The Federal Inland Revenue Service (FIRS) has issued a directive mandating banks, stockbrokers, and other financial institutions to deduct a 10% withholding tax on interest earned from short-term securities.
Withholding tax is an advance tax deducted at source from specific payments made to individuals or companies. The payer is responsible for remitting the tax directly to the relevant authorities.
According to the circular released by the agency, the new rule applies to interest payments on treasury bills, corporate bonds, promissory notes, and bills of exchange and will be deducted at the point of payment.
While the directive affects a wide range of short-term instruments, interest earned on federal government bonds remains exempt from the levy.
The FIRS clarified that investors will receive tax credits for the amounts withheld unless the deduction is deemed a final tax.
FIRS Executive Chairman Zacch Adedeji emphasized the importance of compliance, stating: “All relevant interest-payers are required to comply with this circular to avoid penalties and interest as stipulated in the tax law.”
The agency, however, did not disclose projections for revenue generation from the new tax measure.
Applicable withholding tax rates include: Rents on properties: 10%; Dividends or profits from companies: 10%; Interest on bank deposits or securities: 10%; Royalties: 5%.
