The Federal Inland Revenue Services (FIRS) has directed banks, stockbrokers and other financial institutions to deduct a 10 per cent withholding tax on interest earned from investments in short-term securities.
This was disclosed by the Nigerian tax agency on Tuesday, noting that it supersedes an earlier one announced in September.
Prior to this directive, short-term bills were tax-exempt to boost return for investors.
The new directive requires tax to be deducted at the point of payment on instruments such as treasury bills, corporate bonds, promissory notes, and bills of exchange.
It noted that this is line with Sections 78(1) and 81(1) of the Companies Income Tax Act (CITA), (as amended), and the Deduction of Tax at Source (Withholding) Regulations, 2024 which provide that tax be deducted from interests payable to any person (including non-corporate entities) on the date of payment.
According to the FIRS, investors will receive tax credits for the amounts withheld unless the deduction represents a final tax.
“The tax shall be deducted and remitted to the relevant tax authority not later than the 21st day of the month following the month in which the payment occurred,” it said.
The tax body, however, said interest on federal government bonds remains exempt from the levy.
Interest on OMO Bills issued by the Central Bank of Nigeria (CBN) is also not liable to tax deduction.
“All relevant interest-payers are required to comply with this circular to avoid penalties and interest as stipulated in the tax law,” FIRS Executive Chairman, Mr Zacch Adedeji said in the notice.
This development comes as the country moves to strengthen its tax laws and administration, to reduce dependency on oil revenues and borrowings.