FIRS Imposes 10% Tax On Treasury Bills, Corporate Bonds Interest

The Federal Inland Revenue Service (FIRS) has directed banks, stockbrokers, and other financial institutions to begin deducting a 10 per cent withholding tax on interest income earned from investments in short-term securities, marking a significant shift in Nigeria’s fixed-income market policy.

In a public notice issued on Tuesday, the agency said the new directive takes immediate effect and will apply to instruments such as treasury bills, corporate bonds, promissory notes, and bills of exchange.

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.

Before this directive, interest income from short-term securities was exempted from tax as part of measures introduced years ago to deepen the domestic debt market and enhance returns for investors.

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.

Under the new arrangement, investors 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.

The introduction of the withholding tax comes as the government intensifies efforts to expand its tax base and improve fiscal revenues amid rising expenditure needs and constrained borrowing space.

Market participants have expressed mixed reactions, with some warning that the new levy could slightly reduce the net yields on short-term instruments, while others view it as part of broader fiscal reforms necessary to enhance government revenue sustainability.

By extending the tax net to short-term investment income, the FIRS aims to close gaps in the country’s tax collection framework and align the treatment of interest income across various categories of financial instruments.