The Federal Inland Revenue Service (FIRS) has announced the commencement of a 10% withholding tax on interest earned from short-term securities, ending years of exemption previously enjoyed by investors.
In a new directive issued to banks, stockbrokers, and other financial institutions, the FIRS ordered that the tax be deducted at the point of payment on instruments such as treasury bills, corporate bonds, promissory notes, and bills of exchange.
Until now, income from short-term instruments was exempted from tax to encourage investment in the local financial market. The new policy aims to boost government revenue but may impact the net returns of investors who rely on these instruments for quick, low-risk yields.
According to the FIRS, investors will be entitled to tax credits for the withheld amounts unless the deduction is considered a final tax. However, interest on Federal Government bonds remains fully exempt from the new levy.
“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 Zacch Adedeji stated in the notice.
Analysts say the move could signal the government’s growing focus on widening its non-oil tax base as it seeks fresh revenue sources amid fiscal pressures.