The Federal Inland Revenue Service (FIRS) said on Tuesday that it has directed banks, stockbrokers, and other financial institutions to deduct a 10 per cent withholding tax on interest earned from investments in short-term securities.

Before this directive, short-term bills were tax-exempt to boost returns for investors.

The new directive requires tax to be deducted at the point of payment on instruments such as treasury bills, corporate bonds, promissory notes, and bills of exchange, according to a Reuters report.

As of the time of filing this report, it was unclear how much the federal government expected to generate from the withholding tax.

Yield-hungry investors usually snap up bills due to the attractive rates on the paper and their short-term nature.

Investors will receive tax credits for the amounts withheld unless the deduction represents a final tax, FIRS said.

Interest on federal government bonds remains exempt from the levy, the agency added.

“All relevant interest-payers are required to comply with this circular to avoid penalties and interest as stipulated in the tax law,” FIRS Executive Chairman Zacch Adedeji said in the notice quoted by Reuters.