By Omowunmi Samuel

A recent online claim has caused confusion regarding the Federal Inland Revenue Service’s (FIRS) enforcement of withholding tax on investment income.

The claim suggests that the government is attempting to target Nigerians’ savings through a new tax on earnings from Treasury bills, corporate bonds, and other short-term securities. However, this interpretation of the tax reform is misleading.

In reality, the withholding tax on interest income is not a new policy. It has been in place for a long time under the Companies Income Tax Act (CITA), which gives the FIRS the authority to deduct tax at the source from interest earned on financial instruments such as Treasury bills, bonds, and promissory notes.

Recently, the FIRS issued a reminder to financial institutions about their responsibility to enforce this existing tax provision more rigorously.

Clarification on Taxation and Savings

There seems to be a misconception that the FIRS is targeting savings accounts. However, savings themselves are not subject to taxation.

The interest earned on savings is considered taxable income. This distinction is critical, as the tax does not apply to the principal amount saved, but rather to the income generated from that savings.

Moreover, there has been no increase in taxes or the introduction of new taxes since the current government took office.

The public notice issued by the FIRS relates to the enforcement of tax on interest from short-term investments, which has been taxable since 2022.

A temporary exemption on these earnings expired last year, and the renewed enforcement is simply a step towards ensuring compliance with existing tax laws, rather than introducing a new form of taxation.

It is essential to note that this measure does not directly affect personal savings or impose an additional tax on savings income. Instead, it affects investment earnings such as those from Treasury bills and bonds, which have long been subject to tax.

Global Practices and the Need for Clarity

The renewed enforcement is in line with global tax practices, where tax authorities automatically deduct taxes on investment income to improve compliance and expand the revenue base.

This measure is part of Nigeria’s broader 2025 Tax Reform strategy, which aims to boost non-oil revenue in response to declining oil output and rising public debt.

While some critics argue that Nigerians’ frustrations stem from governance issues rather than the tax system itself, the clarification reinforces that the current enforcement pertains only to investment earnings, not savings.

The policy is not new, nor is it aimed at penalizing personal savings; instead, it is an ongoing legal provision that ensures all taxable income, including investment interest, contributes to national revenue.

Understanding the nuances of tax policies is essential to avoid the spread of misinformation. The FIRS’s renewed enforcement does not target personal savings, but rather ensures that investment income, which has been taxable for some time, is properly taxed in line with global practices.

Omowunmi Samuel writes from Abuja

Source; Vanguard News