Firs Imposes 10% Withholding Tax On Interest From Short-Term Instruments

Introduction

The Federal Inland Revenue Service (FIRS) has introduced a 10% Withholding Tax (WHT) on interest earned from short - term investments such as treasury bills, promissory notes, and corporate bonds which applies to both individual and corporate investors. Effective from October 28, 2025 , financial institutions must deduct this tax at the point of interest payment and remit it to FIRS by the 21st of the following month. This move reflects FIRS's ongoing efforts to broaden Nigeria's non - oil revenue base and align tax policy with current investment trends.

Historical And Legal Context

Over the past decade, Nigeria's approach to taxing interest earned from short - term debt instruments, like treasury bills and corporate bonds, has shifted significantly.

The journey began with the 2011 Companies Income Tax (Exemption of Bonds and Short - Term Government Securities) Order, which came into effect on January 2, 2012. This policy granted a ten (10) year tax holiday on interest and capital gains from bonds and short - term government securities (excluding Federal Government bonds). The exemption applied to Companies Income Tax (CIT), Personal Income Tax (PIT), and Value Added Tax (VAT). The goal was to encourage investment and boost the domestic debt market.

However, this exemption expired on January 2, 2022. From that point on, income from these instruments became taxable again under the general rules of the Companies Income Tax Act (CITA). The Federal Inland Revenue Service (FIRS) confirmed this change in a Public Notice issued in February 2022, clarifying that interest and gains from most bonds and short - term securities, except for Federal Government bonds and Eurobonds, were now subject to tax.

To implement this change, the government introduced the Deduction of Tax at Source (Withholding) Regulations in 2024, followed by a directive from FIRS in October 2025. These regulations require banks, stockbrokers, and other financial institutions to withhold 10% tax on interest payments from qualifying short - term instruments and remit it to FIRS.

Together, these steps mark a clear shift from a decade of tax exemptions to a standardized tax regime for investment income. This move aims to broaden Nigeria's tax base, increase revenue, and align tax policy with current economic realities.

Scope Of Application

The 10% withholding tax applies to interest income earned from a wide range of short - term debt instruments, regardless of the type of issuer. This means that whether the instrument is issued by a private company, a state government, or a government - backed agency, the interest earned is subject to tax. The directive specifically lists instruments such as treasury bills, corporate bonds, promissory notes, government bonds, commercial papers, and bills of exchange as falling within the scope of this tax. However, there are notable exceptions. Interest earned on Federal Government of Nigeria (FGN) bonds is exempt from this tax, as is interest from Open Market Operation (OMO) bills issued by the Central Bank of Nigeria (CBN).

The tax is to be deducted at the point when the interest is either paid or credited to the investor, whichever occurs first. Once deducted, the paying institution, whether a bank, discount house, or other financial entity, is responsible for remitting the withheld amount to the Federal Inland Revenue Service (FIRS) within the timeframe stipulated by law. This framework ensures that the tax is collected efficiently and aligns with broader efforts to improve compliance and revenue generation

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