Withholding Tax on T-Bills and Short-Term Securities

How the 10% withholding tax on treasury bills and short-term securities works, and what it means for Nigerian investors.

· NairaTax Tax Advisory Team · 13 min read

Introduction

In a significant policy shift announced in late October 2025, the Nigeria Revenue Service (NRS) introduced a 10% withholding tax (WHT) on interest earned from short-term securities, including treasury bills (T-bills). This change marks a departure from decades of tax-free interest income for retail and institutional investors, fundamentally altering the investment landscape in Nigeria.

For millions of Nigerians who rely on T-bills as a safe haven for savings—especially during periods of currency volatility—this new 10% WHT represents more than just a policy tweak. It's a substantial shift that affects returns, investment strategies, and tax planning for everyone from individual savers to pension fund managers.

This comprehensive guide breaks down everything you need to know: what changed, who's affected, how the tax works, what remains exempt, and—most importantly—how to adjust your investment strategy to maximize after-tax returns in this new regime.

What Changed and Why: The Scope of Short-Term Securities Taxation

The Old Regime (Pre-2025)

Historically, interest income from Nigerian treasury bills was tax-exempt under various tax incentive provisions. This exemption was designed to:

Pension funds, insurance companies, and retail investors enjoyed gross interest payments without any withholding tax deduction.

The New Rule (Effective 2025)

Under the Nigeria Tax Act 2025 and subsequent NRS (formerly FIRS) implementation guidelines, all interest payments on short-term securities are now subject to 10% withholding tax at source. This applies to:

Instruments Now Subject to 10% WHT:

  1. Treasury Bills (T-Bills) - All tenors (91-day, 182-day, 364-day)
  2. Commercial Papers (CPs) - Corporate short-term debt instruments
  3. Bankers' Acceptances - Trade finance instruments
  4. Short-Term Promissory Notes - Corporate IOUs under 12 months
  5. Money Market Mutual Funds - Where underlying assets are short-term securities

Key Threshold: The 10% WHT applies regardless of the amount or the investor's tax status. There is no de minimis exemption.

Why the Change?

According to NRS communications and tax policy experts, the rationale includes:

  1. Revenue Mobilization: With Nigeria's fiscal challenges, the government seeks to broaden the tax base and capture revenue from previously exempt instruments
  2. Equity: Aligning treatment with other investment income (dividends, rent) which have long attracted WHT
  3. International Best Practice: Many emerging markets tax interest income from government securities
  4. Compliance with NTA 2025: The Nigeria Tax Act 2025 removed many blanket exemptions in favor of targeted reliefs

Citation: Reuters reported that the Nigerian government expects this measure to generate approximately ₦450 billion annually in additional revenue, helping to fund infrastructure and social programs.

Who Deducts, When, and Required Documentation

Withholding Agent Responsibilities

The withholding agent—the entity responsible for deducting and remitting the 10% WHT—depends on the instrument:

For Treasury Bills:

For Corporate Short-Term Securities:

When the Tax is Deducted

The 10% WHT is deducted at the point of interest payment or maturity, whichever comes first:

Example - 91-Day T-Bill:

Required Documentation

Investors must receive:

  1. WHT Certificate (Form A) - Issued by the withholding agent within 30 days
  2. Investment Statement - Showing gross interest, WHT deducted, and net payment
  3. TIN Verification - Investors must provide valid TIN; non-compliance attracts higher WHT rates

💡 Pro Tip: Use our Withholding Tax Calculator to instantly compute the 10% WHT on your T-bill investments and see your actual net returns.

Credits vs. Final Tax Treatment: Is the 10% Your Final Bill?

For Resident Individual Investors

The 10% WHT is NOT a final tax—it's an advance payment (tax credit) that you claim when filing your annual Personal Income Tax (PIT) return.

How It Works:

Scenario: Sarah, a salaried employee, earned ₦500,000 in T-bill interest in 2025:

Key Takeaway: If your effective PIT rate is higher than 10%, you'll owe additional tax. If it's lower, you may be entitled to a refund (though refunds can be slow in practice).

For Corporate Investors

Companies face similar treatment:

For Non-Resident Investors

This is where it gets interesting:

Example - Non-Resident Fund: A UK-based fund invests in Nigerian T-bills:

Use our Capital Gains Tax Calculator to understand how CGT interacts with your T-bill trading strategy if you're frequently buying and selling in the secondary market.

Exemptions: What's Still Tax-Free?

Not all government securities are affected. The following remain exempt from the 10% WHT:

1. Federal Government of Nigeria (FGN) Bonds

All FGN Bonds retain their tax-exempt status under the Nigeria Tax Act 2025:

📊 Investment Comparison:

Instrument Tenor Rate (Indicative) WHT Net Yield
T-Bill 364 days 18.5% 10% 16.65%
FGN Bond 2 years 19.0% 0% 19.0%
FGN Bond 10 years 20.5% 0% 20.5%

Implication: For investors with a medium-to-long-term horizon, FGN bonds now offer superior after-tax returns compared to rolling over T-bills.

2. Sukuk (Islamic Bonds)

Sovereign Sukuk issued by the FGN remain exempt to:

3. Infrastructure Bonds (Specific Issues)

Certain infrastructure bonds issued under special gazette notices retain exemptions, but these are rare and typically reserved for:

⚠️ Important: Always verify the tax status of any "infrastructure bond" with the issuer or your tax advisor—many newly issued bonds do NOT carry exemptions.

4. Instruments Held by Pension Funds (Partial Relief)

While the 10% WHT applies, pension fund administrators (PFAs) can claim full WHT credits against their CIT liability, effectively neutralizing the tax for the fund (though not for individual pensioners when they withdraw).

Worked Examples for Retail Investors

Let's walk through three common scenarios to see how the 10% WHT affects real-world returns:

Example 1: The Saver (Rolling Over T-Bills)

Profile: Chinedu invests ₦10,000,000 in a 91-day T-bill at 18% annual rate (simplified for illustration).

Old Regime (Pre-2025):

New Regime (2025):

Annual Impact (Rolling Over 4 Times):

💡 Strategy Shift: Chinedu could switch to a 2-year FGN bond at 19% (tax-exempt) and earn ₦1,900,000 annually instead—a ₦100,000 gain over rolling T-bills, even before considering reinvestment effects.

Example 2: The Corporate Treasurer

Profile: ABC Limited has ₦500,000,000 in excess cash, traditionally invested in 182-day T-bills.

Old Regime:

New Regime:

CIT Impact:

Net Effect: Cash flow timing worsens (cash tied up in WHT until CIT filing), but no additional tax cost if the company is profitable. Loss-making companies may face trapped WHT credits.

Example 3: The Diaspora Investor

Profile: Ngozi, a UK-based Nigerian, invests £20,000 (₦50,000,000 equivalent) in Nigerian T-bills.

Scenario:

UK Tax Implications:

Combined Tax Rate: 10% (Nigeria) + 30% (UK net) = 40% total

💡 For Diaspora Investors: Consider our Diaspora Tax Guide to understand how to navigate double taxation and optimize your cross-border investments.

Practical Compliance Tips for Investors

1. Ensure Your TIN is Up-to-Date

Investors without a valid TIN face:

✅ Action: Visit NRS e-Services to register or verify your TIN.

2. Maintain Proper Records

Keep for at least 6 years:

Why: Essential for:

3. File Annual Returns (Even if PAYE-Only)

Many salaried Nigerians assume they don't need to file returns because their employer handles PAYE. This is wrong if you have investment income:

Use our PAYE Calculator to see how your T-bill income affects your total tax bill.

4. Consider Tax-Efficient Alternatives

Goal Old Go-To New Tax-Efficient Option
Short-term liquidity 91-day T-bills High-yield savings (9-12%, but taxed at 10% too) or Money Market Funds (diversified, similar WHT)
Medium-term (1-3 years) Roll 364-day T-bills FGN Bonds (2-3 year, tax-exempt, higher yield)
Long-term (5+ years) Mix of T-bills & stocks FGN Bonds (10+ year, tax-exempt) + Equities (CGT threshold: ₦150m proceeds)
Retirement T-bills via PFA Voluntary Pension (tax-deductible contributions) or FGN Bonds

5. Understand Timing of Tax Credits

Impact on Institutional Investors

Banks

Pension Funds

Insurance Companies

Foreign Portfolio Investors (FPIs)

Citation: A recent PwC analysis suggests that the 10% WHT, combined with naira volatility, could reduce foreign T-bill holdings by 15-20% over 12 months, with funds reallocating to Kenyan and Ghanaian instruments offering comparable yields with lower tax burdens.

How to Adapt Your Investment Strategy

For Conservative Investors (Safety First)

Old Strategy: 100% T-bills
New Strategy:

Rationale: Preserve capital, minimize tax leakage, maintain liquidity.

For Growth Investors (Moderate Risk)

Old Strategy: 50% T-bills, 50% equities
New Strategy:

Rationale: Balance tax efficiency with capital appreciation.

For High Net-Worth Individuals (Sophisticated)

Old Strategy: Diversified, but heavy T-bill weighting for cash
New Strategy:

Rationale: Maximize after-tax returns, diversify currency risk, plan for CGT thresholds.

💡 Advanced Planning: Use our Capital Gains Tax Calculator to model scenarios where you sell appreciated securities and stay under the ₦150 million proceeds threshold.

Frequently Asked Questions (FAQs)

Is interest on treasury bills now taxed at 10%?

Yes. Effective 2025, all treasury bills (91-day, 182-day, 364-day) are subject to 10% withholding tax on the interest component. This is deducted automatically at maturity by the Central Bank of Nigeria, discount houses, or your custodian bank.

Is the 10% WHT final or creditable?

It depends:

Are FGN bonds still exempt from withholding tax?

Yes. Federal Government of Nigeria (FGN) bonds of all tenors (2-year, 5-year, 10-year, 20-year, 30-year) remain fully exempt from withholding tax and capital gains tax. This makes them significantly more attractive than T-bills for investors with a medium-to-long-term horizon.

How should banks and brokers implement the 10% WHT?

Banks and brokers acting as withholding agents must:

  1. Deduct 10% WHT from the interest payment at maturity
  2. Remit to NRS within 21 days of deduction
  3. Issue WHT Certificate (Form A) to the investor within 30 days
  4. Verify investor TIN (failure to provide TIN may attract 20% WHT)
  5. File monthly WHT returns via NRS e-Services

Non-compliance attracts:

What This Means for You: Action Checklist

☐ Review your current T-bill holdings: Calculate how much you'll lose to 10% WHT annually

☐ Compare FGN bond yields: Check if 2-5 year bonds offer better after-tax returns (use our Bond Yield Calculator)

☐ Update your TIN: Ensure your Tax Identification Number is active to avoid 20% WHT

☐ Adjust your asset allocation: Consider shifting from T-bills to tax-exempt FGN bonds

☐ Plan for tax filing: Budget for the March 31 deadline to claim WHT credits

☐ Consult a tax advisor: Especially if you're a non-resident or corporate investor navigating DTA claims

☐ Track your WHT certificates: Keep all Form A certificates for your 2025 tax return

Conclusion: Navigating the New Normal

The introduction of 10% withholding tax on short-term securities marks the end of an era for Nigerian investors who enjoyed tax-free T-bill returns. While the immediate impact is a 10% haircut on gross interest, the long-term implications depend on how investors adapt.

Key Takeaways:

  1. FGN Bonds Are Now King: With higher yields and zero tax, bonds outperform T-bills for most investors
  2. Tax Planning Matters: Understanding WHT credits and filing deadlines is now essential
  3. Diversification is Key: Over-reliance on any single instrument (T-bills or bonds) increases risk
  4. Stay Informed: Tax rules are evolving rapidly under the Nigeria Tax Act 2025—subscribe to updates

Final Word: This change, while painful for savers, reflects a broader shift toward tax equity and revenue optimization in Nigeria. The silver lining? By understanding the rules and adjusting your strategy, you can still achieve strong after-tax returns in 2025 and beyond.

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Disclaimer: This article is for informational purposes only and does not constitute legal or financial advice. Tax rules are complex and subject to change. Always consult a qualified tax advisor or accountant for advice specific to your situation.