FIRS orders financial institutions to deduct tax at source on interest payments for securities

By Seun Ibiyemi

The Federal Inland Revenue Service (FIRS) has ordered financial institutions and relevant stakeholders to deduct tax at source from interest payments on short-term securities.

The new directive is in line with provisions of the Companies Income Tax Act (CITA) and the Withholding Tax Regulations, 2024.

In a circular signed by its Executive Chairman, Zacch Adedeji, the Service said the directive applies to banks, discount houses, stockbrokers, corporate bond issuers, Primary Dealer Market Makers (PDMMs), other financial institutions, government agencies, tax practitioners, and the general public.

According to the notice, Sections 78(1) and 81(1) of CITA mandate that tax be deducted from all interests payable to any person including non-corporate entities on the date of payment.

The withheld tax must then be remitted to the relevant tax authority no later than the 21st day of the month following the month in which the payment occurred.

The FIRS clarified that the taxpayer from whose payment tax is deducted is entitled to a credit equal to the amount withheld and remitted, except where the tax is considered final.

However, the Service emphasized that interest on Federal Government bonds remains exempt from such deductions.

Short-term securities affected include treasury bills, promissory notes, corporate bonds, financial papers, and bills of exchange, among others.

“All relevant interest-payers are required to comply with this circular to avoid penalties and interest as stipulated in the tax law,” the notice read.

The FIRS urged stakeholders with further inquiries to direct them to its headquarters in Abuja.