Banks across Nigeria have announced that from January 19 they will begin deducting 7.5 per cent value-added tax on selected banking service charges.
The development follows regulatory guidance directing financial institutions to apply VAT to eligible service fees and remit the proceeds to the Nigerian Revenue Service.
Customers were formally notified through emails and in-app messages issued by several banks and financial service providers.
In one such notice, Moniepoint Microfinance Bank explained that the deduction is linked to a government-approved policy affecting all categories of financial institutions.
“The NRS has communicated a deadline of 19th January for all financial institutions (commercial banks, microfinance banks and electronic money transfer operators) to start collecting and remitting VAT,” the bank said.
The announcement has generated questions among customers about how the charge works and what transactions are affected.
This explainer outlines the scope of banking services, the nature of the VAT deduction and whether the policy represents a new tax burden.
What qualifies as banking services
Banking services refer to the range of financial activities offered by banks and other licensed institutions to individuals, businesses and public entities.
These services typically attract fixed charges that are deducted by banks each time a customer carries out a transaction.
Such charges are separate from the amount being transferred or withdrawn by the customer.
For example, when a customer initiates an electronic transfer, banks usually deduct a N50 electronic money transfer fee and a N50 stamp duty where applicable.
Electronic banking services include point of sale transaction processing, mobile banking transfers and unstructured supplementary service data transactions.
Other services covered under banking charges include POS terminal activation, card issuance, SMS alerts and routine account maintenance.
These charges represent fees for services rendered by banks rather than taxes on customers’ funds.
How the VAT deduction works
Under the new directive, banks are required to apply a 7.5 per cent VAT to eligible service charges.
The VAT is calculated solely on the service fee and not on the total amount of money involved in the transaction.
This distinction means the principal sum being transferred remains unaffected by the tax.
For instance, if a customer sends N50,000 through an electronic transfer, the bank’s service charge of N50 attracts the VAT.
In this case, 7.5 per cent of N50, amounting to N3.75, is added to the service fee.
As a result, the total debit from the customer’s account becomes N50,053.75.
Banks have emphasised that the VAT does not increase the core transaction value.
Why banks are implementing the charge
Financial institutions say they are acting in compliance with instructions issued by tax authorities.
According to banks, the directive applies uniformly across commercial banks, microfinance banks and electronic money transfer operators.
The VAT collected is to be remitted directly to the Nigerian Revenue Service as required by law.
Banks have also noted that failure to comply with the directive could attract regulatory sanctions.
The move is part of broader efforts to strengthen tax collection and improve government revenue.
Is the VAT on bank charges new?
The Nigerian Revenue Service has stated that the VAT on banking services is not a recent policy introduction.
In a statement issued on Thursday, the service clarified that VAT has long applied to fees and commissions charged by financial institutions.
“VAT has always applied to fees, commissions, and charges for services rendered by banks and other financial institutions under Nigeria’s long-established VAT regime,” the statement read.
The agency explained that existing tax laws already recognise banking services as taxable supplies.
It added that no new tax obligation has been imposed on customers through the current enforcement.
According to the service, recent actions are focused on ensuring compliance rather than creating fresh charges.
What customers should expect going forward
Customers are likely to see slightly higher deductions on bank service fees once the VAT is applied.
The impact on individual transactions will depend on the frequency and type of banking services used.
Routine activities such as transfers, POS payments and USSD transactions will reflect the VAT on applicable charges.
Banks have advised customers to review transaction notifications carefully to understand the breakdown of deductions.
Financial institutions are also expected to update their terms and conditions to reflect the VAT application.
Regulatory clarity and compliance
Tax authorities maintain that transparency remains central to the implementation of the policy.
Banks are required to clearly itemise service charges and VAT deductions in transaction records.
This approach is intended to help customers distinguish between service fees and taxes.
Regulators have urged financial institutions to provide adequate customer education on the change.
The enforcement of VAT on bank charges reflects ongoing efforts to align financial services with national tax laws.
As the policy takes effect, customers, banks and regulators are expected to adjust to the clarified framework governing service-based taxation.
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