FIRS imposes tax on short-term investments amid concerns over Nigeria’s expanding tax net

Nigeria’s Federal Inland Revenue Service (FIRS) has introduced a 10% withholding tax on interest earned from short-term securities, extending the government’s aggressive tax reform drive that now targets investment income as part of efforts to boost revenue.

In a circular issued Tuesday, FIRS directed banks, brokers, and other financial institutions to begin deducting the tax at source on interest from instruments such as treasury bills, corporate bonds, promissory notes, and bills of exchange.

Previously exempt to encourage market participation, the affected instruments will now be taxed at the point of payment. However, federal government bonds remain exempt, the agency clarified.

“All relevant interest-payers are required to comply with this circular to avoid penalties and interest as stipulated in the tax law,” FIRS Executive Chairman Zacch Adedeji said in a notice, according to Reuters. Investors will receive tax credits for the amount withheld unless the deduction represents a final tax.

The directive comes amid concerns in financial markets about Nigeria’s expanding tax net, following the passage of four new Tax Reform Acts in June and plans to implement a 30% capital gains tax (CGT) on share sales starting in January 2026.

Part of a Broader Tax Overhaul

Under the upcoming CGT policy, investors selling shares valued above ₦150 million will be taxed on their net gains, while smaller transactions and reinvested profits will remain exempt.

Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, Taiwo Oyedele, has defended the measures against claims that they could deter foreign investment. He said media reports of investor frustration were “misleading,” claiming that most stakeholders welcomed the reforms during recent consultations.

“Exempting the poor while taxing the wealthy fairly is not socialism; it is progressive taxation,” Oyedele said on X (formerly Twitter) on Tuesday, arguing that Nigeria’s reforms mirror practices in advanced economies like the U.S. and U.K., where capital gains taxes coexist with strong markets.

Fiscal Implications

Analysts say the 10% withholding tax could slightly dampen demand for short-term debt instruments, which have long been favoured by yield-seeking investors due to their liquidity and government backing.

The FIRS did not specify expected revenue from the new tax, but officials see it as a crucial step toward improving Nigeria’s non-oil tax-to-GDP ratio, one of the lowest in Africa.