Nigeria Introduces 10% Withholding Tax on Short-Term Securities
TLDR
- Nigeria has said banks, stockbrokers, and other financial institutions must now apply a 10% withholding tax on interest earned from short-term securities
- Previously exempt to encourage market participation, these instruments will now have interest taxed at the point of payment
- The policy change marks a significant shift in Nigeria’s fixed-income market, which has relied heavily on tax incentives to attract investors seeking short-term, high-yield returns
Nigeria’s Federal Inland Revenue Service (FIRS) has announced that banks, stockbrokers, and other financial institutions must now apply a 10% withholding tax on interest earned from short-term securities such as treasury bills, corporate bonds, promissory notes, and bills of exchange.
Previously exempt to encourage market participation, these instruments will now have interest taxed at the point of payment. The policy change marks a significant shift in Nigeria’s fixed-income market, which has relied heavily on tax incentives to attract investors seeking short-term, high-yield returns.
The FIRS did not disclose projected revenue from the measure but noted that investors could receive tax credits for withheld amounts, except when the withholding is considered final. Federal government bonds remain exempt from the new rule.
The agency urged full compliance from all financial institutions, warning of penalties for non-adherence.
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Key Takeaways
The new 10% withholding tax on short-term securities signals Nigeria’s effort to expand its non-oil revenue base amid fiscal pressures and rising public debt. While it broadens the tax net, the measure could dampen appetite for short-term instruments that have been a key liquidity channel for banks, pension funds, and retail investors. Analysts expect a temporary dip in trading volumes and yields to adjust upward as investors reprice risk after the removal of the tax exemption. The continued exemption for federal government bonds suggests a strategy to steer investors toward sovereign instruments while taxing private and sub-sovereign issuers more aggressively. For the financial system, this may alter portfolio allocations and liquidity flows, particularly for institutions managing short-term cash positions. Over time, the reform could improve transparency and compliance in Nigeria’s capital markets, but it also raises questions about balancing revenue goals with market competitiveness.
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