Nigerian Banks Begin Deducting 10% Withholding Tax on Savings Interest
Nigerians across the country are facing a significant financial adjustment as major banking institutions have started implementing a new 10% withholding tax on interest earned from savings accounts. This development follows directives from the Federal Government aimed at expanding the tax base and increasing non-oil revenue streams.
Implementation Across Banking Sector
Leading financial institutions including Access Bank, Zenith Bank, and United Bank for Africa have commenced deductions from customer savings interest. The implementation extends beyond traditional banks to include various fintech platforms that have gained popularity among digital savers in recent years. Many account holders discovered these deductions when reviewing their January bank statements, creating widespread confusion and frustration.
The tax directive originated from the Nigeria Revenue Service, which issued instructions on October 29 requiring financial institutions to deduct withholding tax from all interest payments on short-term investment and savings instruments. President Bola Tinubu confirmed on December 30 that implementation would proceed as scheduled from January 1, 2026.
Public Reaction and Economic Context
The new tax measures have generated substantial public outcry, particularly among savers already grappling with high inflation rates, diminished purchasing power, and escalating living costs. Social media platforms have become forums for expressing discontent, with many Nigerians questioning the logic of taxing savings interest when salaries have already been subjected to taxation.
"They now remove withholding tax from interest on savings? How does this make sense?" wrote one X user, capturing the sentiment of many account holders. Another user reported that PiggyVest deducted N28,700 from their account as tax, expressing bewilderment about why investment returns should face taxation.
Impact on Digital Savers
The effect has been particularly noticeable for users of digital savings platforms. Unlike traditional bank savings accounts that typically offer minimal interest returns, fintech applications generally provide annual returns ranging from 10 to 12 percent. Because these platforms deliver more substantial and visible interest earnings, the 10 percent tax deduction creates a more pronounced financial impact.
Financial analysts express concern that this development might discourage formal savings practices, potentially pushing some Nigerians toward informal saving methods, cash holdings, or dollarization strategies as alternatives to taxed savings vehicles.
Understanding Withholding Tax Mechanics
Tax advisory professionals emphasize that withholding tax represents an advance payment of income tax on specific transactions rather than an additional tax burden. The responsibility for deduction lies with the paying institution, not the recipient of the interest payments. When financial institutions distribute interest, dividends, rent, or certain service fees, they must deduct the prescribed percentage and remit it directly to tax authorities.
"Withholding tax is deducted before the recipient files their normal tax returns," explained Marvis Oduogu, tax partner at Stren & Blan. "It is not designed as a refund or payback to individuals."
Addressing Double Taxation Concerns
A primary source of public frustration stems from the perception that savings interest should remain untaxed since the original funds originated from already-taxed salaries. Tax experts clarify that this represents a misunderstanding of Nigerian tax law provisions.
Interest income constitutes a separate income stream under current regulations. Salaries undergo taxation through the Pay-As-You-Earn system, while interest earned from savings or investments faces independent taxation. For individuals, withholding tax on savings interest qualifies as franked investment income, with the tax withheld representing a final payment that cannot be offset against PAYE obligations.
Financial experts have also identified communication gaps, noting that many institutions advertised headline interest rates without adequately explaining the potential impact of withholding tax deductions, leaving numerous savers unprepared when deductions appeared on their statements.
Broader Financial Landscape
This tax implementation occurs within a broader context of financial sector developments. The Central Bank of Nigeria recently published data indicating that most commercial banks currently offer savings deposit interest rates around 8% per annum. Several tier-one and mid-sized financial institutions, including those implementing the new tax measures, provide savings account interest rates of approximately 8.10% to customers.
As the new tax regime becomes established, transparency and improved communication from financial institutions may prove crucial in maintaining public trust in formal savings mechanisms versus driving Nigerians toward alternative financial arrangements.
