The Federal Inland Revenue Service (FIRS) has announced a new directive mandating banks, stockbrokers, and other financial institutions to begin deducting a 10% withholding tax on interest earned from short-term securities.
Previously, income from short-term instruments was exempt from taxation to encourage investment and boost investor returns. However, under the new policy, the tax will now be deducted at the point of payment on instruments such as treasury bills, corporate bonds, promissory notes, and bills of exchange.
While the FIRS has not disclosed how much revenue it expects to generate from this measure, the move is likely to affect many investors who favor short-term bills for their attractive yields and quick maturity periods.
According to the notice, investors will be entitled to tax credits for the amounts withheld, except in cases where the deduction is considered a final tax. Importantly, interest on Federal Government bonds remains exempt from the new tax rule.
FIRS Executive Chairman, Zacch Adedeji, emphasized that all relevant institutions must comply with the circular, warning that non-compliance could attract penalties and interest charges as provided by tax laws.
“All relevant interest-payers are required to comply with this circular to avoid penalties and interest as stipulated in the tax law,” Adedeji stated.
This directive marks a significant shift in Nigeria’s tax policy toward investment income and may influence investor behavior in the country’s money market.
