Nigeria’s presidential tax reform programme includes new provisions that will exempt state government bonds from taxation starting January 1, 2026, a move expected to reduce borrowing costs for subnational governments and improve fiscal space for infrastructure and development projects. Mr. Taiwo Oyedele, Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, highlighted this measure as part of the broader tax reform strategy unveiled by the Federal Government.
Under the new tax regime, interest income earned from state bonds, previously subject to tax, will be fully tax-exempt for individual and corporate investors. This aligns with reforms intended to stimulate investment in domestic capital markets and make government securities more attractive to both local and foreign investors. Analysts suggest that the exemption could encourage deeper participation in Nigeria’s fixed-income market by reducing the effective cost of lending to states.
Oyedele noted that the exemption is designed to lower the cost of borrowing for state governments, enabling them to access capital at more competitive rates for critical infrastructure projects such as roads, hospitals, schools and energy systems. In doing so, states can create fiscal space for development without imposing excessive tax burdens on investors, which can otherwise deter participation in bond markets.
A Boost for State Finances and Local Development
Aside from bond exemptions, the new tax laws also reallocate a greater share of Value Added Tax (VAT) proceeds to states, potentially increasing annual revenue by more than ₦4 trillion once the reforms take effect. Oyedele emphasised that these changes could help states diversify revenue sources beyond federal allocations and reduce reliance on short-term debt.
Economists and fiscal experts say that easing the tax treatment of state bonds could also strengthen investor confidence in domestic debt instruments, especially for pension funds, asset managers and institutional investors seeking stable, long-term returns without tax liabilities. This dynamic can improve liquidity in the local markets and support broader private sector growth.
For small businesses and MSMEs, the implications include potential easier access to financing if states use the savings from lower borrowing costs to invest in infrastructure, market access, and economic programmes that support local enterprise growth. Strong infrastructure and efficient financial markets often translate into lower business costs and improved conditions for entrepreneurs.
