Domestic revenue mobilization: Should interest paid on treasury bills be taxed?

There has been an increasing interest in Ghanaian government Treasury Bills (T-bills) in recent months following governments increased demand for short term funds to finance fiscal deficit. Over the years, successive governments frequently engage in competition with the private sector in financial markets to fund fiscal deficits by issuing government bonds, which are utilized to refinance existing or maturing debts.

Between January 2023 and September 2023, the government of Ghana has issued the 182 days and 91 days Treasury Bills 51 times with face value of over GHS98 billion. After treasury bills (T-bills) were exempted from the Domestic Debt Exchange Programme (DDEP), investors have increasingly turned to T-bills as a primary savings option. Analysis of the CENTRAL SECURITIES DEPOSITORY Monthly Bulletin for September 2023 provides the following breakdown:

Distribution of Issued Securities Admitted to the CSD by Tenor (2022 & 2023)
Issuer Security Tenor Issuer
Jan. – Dec, 2022 Jan – Sept. 2023
Face Value (GH₵) No. of Times Issued Face Value (GH₵) No. of Times Issued
Government of
35 Day GoG 1,255,204,414 1
49 Day GoG 607,846,985 1
91 Day GoG 53,270,114,011 51 73,139,089,754 39
182 Day GoG 12,658,374,550 51 25,686,108,518 43
364 Day GoG 7,278,298,793 33 11,424,325,514 29
2 Year GoG 1,684,339,514 2
3 Year GoG 3,188,015,659 4
4 Year GoG 386,412,722 2
5 Year GoG 1,648,834,393 2 386,412,722 2
6 Year GoG 1,320,661,868 1
7 Year GoG
10 Year GoG
Sub Total 81,048,638,788 144 112,885,400,629  


























































































































































This trend positions governments as key participants in financial markets, with public debt servicing becoming a major component of budgetary expenditures in the form of interest payment. Government bonds enjoy more favorable tax conditions than corporate bonds, with income from government-issued securities typically exempt from taxes.

Currently, section 7(p) and (r) of the Income Tax Act, 2015 (Act 896) as amended provides that, interest paid to an individual and non-resident person on bonds issued by the government of Ghana is exempt from tax.

The question is, should interest paid to individuals and non-resident persons on Treasury Bills be Tax at a time when government needs to raise enough tax revenue? Do investors increasingly turn to T-bills as a primary savings option present an opportunity to tax interest income from government bonds?

The decision to tax government bond interest may be influenced by broader political and economic considerations, such as the government’s fiscal policy and the need to balance the budget.

Internationally, many countries tax the interest earned from government bonds under personal income tax (PIT) at the marginal PIT rate. In certain instances, taxpayers have the choice between paying a withholding tax or including the bond interest income in their PIT calculations.

Experts who argue that interest on treasury bills be tax say that, from an economic perspective, there is no justification for this exemption.  They say the benefits of making government bonds attractive by such exemptions can lead to inefficiencies due to lost income tax revenue hence revoking tax exemption on interest on government bonds would be a more efficient approach.

They argue that tax reliefs related to interest from government bonds can significantly impact the fairness of the tax system. For example, dividends paid to shareholders are taxed at a rate of 8% in Ghana. In contrast, interest paid to individuals, excluding payments made by financial institutions, is taxed at a rate of only 1%. This disparity can lead to questions about the equitable distribution of tax burdens for similar investment income. To such people a withholding tax on interest paid on Treasury Bills will bring fairness in the treatment of interest, especially when treasury bills are exempted from the DDE program.

Those who argue for no tax on interest on bonds issued by government argue that the exemption exists to ease the sale of government bonds. They assert that the logic behind tax exemptions on Treasury Bills interest is to appeal to investors since tax exemptions make government bonds more attractive to investors. By offering tax-free interest, governments can encourage more people and institutions to invest in their bonds, which is essential for raising funds for public expenditures.

Exempting interest from tax also effectively lowers the government’s cost of borrowing because investors are willing to accept a lower interest rate on tax-exempt bonds than they would on taxable bonds, reducing the overall interest expense for the government. Tax-exempt bonds can be a way to encourage savings among the population because governments can incentivize individuals to save more, which can have positive long-term effects on the economy.


It looks like the tax treatment of government bond interest varies from country to country and can change over time based on evolving economic conditions. While governments may use tax-exempt bonds to encourage investment in certain areas or to finance projects that are deemed important for social reasons, some countries decide to apply a general exemption on all bonds issued by the government.

In the case of Ghana, the rule provides that, interest paid to an individual and non-resident person on bonds issued by the government of Ghana is exempt from tax. If non-residents persons (including companies) are exempt from tax on interest paid by government, could this impact the depreciation of the cedi?

It seems the debate is not settled yet, and taxation of interest paid on government bonds may happen in the near future, especially when investors have increasingly turned to T-bills as a primary savings option.

mytimore@yahoo.ca (0266-656595)

The writer is a Tax Consultant and a member of the Chartered Institute of Taxation Ghana

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