In a bold move to bolster non-oil revenue streams, the Federal Inland Revenue Service (FIRS) has mandated a 10% withholding tax on interest earned from short-term securities, effective immediately.
Announced on October 28, 2025, the directive targets banks, stockbrokers, and other financial institutions, requiring them to deduct the tax at the point of interest payment.
This policy shift ends long-standing exemptions designed to lure investors into Nigeria’s debt market.Short-term securities affected include treasury bills, commercial papers, bankers’ acceptances, promissory notes, and bills of exchange, which have been popular for their liquidity and high yields amid economic volatility.
Previously tax-exempt to deepen domestic investment, these instruments now face the levy under the Companies Income Tax Act and Personal Income Tax Act.
However, interest on federal government bonds and Central Bank of Nigeria’s Open Market Operation (OMO) bills remains exempt.
FIRS Executive Chairman Zacch Adedeji emphasized compliance in the circular, warning of penalties and interest for non-adherence.
”This aligns with our mandate to broaden the tax base and ensure equitable contributions from all sectors,” Adedeji stated.
Investors can claim tax credits for withheld amounts unless deemed a final tax, providing some relief for those filing annual returns.The policy arrives as Nigeria grapples with naira depreciation, inflation exceeding 30%, and fiscal pressures from reduced oil revenues.
By closing exemption loopholes, the government aims to generate tens of billions of naira annually, according to PwC Nigeria estimates.
This supports President Tinubu’s economic reforms, including recent exits from the FATF grey list, to enhance financial credibility and reduce borrowing dependency.
Critics, including retail investors and financial analysts, decry the tax as a burden on middle-class savers already squeezed by rising costs.
”It erodes net returns on safe, short-term options, potentially driving capital flight or shifts to riskier assets,” noted Dr. Chinedu Agu, a tax consultant in Abuja. Institutional players, reliant on these securities for quick liquidity, fear a dip in market participation.
The Nigerian Securities and Exchange Commission (SEC) and Debt Management Office (DMO) have yet to issue formal responses, but early market reactions show slight yield adjustments on upcoming treasury bill auctions. Advocacy groups like the Association of Issuing Houses of Nigeria urge dialogue to mitigate impacts on small investors.
As compliance kicks in, the measure tests the balance between revenue needs and investment incentives.Ultimately, this withholding tax underscores Nigeria’s evolving fiscal strategy, prioritizing sustainability over short-term allure.
While it may streamline tax collection and align treatments across instruments, success hinges on transparent implementation and investor education. For now, the policy signals a tougher stance on fiscal discipline in Africa’s largest economy.
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