The Federal Inland Revenue Service (FIRS) has issued a directive on the application of Withholding Tax (WHT) to interest earned on short-term investment securities, raising the question of whether this is a new law.
FIRS’s action is an enforcement directive based on existing law, not the creation of a brand-new tax.
Is the WHT on fixed-income instruments new ?
No, the Withholding Tax on fixed-income instruments is not new.
According to Taiwo Oyedele, Chairman of the Presidential Fiscal Policy and Tax Reforms Committee at an event said that there used to be an exemption on WHT at the end of 2021; however, it was resumed effective from the first of January 2022 until 24th December 2025.
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“ The position of the law is that all fixed-income instruments are likely to be taxed, except the federal government bond,” he said
What is the recent FIRS directive on WHT?
The recent directive is a set of new guidelines issued by the FIRS concerning the application and enforcement of Withholding Tax on interest earned from short-term investment securities.
The directive mandates that a 10 percent WHT must be deducted at the point of payment from all interest income payable by any person (individual or corporate).
It is anchored on Sections 78(1) and 81(1) of the Companies Income Tax Act (CITA) and the Withholding Tax Regulations 2024, signifying that the authority to impose the tax already exists within current legislation.
Which investment securities are affected?
The FIRS directive specifically targets interest earned from short-term investment instruments, which are typically high-liquidity fixed-income assets.
Affected Securities include: Treasury Bills, Corporate Bonds, Promissory Notes, and Bills of Exchange. While exempted Securities are Federal Government of Nigeria (FGN) Bonds, such as the FGN bonds, Eurobonds, Domestic Dollar bonds, and Savings bonds
The Open Market Operation (OMO) Bills issued by the Central Bank of Nigeria (CBN) are also exempt.
Why is FIRS implementing this now?
The implementation is aimed at improving tax compliance and reducing revenue leakage within the financial system.
According to tax experts, this policy closes a long-standing gap by shifting the tax collection responsibility from the individual investor to the financial institutions (banks and brokers).
Instead of waiting for individuals to declare their interest income later (which often results in non-compliance), the tax is now deducted at source, making collection “smoother” and more efficient.
The directive aligns with the government’s plans to strengthen non-oil revenue streams.
What is the impact on investor returns?
The immediate impact is a reduction in net yield for investors holding the affected securities.
Ukpabio Hope, an accountant, noted that the directive significantly alters the attractiveness of money-market instruments.
“From the investor’s lens, it’s a blow. Short-term yields just got 10 percent slimmer, and that means the old ‘risk-free quick return’ comfort zone is closing fast,” he said.
The compulsory 10% deduction means that the net returns on short-term money-market instruments have effectively become 10% slimmer.
Market analysts anticipate this could prompt investors to reassess their strategies, potentially leading to a shift toward the tax-exempt FGN bonds or restructuring portfolios toward longer-term options where tax considerations may already be priced in differently.
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What is the process for remitting the WHT?
Financial institutions are tasked with the responsibility of collection and remittance.
Financial institutions must withhold 10% of the interest earned at the time of payment.
The withheld amount must be remitted to the relevant tax authority no later than the 21st day of the following month.
Investors will receive a tax credit reflecting the remittance, which they can then use when filing their annual tax returns.
