Realised P&L
Profit (or loss) on positions you've actually sold — taxable in Nigeria at 10% CGT. Distinct from unrealised P&L, which is paper-only and doesn't yet matter to the tax bill.
When you sell shares on the Nigerian Exchange (NGX), you might have noticed terms like "realised profit and loss" (P&L) popping up on your dashboard. This simply refers to the gains or losses you've actually made from selling investments. For example, if you bought shares of a company like MTN Nigeria at ₦100 per share and sold them later at ₦120, your profit is ₦20 per share, which is your realised P&L. This profit is subject to a 10% Capital Gains Tax (CGT) in Nigeria, which means you'll be paying taxes on the money you've actually made from selling your investments.
It's important to distinguish this from unrealised P&L, which is the profit or loss you could potentially make if you sold your investments at the current market price. For instance, if you still hold those MTN shares at ₦130 per share, you have an unrealised profit of ₦30 per share, but you haven't yet sold them, so you don't owe any taxes on this paper profit yet. This unrealised gain or loss only becomes relevant when you decide to sell your investments and make it a reality.
In Nigeria, the Central Bank of Nigeria (CBN) sets the Monetary Policy Rate (MPR) which currently stands at about 27.50%. This rate influences interest rates on various financial products, including Treasury Bills (T-bills). While T-bills offer relatively lower returns compared to the potential gains from stocks, they are considered safer investments. When you invest in these, your returns are typically exempt from CGT, unlike the profits you make from selling stocks.
Knowing the difference between realised and unrealised P&L helps you understand your tax obligations better. For instance, if you keep your shares and they appreciate in value, you won't pay CGT until you sell them. But if you sell and realise a profit, you'll owe 10% of that profit as tax. Also, be aware of the 10% withholding tax (WHT) on dividends you receive from Nigerian companies, which is deducted at the source.
Why it matters: Understanding realised P&L helps you accurately calculate your tax liabilities and make informed decisions about when and how to sell your investments. This knowledge is crucial for effective tax planning and ensuring you don't owe more than necessary to the government.