October 29, 2025
As against previous policy, where interest earned from short-term securities was exempted from taxation to encourage investor participation, the Federal Inland Revenue Service, FIRS, has issued a new directive mandating banks, stockbrokers, and other financial institutions to deduct a 10% withholding tax on interest earned from such instruments.
The new rule applies to interest payments on treasury bills, corporate bonds, promissory notes, and bills of exchange.
According to the circular released by the agency, tax will be deducted at the point of payment.
While the directive affects a wide range of short-term instruments, however, interest earned on federal government bonds remains exempt from the levy.
FIRS clarified that investors will receive tax credits for the amounts withheld unless the deduction is deemed a final tax.
READ MORE; President Tinubu Signs Tax Reform Bills Into Law.
Before now, short-term bills have attracted yield-hungry investors due to their competitive rates and quick maturity. The imposition of withholding tax could alter the risk-reward calculus for many market participants.
FIRS Executive Chairman, Zacch Adedeji, who emphasized the importance of compliance, explained that, “All relevant interest-payers are required to comply with this circular to avoid penalties and interest as stipulated in the tax law.”
The agency did not disclose projections for revenue generation from the new tax measure.
Information from FIRS website, described withholding tax is an advance tax deducted at source from specific payments made to individuals or companies. The payer is responsible for remitting the tax directly to the relevant authorities.
Withholding tax rates are applicable in instruments like:
Rents on properties: 10%
Dividends or profits from companies: 10%
Interest on bank deposits or securities: 10%
Royalties: 5%
The FIRS, Last month, issued a directive mandating strict compliance with withholding tax regulations on interest earned from short-term securities to avoid the imposition of penalties.
