The Federal Inland Revenue Service (FIRS) has directed banks, stockbrokers, and other financial institutions to begin deducting a 10% withholding tax on interest earned from short-term securities.
Previously, short-term instruments were exempt from tax to encourage investor returns. Under the new directive, the tax will now be deducted at the point of payment on instruments such as treasury bills, corporate bonds, promissory notes, and bills of exchange.
It is not yet clear how much revenue the government expects to generate from this move. Short-term bills are popular among investors due to their attractive yields and quick maturity periods.
FIRS noted that investors will receive tax credits for the amounts withheld unless the deduction counts as a final tax. However, interest on Federal Government bonds remains exempt.
“All relevant interest-payers are required to comply with this circular to avoid penalties and interest as stipulated in the tax law,” FIRS Executive Chairman Zacch Adedeji said in the notice.
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