Banks and relevant authorities urged to adhere to tax withholding regulations by FIRS
The Federal Inland Revenue Service (FIRS) has issued a new directive on withholding tax on interest earned from short-term securities. The move is aimed at improving tax compliance and revenue collection in Nigeria, as part of ongoing reforms to strengthen the country's fiscal framework and expand the tax base.
The directive, addressed to banks, discount houses, stockbrokers, corporate bond issuers, primary dealer market makers (PDMMs), financial institutions, government agencies, tax practitioners, and the general public, requires all relevant interest-payers to comply with the circular to avoid penalties and interest charges as stipulated under Nigerian tax law.
The aim of the directive is to ensure transparency and accountability in the tax process, while also safeguarding the rights of taxpayers. It also aims to bolster government revenue while maintaining investor confidence in the financial system.
The directive covers short-term securities such as treasury bills, government bonds, promissory notes, corporate bonds, financial papers, and bills of exchange. However, interest earned on bonds issued by the Federal Government is exempted from withholding tax.
The individual or entity from whom the tax is withheld is entitled to a tax credit equal to the amount remitted, except in cases where the tax deducted is deemed final. The deducted tax must be remitted to the relevant authority no later than the 21st day of the month following the month in which the payment occurred.
The directive is in line with existing tax incentives designed to promote sovereign debt instruments. It also reinforces provisions under Sections 78(1) and 81(1) of the Companies Income Tax Act (CITA), as amended, and the 2024 Withholding Tax Regulations.
The FIRS emphasized that the move is part of a new foundation for taxation, administration, and revenue collection in Africa's largest economy. The directive is one week after Nigeria's long-awaited tax reform laws were published in the government gazette, including the Nigeria Tax Act (NTA), 2025; Nigeria Tax Administration Act (NTAA), 2025; Nigeria Revenue Service (Establishment) Act (NRSEA), 2025; and the Joint Revenue Board (Establishment) Act (JRBEA), 2025.
The directive is part of broader efforts by the FIRS to enhance revenue collection, improve tax compliance, and ensure equitable taxation across financial markets. It is expected to contribute significantly to the government's revenue generation efforts, while also fostering a more transparent and accountable tax system in Nigeria.
