Nigeria’s Federal Inland Revenue Service (FIRS) has directed banks, stockbrokers, and other financial institutions to begin deducting a 10% withholding tax on interest earned from investments in short-term securities.
The directive, announced on Tuesday, marks a shift from the previous policy that exempted short-term instruments from taxation in order to enhance investor returns.
Under the new rule, the tax will be deducted at the point of payment on instruments such as treasury bills, corporate bonds, promissory notes, and bills of exchange, as per Reuters.
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It remains unclear how much revenue the government expects to generate from the move. Short-term bills have long attracted yield-seeking investors due to their high returns and short maturity periods.
According to the FIRS, investors will receive tax credits for the amounts withheld unless the deduction is classified as a final tax. Interest on federal government bonds will remain exempt from the 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 said in the notice.
Image Credit: First Bank of Nigeria Ltd.
