Nigeria imposes 10% withholding tax on interest on short-term securities

Federal Inland Revenue Service on Tuesday directed banks, stockbrokers and other financial institutions to deduct a 10% withholding tax on interest earned from investments in short-term securities. Prior to this directive short-term bills were tax-exempt to boost return for investors. The new directive requires tax to be deducted at the point of payment on instruments such as treasury bills, corporate bonds, promissory notes, and bills of exchange.
It was unclear how much the government expected to generate from the withholding tax. Yield-hungry investors usually snap up bills due to the attractive rates on the paper and their short-term nature. Investors will receive tax credits for the amounts withheld unless the deduction represents a final tax, FIRS said. Interest on federal government bonds remains exempt from the levy, the agency added. “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.