The Federal Inland Revenue Service (FIRS) has directed financial institutions across Nigeria to begin deducting a 10 percent withholding tax on interest earned from short-term fixed-income securities.
The directive applies to income generated from instruments such as treasury bills, corporate bonds, promissory notes, and bills of exchange.
Under the new policy, banks, stockbrokers, and other custodians are required to withhold the tax at the point of payment and remit it directly to the federal tax authority.
This marks a significant departure from the long-standing exemption that had made short-term instruments particularly attractive to investors seeking high-yield, low-risk returns.
The exemption had been introduced to encourage participation in government debt instruments and deepen liquidity in the local money market.
Analysts say the new measure could alter investment behaviour in the near term as investors reassess portfolio allocations. With effective yields now subject to a 10 percent tax, fixed-income traders expect demand for short-term instruments to ease, particularly among retail investors who depend on treasury bills as a safe haven.
Market experts also anticipate a possible rebalancing toward longer-dated federal government bonds, which remain tax-exempt under current law.
The shift could lead to a gradual increase in short-term yields as the market adjusts to maintain investor interest.
Financial analysts believe the introduction of withholding tax on short-term securities is part of the government’s broader strategy to mobilise domestic revenue amid rising expenditure needs.
Nigeria’s fiscal authorities have in recent months intensified efforts to expand the tax net, improve transparency, and curb leakages in revenue collection.
The FIRS directive places compliance responsibility on interest-paying institutions, warning that failure to deduct and remit the tax will attract penalties and interest charges as provided under the nation’s tax laws.
Market operators say this will increase the administrative workload for banks and stockbrokers managing investment portfolios, but also streamline reporting and documentation for tax purposes.
While the overall revenue impact of the policy remains uncertain, tax specialists view it as an important step toward harmonising the treatment of investment income with global norms. They, however, caution that policymakers must balance fiscal objectives with market stability to avoid discouraging capital inflows and domestic participation in the fixed-income market.
The latest measure underscores the FIRS’s evolving role in fiscal consolidation and economic reform. As the government seeks to strengthen its non-oil revenue profile, the withholding tax on short-term securities is expected to serve as both a revenue source and a tool to promote greater accountability in financial markets.