Nigeria’s Federal Inland Revenue Service (FIRS) has rolled out a new mandate requiring financial intermediaries—including banks and brokerage firms—to withhold 10% tax on earnings from various short-term investment vehicles, reversing a long-standing exemption aimed at boosting market activity.
The policy targets income generated from treasury bills, commercial paper, promissory notes, and similar instruments. Deductions must occur at the moment of payout, as outlined in the agency’s latest guidance.
Key Exemptions and Market Impact
Interest accrued on sovereign bonds issued by the federal government remains shielded from the tax. Affected investors can claim credits for withheld amounts against their overall tax liabilities, unless the levy is classified as final.
Short-duration securities have long appealed to yield-seeking participants thanks to attractive returns and rapid turnover. The added tax layer may prompt a reassessment of net gains, potentially cooling demand in these segments.
Strict Compliance Warning
FIRS Chairman Zacch Adedeji underscored the non-negotiable nature of the rule, warning that failure to adhere could trigger fines and accrued interest under existing statutes. The agency has not released estimates on expected additional collections.
Withholding Tax Framework
Withholding tax functions as a prepayment mechanism, subtracted directly from designated income streams and forwarded to authorities by the disbursing party. Standard rates include:
– Property rentals: 10%
– Corporate dividends: 10%
– Bank deposit or security interest: 10%
– Royalties: 5%
Background and Legal Basis
The directive, issued under Adedeji’s signature, reaches a broad audience from discount houses to government bodies and tax advisors. It invokes Sections 78(1) and 81(1) of the Companies Income Tax Act, alongside the 2024 Withholding Tax Regulations.
Taxpayers retain the right to offset deducted sums, preserving fairness while streamlining revenue capture at source.
