The Federal Inland Revenue Service (FIRS) has issued a directive mandating strict compliance with withholding tax regulations on interest earned from short-term securities to avoid the imposition of penalties.
The notice, signed by FIRS Executive Chairman Zacch Adedeji, is addressed to banks, discount houses, stockbrokers, corporate bond issuers, primary dealer market makers (PDMMs), financial institutions, government agencies, tax practitioners, and the general public.
The directive reinforces provisions under Sections 78(1) and 81(1) of the Companies Income Tax Act (CITA), as amended, and the 2024 Withholding Tax Regulations.
It stipulates that tax must be deducted at source from all interest payments on short-term investments at the time of payment.
“Tax shall be deducted from all interest payments on investments in short-term securities on the date of payment at the applicable rate,” the circular stated. “The deducted tax must be remitted to the relevant authority no later than the 21st day of the month following the month in which the payment occurred.”
The FIRS clarified that the individual or entity from whom the tax is withheld is entitled to a tax credit equal to the amount remitted, except in cases where the tax deducted is deemed final. This provision ensures transparency and accountability in the tax process, while also safeguarding the rights of taxpayers.
Importantly, the directive exempts interest earned on bonds issued by the Federal Government from withholding tax, in line with existing tax incentives designed to promote sovereign debt instruments.
Short-term securities covered under the directive include, but are not limited to, treasury bills, government bonds, promissory notes, corporate bonds, financial papers, and bills of exchange. These instruments are commonly used by institutional investors and corporations for liquidity management and short-term financing.
The FIRS emphasized that all relevant interest-payers must comply with the circular to avoid penalties and interest charges as stipulated under Nigerian tax law. The move is part of broader efforts by the agency to enhance revenue collection, improve tax compliance, and ensure equitable taxation across financial markets.
This directive comes amid ongoing reforms aimed at strengthening Nigeria’s fiscal framework and expanding the tax base. By enforcing timely and accurate withholding tax deductions, the FIRS seeks to bolster government revenue while maintaining investor confidence in the financial system.
The directive is coming one week after Nigeria’s long-awaited tax reform laws were published in the government gazette, marking a major step in overhauling the country’s fiscal framework.