First Bank begins deduction of 10% withholding tax on short-term securities

First Bank of Nigeria has begun implementing a 10% withholding tax (WHT) on interest earned from short-term securities, in line with a directive from the Federal Inland Revenue Service (FIRS).

In a notice to customers, the bank said: “In compliance with the directive of the Federal Inland Revenue Service (FIRS) and pursuant to the Companies Income Tax Act (as amended) and the Withholding Tax Regulations, FirstBank will immediately commence deduction of withholding tax on interest earned from short term securities. The applicable withholding tax (WHT) rate is 10%.”

The deduction affects the following instruments: Nigerian Treasury Bills, (primary and secondary market), Corporate Bonds, Promissory Notes, Commercial Papers and Bills of Exchange.

The bank noted that Federal Government of Nigeria (FGN) Bonds remain exempt.

First Bank added: “As part of our commitment to transparency and regulatory compliance, WHT deductions will be applied in line with prevailing guidelines and may be subject to adjustments should regulatory requirements evolve.”

FIRS Position

The tax authority first announced the policy in September, citing its powers under the Companies Income Tax Act and the 2024 Withholding Tax Regulations.

FIRS said: “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 provide that tax be deducted from interests payable to any person (including non-corporate entities) on the date of payment.”

“Accordingly, tax shall be deducted from all interest payments on investments in short-term securities on the date of payment at the applicable rate.

“The tax shall be deducted and remitted to the relevant tax authority not later than the 21st day of the month following the month in which the payment occurred.”

Banks, stockbrokers, and financial institutions were directed to enforce the rule.

Background

Before this directive, interest earned on short-term securities such as treasury bills enjoyed tax exemptions to boost investor returns. The new rule mandates a 10% deduction at the point of payment on treasury bills, corporate bonds, promissory notes, commercial papers, and bills of exchange.

Investor interest in short-term paper has grown in recent months due to elevated yields. FIRS said investors will receive tax credits for the amounts withheld unless the deduction qualifies as a final tax. Interest on federal government bonds remains exempt.

FIRS Executive Chairman Zacch Adedeji warned institutions to comply:
“All relevant interest-payers are required to comply with this circular to avoid penalties and interest as stipulated in the tax law.”