By Erewunmi Peace

The Federal Inland Revenue Service (FIRS) has directed banks, stockbrokers, discount houses, and other financial institutions in Nigeria to begin deducting a 10% withholding tax on interest income earned from short-term securities and other related investment instruments.

According to the directive issued by the agency, the new policy covers treasury bills, corporate bonds, promissory notes, and similar investment instruments. The tax will be deducted at the point of payment and remitted to the FIRS no later than 21 days after the month in which the interest is paid.

However, the FIRS clarified that interest on federal government bonds remains exempt from this 10% withholding tax. This exemption is consistent with existing provisions in the tax laws that encourage investments in government-backed securities.

The move is part of the federal government’s broader efforts to expand the tax base and improve revenue generation amid ongoing fiscal reforms. The FIRS has also warned all financial institutions and relevant paying agents to ensure full compliance or face penalties for default.

Industry observers note that this development may affect short-term investors who rely heavily on interest income from securities, as the new deduction will reduce net returns.

The FIRS explained that the deduction is aimed at improving transparency in the financial sector and ensuring that appropriate taxes are collected from income generated through short-term investments.

With the implementation now underway, investors are advised to confirm the tax status of their investment products and monitor deductions made by their financial institutions.