Nigeria has introduced a ten percent tax on interest earned from short-term investments such as treasury bills, commercial papers, corporate bonds, promissory notes, and bankers’ acceptances.
The Federal Inland Revenue Service announced today that banks, stockbrokers, and other financial institutions must now deduct the tax automatically when paying interest to investors.
The tax does not apply to interest from Federal Government of Nigeria bonds or Central Bank of Nigeria Open Market Operation bills. Interest on federal government bonds remains exempt from the levy, the agency added.
All investors, including individuals, companies, and foreigners, will have ten percent taken off their interest earnings. For individuals, this ten percent is the final tax. For companies, the deducted amount can be used to reduce their yearly company income tax. Investors will receive tax credits for the amounts withheld unless the deduction represents a final tax, FIRS said.
Yield-hungry investors usually snap up bills due to the attractive rates on the paper and their short-term nature.
The government introduced the change to raise more money from non-oil sources and to make tax rules fairer across different types of investments. It was unclear how much the government expected to generate from the withholding tax. A previous tax exemption ended in 2022, and today’s order makes the tax official and effective immediately.
Investors will receive lower interest payments starting now. Banks will provide a tax receipt for the amount deducted. “All relevant interest-payers are required to comply with this circular to avoid penalties and interest as stipulated in the tax law,” FIRS Chairman Zacch Adedeji said in the notice.
Administrator and Writer
