The Federal Inland Revenue Service, FIRS has directed banks, stockbrokers, and other financial institutions to begin the deduction of a 10 per cent withholding tax on interest income earned from investments in short-term securities including but not limited to government bonds, treasury bills, bills of exchange, promissory notes, corporate bonds, financial papers, etc.
In a public notice issued on Tuesday, the agency said the new directive takes effect immediately.
The tax is to be deducted at the point of payment and remitted to the government in line with the provisions of the tax law.
Interest income from short-term securities, before this directive, was exempted from tax as part of measures introduced years ago to deepen the domestic debt market and enhance returns for investors.
However, the exemption had helped attract substantial local and foreign participation in Nigeria’s money market, particularly among yield-hungry investors seeking quick and relatively safe returns.
Investors, under the new arrangement, will receive tax credits for the amounts withheld unless the deduction represents a final tax, the FIRS explained.
However, interest on Federal Government bonds will remain exempt from the levy, in line with existing tax incentives for long-term instruments.
“All relevant interest-payers are required to comply with this circular to avoid penalties and interest as stipulated in the tax law,” said FIRS Executive Chairman, Zacch Adedeji, in the circular announcing the policy.
Although the FIRS did not disclose how much the government expects to generate from the new tax, analysts say the measure could marginally boost non-oil revenue but may also dampen short-term investment appetite in the fixed-income market.
