Is the Withholding Tax on Fixed Income Actually a New Rule?

The recent directive from the Federal Inland Revenue Service (FIRS) has stirred plenty of conversation, especially among Nigerians who invest in Treasury Bills, corporate bonds, or other short-term fixed-income products. 

Many people want to know whether this tax is something newly introduced or simply an old rule being enforced again. The answer is simple, the withholding tax on fixed-income is not new.

What you should know about the “New” debate

FIRS did not create a fresh tax. What they released is an enforcement guideline based on laws that already exist. According to Taiwo Oyedele, Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, there used to be an exemption on withholding tax until the end of 2021. 

That exemption expired, and the tax came back into force from January 1, 2022, through December 24, 2025.

He explained clearly that most fixed-income instruments are meant to be taxed, except federal government bonds.

What exactly did FIRS announce?

The new directive explains how withholding tax should be applied on interest earned from short-term investment securities. It states that:

• A 10% tax must be deducted at the point where interest is paid.
  
• This applies to both individuals and companies.
  
• The directive is backed by existing laws: Sections 78(1) and 81(1) of the Companies Income Tax Act, and the 2024 Withholding Tax Regulations.
  

In simple terms, FIRS is just enforcing what the law already allows.

Which investments are affected?

FIRS is focusing on short-term investments that offer quick liquidity. These include:

• Treasury Bills
  
• Corporate Bonds
  
• Promissory Notes
  
• Bills of Exchange
  

Some instruments, however, remain exempt. These are:

• Federal Government of Nigeria (FGN) Bonds
  
• Eurobonds
  
• Domestic Dollar Bonds
  
• Savings Bonds
  
• Open Market Operation (OMO) Bills issued by the CBN
  

If you invest in any of these exempt securities, you won’t be affected by the 10% deduction.

Why is this happening now?

The government is aiming to reduce tax leakages and improve compliance. Before now, investors were expected to declare their interest income themselves, but many didn’t. By shifting the responsibility to financial institutions, banks and brokers, FIRS is ensuring the tax is collected upfront.

This move also supports Nigeria’s push to boost non-oil revenue and tighten tax administration across different sectors.

How does this affect investors?

Investors will immediately notice slimmer returns. Since the tax is deducted before interest is paid, the net yield on affected instruments drops by 10%.

Some analysts believe this may push investors toward tax-exempt federal government bonds or make them rethink their short-term strategy entirely. The biggest impact will be on people who rely heavily on quick money-market returns.

How is the tax remitted?

Banks and other financial institutions will handle the collection. Here’s how it works:

• They deduct 10% of your interest when paying you.
  
• They must send this amount to FIRS by the 21st of the next month.
  
• You, the investor, will receive a tax credit showing the amount deducted. This credit can be used during your annual tax filing.