New Directive Aims to Strengthen Revenue Collection, Exempts OMO Bills and Federal Government Bonds…
The Federal Inland Revenue Service (FIRS) has directed financial institutions to start deducting withholding tax (WHT) from interest earned on all short-term investment securities.
Withholding tax is an advance payment deducted at the source from certain payments made to individuals or companies. It is collected by the payer and remitted directly to the tax authority. The rates vary depending on the type of income: rents and dividends are taxed at 10 percent, interest on bank deposits or securities at 10 percent, and royalties at 5 percent.
In a public notice issued on September 19, 2025, FIRS Chairman Zacch Adedeji said the directive applies to banks, discount houses, stockbrokers, corporate bond issuers, primary dealer market makers (PDMMs), government agencies, tax practitioners, and the general public.
According to Adedeji, the tax must be deducted on the date the interest is paid. “Sections 78(1) and 81(1) of the Companies Income Tax Act (CITA), as amended, and the Deduction of Tax at Source (Withholding) Regulations, 2024 provide that tax be deducted from interest payable to any person, including non-corporate entities, on the date of payment,” he said.
The FIRS notice specifies that the tax must be remitted to the relevant authority by the 21st day of the month following the month in which the payment occurred. Individuals or companies from whom taxes are deducted are entitled to a tax credit equal to the amount withheld, except in cases where the deduction represents a final tax.
The directive excludes interest on Open Market Operation (OMO) bills issued by the Central Bank of Nigeria (CBN) and maintains the existing exemption for federal government bonds.
The notice also clarified what qualifies as short-term securities, including, but not limited to, government bonds, treasury bills, promissory notes, corporate bonds, financial papers, and bills of exchange.
The FIRS urged all affected institutions to comply with the directive to avoid penalties and interest charges under tax law. The move comes as part of Nigeria’s broader tax reform effort, following the signing of four new tax reform bills into law by President Bola Tinubu on June 26, 2025. The new regulations are expected to take effect in January 2026.
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