• Nigeria's Federal Inland Revenue Service (FIRS) imposed a new 10% withholding tax (WHT) on interest from short-term financial securities.

• The measure ends a decade-long exemption, effective immediately, aiming to widen the tax base and increase non-oil revenue.

• Analysts expect the new tax to slightly reduce net returns and potentially shift investor interest toward medium-term government bonds.

Nigeria tightens its fiscal regime on financial investments. The Federal Inland Revenue Service (FIRS) announced Tuesday, October 28, 2025, the implementation of a 10% withholding tax (WHT) on interest derived from short-term securities, which previously enjoyed tax exemption to encourage local investment.

Banks, brokerage firms, and other financial institutions must now levy this tax directly when disbursing interest on instruments such as Treasury bills, corporate bonds, promissory notes, and commercial papers, before remitting the amounts to the Treasury.

The measure aims to expand the tax base and "ensure fair contribution from all financial market actors," according to FIRS Chairman Zacch Adedeji . He added, “all concerned interest payers must comply with the circular to avoid penalties and interest provided by law.”

The exemption, established in 2012, benefited short-term investment income to stimulate capital market development and support state financing needs. This exemption officially ended in January 2022 but had not been fully reintegrated into tax practice until now. The updated legal framework, introduced by the "Withholding Tax Regulations 2024," which took effect on January 1, 2025, now harmonizes the rules applicable to all interest income categories. Payer entities must declare and remit the tax by the 21st day of the month following the payment. Federal sovereign bonds, however, remain exempt from this withholding, consistent with public securities legislation.

Abuja seeks to increase non-oil revenue as dependence on crude oil weakens public finances. Facing rising debt and crude price volatility, the country attempts to improve its tax system's yield. However, this decision could reduce the attractiveness of short-term instruments, highly valued by institutional and retail investors for their liquidity and high returns.

Analysts at PwC Nigeria observed, “This tax risks slightly reducing net returns and pushing some investors toward other instruments, notably medium-term government bonds.” Audit firm estimates suggest the measure could generate tens of billions of Nairas annually, though the government published no official projection.

For the Tinubu administration, this reform signals a commitment to rationalizing the tax system and standardizing levies across all financial products. Nigeria already applies a standard 10% WHT on dividends and interest paid to investors by companies and financial institutions, a rate which can be reduced to 7.5% for non-residents under double-taxation treaties.

This article was initially published in French by Fiacre E. Kakpo

Adapted in English by Ange Jason Quenum