The Federal Inland Revenue Service (FIRS) has announced that banks, stockbrokers, and other financial institutions are now required to deduct a 10 percent withholding tax on interest earned from short-term securities investments.
Previously, short-term instruments were exempt from tax to encourage investor participation and improve returns.
According to a Reuters report, the new policy mandates that the tax 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 federal government expects to generate from this withholding tax.
Typically, investors favour short-term bills for their attractive yields and quick maturity periods.
FIRS stated that investors will receive tax credits for the amounts withheld unless the deduction constitutes a final tax.
The agency further clarified that “interest on federal government bonds remains exempt from the levy.”
“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 cited by Reuters.