Federal Inland Revenue Service (FIRS) has issued a new notice directing the withholding of tax from interest on investment in short-term securities. The notice is for banks, discount houses, stockbrokers, corporate bond issuers, Primary Dealer Market Makers (PDMMs), other financial institutions, government agencies, tax practitioners, and the general public.
According to the agency, this directive is in line with 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. FIRS stated that “tax shall be deducted from interests payable to any person, including non-corporate entities, on the date of payment.”
The notice explained that tax will be deducted from all interest payments on investments in short-term securities at the applicable rate on the date of payment. FIRS further noted that the deducted tax must be remitted to the relevant tax authority no later than the 21st day of the month following the month in which the payment was made.
It added that “the person from whose payment the tax was deducted is entitled to a tax credit equal to the amount withheld and remitted except where the tax deducted is the final tax.”
The service clarified that interest on bonds issued by the Federal Government remains exempt from tax deduction. Short-term securities covered include government bonds, treasury bills, promissory notes, corporate bonds, financial papers, and bills of exchange.
FIRS urged all relevant interest-payers to comply fully with the circular to avoid penalties and interest as stated in existing tax laws.
