically exempt from taxes to attract investors and lower government borrowing costs.

For Nigeria, maintaining this exemption strengthens investor confidence and deepens the bond market.

For anyone who feared the new tax regime would eat into their earnings, this update settles the matter.

The government is not introducing new taxes on bond income; it is preserving the tax-free status that has long supported the country’s debt market.

From 2026, investors can keep earning from their government bonds — free of tax, free of worry.