In a circular signed by Executive Chairman Zacch Adedeji, the agency reminded banks, discount houses, stockbrokers, corporate bond issuers, primary dealer market makers (PDMMs), financial institutions, government agencies, and tax practitioners that withholding tax must be deducted at source and remitted promptly.
The directive is anchored on Sections 78(1) and 81(1) of the Companies Income Tax Act (CITA), as amended, as well as the 2024 Withholding Tax Regulations. It requires that tax be deducted on the date of payment for all interest earned on qualifying short-term investments, with remittance due to the tax authority by the 21st of the following month.
According to the FIRS, the measure is intended to promote transparency, ensure accountability, and safeguard taxpayer rights. Beneficiaries of such investments are entitled to a tax credit equivalent to the amount withheld, except where the deduction is deemed final.
Scope and Exemptions
The tax applies to interest derived from a wide range of short-term financial instruments, including treasury bills, corporate bonds, promissory notes, financial papers, and bills of exchange. However, in line with existing incentives, interest earned on Federal Government bonds remains exempt from withholding tax. This exemption is aimed at sustaining investor appetite for sovereign debt instruments and supporting government borrowing.
Broader Fiscal Reforms
The latest directive aligns with Nigeria’s ongoing tax reforms, which seek to strengthen compliance, widen the tax net, and boost government revenues without undermining investor confidence. The FIRS has stressed that failure to comply with the circular will attract penalties and interest charges under Nigerian tax law.
This development comes just a week after the federal government gazetted four major tax reform laws signed on June 26, 2025. These include the Nigeria Tax Act (NTA) 2025, the Nigeria Tax Administration Act (NTAA) 2025, the Nigeria Revenue Service (Establishment) Act (NRSEA) 2025, and the Joint Revenue Board (Establishment) Act (JRBEA) 2025. Collectively, the laws lay a new foundation for taxation, administration, and revenue collection in Africa’s largest economy.
By tightening rules on withholding tax and expanding the legal framework, authorities hope to reinforce Nigeria’s fiscal position and promote a fairer system of taxation across financial markets.