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By Chinwendu Obienyi
Nigeria’s fixed-income market is entering a new phase as investment firms have begun implementing a mandatory 10 per cent Withholding Tax (WHT) on interest earned from short-term securities, following fresh compliance directives issued by the Federal Inland Revenue Service (FIRS).
The development is expected to trim net returns for both retail and institutional investors, prompting a recalibration of investment strategies across the country’s debt markets.
The updated guidance anchored on Sections 78(1) and 81(1) of the Companies Income Tax Act (CITA) and the 2024 Withholding Tax Regulations, requires that interest income payable to “any person,” including corporates and individuals, now attract WHT at the point of payment.
Following this directive, Investment powerhouses have begun informing investors that short-tenor instruments such as Treasury Bills, Corporate Bonds, Promissory Notes and Bills of Exchange will henceforth be subject to the 10 per cent deduction.
United Capital Group Plc in a notice to their clients said, “Dear esteemed investor, the Federal Inland Revenue Service (FIRS) has issued new guidelines on how WHT applies to interests earned from short-term investment securities.
The following investment instruments are now subject to WHT (10 per cent); treasury bills, corporate bonds, promissory notes and bills of exchange.”
The group further clarified that the Federal Government (FGN) Bonds and Open Market Operation (OMO) Bills issued by the Central Bank of Nigeria (CBN) are now exempted from WHT.
Under the rules, the deducted tax must be remitted by investment companies to the appropriate tax authority no later than the 21st day of the month following the maturity or interest payment date. Investors will receive tax credits reflecting the remitted amounts for use in their annual tax filings.
According to United Capital, relevant disclosures will also be included in offer letters and investment documents to improve transparency.
The move forms part of the government’s broader campaign to enhance non-oil revenue mobilisation and tighten tax compliance across key financial markets. Over the past year, Nigeria has introduced a series of tax reforms designed to expand the country’s revenue base amid fiscal pressures, particularly in the aftermath of fuel subsidy removal and exchange-rate liberalisation.
For the fixed-income market already buzzing with activity due to high interest rates and rising inflation, the new WHT requirement could influence pricing, portfolio allocation and investor appetite.
Market sources, while speaking to Daily Sun on the condition of anonymity, said that the tax introduces an additional layer of pressure on already sensitive yield dynamics, especially at a time when investors are grappling with elevated inflation, volatile exchange rates and tight monetary policy.
“This will certainly compress net yields for investors who are active in the short-term end of the curve. Treasury Bills and commercial paper may become less appealing unless issuers adjust rates upward to keep investors whole.
In essence, any measure that reduces net yields in a high-inflation environment will inevitably influence investor behavior. The key question now is how quickly the market reprices these instruments and whether issuers are willing to increase rates to compensate for the tax drag”, they said.
They added further that the exemption could make OMO Bills and longer-dated government bonds more attractive relative to short-tenor notes.
For pension fund administrators and asset managers, the implementation adds a compliance layer at a time of heightened regulatory oversight of Nigeria’s financial system.
Daily Sun understands that firms will be required to integrate automated deduction and reporting processes to meet remittance deadlines. Some asset managers are expected to issue updated yield projections reflecting the lower post-tax returns.
Retail investors, many of whom have shifted to money-market products as a safe haven amid currency volatility, may feel the impact more immediately. “We expect more questions from clients about why their returns appear lower than previously projected. This will force advisers to clearly explain gross versus net returns, especially for shorter investment cycles”, market operators stated.
The debt markets remain pivotal to liquidity management for banks, corporates and government agencies. With the WHT implementation now underway, investors are expected to closely monitor auction rates, pricing trends and portfolio adjustments as the market absorbs the change.
