|
Getting your Trinity Audio player ready...
|
Full Text
Recently, social media platforms and some news outlets were flooded with claims that the Nigerian government had introduced a new 7.5 per cent Value Added Tax (VAT) on bank transfers and other banking transactions.
The reports sparked widespread concern among Nigerians, many of whom feared that routine banking activities such as transfers, withdrawals, and account usage would suddenly become more expensive.
For example, @temitopeyen commented: “750 on 10k transfer to a government that tells us constant power is a luxury is a slap on our faces.”
However, the Nigeria Revenue Service (NRS), the agency responsible for administering and collecting VAT, has clarified that these claims are misleading.
According to the NRS, no new VAT was introduced on banking services under the Nigeria Tax Act (2025).
Rather, the tax in question has existed for years, and what has changed is the level of enforcement and compliance among financial institutions.
To help readers understand the issue, DUBAWA has put together an explainer on how VAT operates in Nigeria and how it affects banking services.
What is VAT and how does it work?
Value Added Tax is a tax charged on the supply of goods and services consumed in Nigeria.
It is paid by the final consumer but collected and remitted to the government by businesses providing taxable goods or services.
Nigeria’s VAT rate currently stands at 7.5 per cent, following an increase from 5 per cent in 2020. The tax applies to most goods and services consumed within the country, except those specifically exempted by law.
Contrary to widespread claims, VAT has always applied to specific banking services. Banks and other financial institutions provide services for which they charge fees, commissions, or levies, and these charges fall within the scope of taxable services under existing VAT laws.
These taxable bank charges include electronic transfer fees, USSD charges, SMS alert fees, card issuance or activation fees, account maintenance charges, and point of sale (POS) transaction fees
What changed in 2026?
According to the NRS, the change in 2026 was not the introduction of a new tax but a strong emphasis on enforcement.
The agency explained that banks have been reminded of their obligation to properly collect and remit VAT on eligible service charges, as required under existing law.
As a result, some customers may now notice VAT being clearly itemised on their bank statements or transaction alerts, creating the impression that a new tax has been introduced.
One major source of confusion is the belief that VAT is charged on the actual money being transferred or withdrawn.
To clarify this, DUBAWA spoke to Arome Adaji, a finance specialist with the Centre for Journalism, Innovation and Development (CJID).
He explained that VAT is not applied to the principal amount of a banking transaction. Instead, it applies only to the service fee charged by the bank for processing that transaction.
“For instance, if a customer transfers N50,000 and the bank charges a N50 transfer fee, VAT is calculated on the N50 service charge, not on the N50,000 being transferred,” he said
At a rate of 7.5 per cent, the VAT on the N50 fee amounts to N3.75. The customer therefore pays the transfer fee plus the VAT on that fee, not VAT on the transferred amount itself.
He concluded that this means customers are not taxed for moving their own money, but for the service provided by the bank.
DUBAWA also spoke to Uche Ohaeri, a tax expert, who emphasised that the 7.5 per cent Value Added Tax (VAT) on bank charges is not a new policy.
According to Uche, the VAT regime on bank service charges has been in force long before the emergence of the Nigeria Tax Administration (NTA) framework, and its application has remained consistent over the years.
While noting that he is no longer actively involved in bank charges audits, Uche explained that VAT applies to specific service charges earned by banks, not to customers’ deposited or transferred funds.
Finally, the NRS clarified that not all bank-related transactions are subject to VAT. Interest earned on savings accounts, fixed deposits, and other investments is exempt because interest is not classified as a taxable service under Nigeria’s VAT law.
Likewise, the actual amount of money a customer deposits, transfers, or withdraws is not subject to VAT.
Outside the banking sector, Nigeria’s VAT law also exempts certain essential goods and services, including basic food items, medical and pharmaceutical products, and tuition at recognised educational institutions.
Although these exemptions do not apply to banking charges, they reflect the broader VAT framework, which excludes items considered essential to public welfare.
Conclusion
The 7.5 per cent VAT on eligible bank charges is not new. What is new is the heightened enforcement by tax authorities to ensure compliance.
Customers should note that VAT applies only to service fees, not to funds in their accounts or to interest earned. Routine banking transactions remain largely unaffected.
