The Nigeria Revenue Service (NRS) has issued a firm clarification to clear the air on widespread confusion regarding the application of Value-Added Tax (VAT) on banking services. The agency insists that the tax on financial service charges is not a new introduction under the recent Nigeria Tax Act, but a long-standing obligation that is now being more rigorously enforced.
NRS Addresses "Incorrect and Misleading" Reports
In an official statement released on Thursday, the NRS described recent media reports suggesting a new VAT on banking transactions as "incorrect and misleading." The statement was signed by Dare Adekanmbi, the Special Adviser on Media to the NRS Chairman, Zacch Adedeji.
The agency explicitly stated that "the Nigeria Tax Act did not introduce VAT on banking charges, nor did it impose any new tax obligation on customers in this regard." Instead, the NRS emphasized that VAT has always applied to the fees, commissions, and other service charges levied by banks and financial institutions across Nigeria.
What Exactly is VAT Applied To?
The NRS provided clear examples to distinguish between taxable and non-taxable elements in banking. Crucially, VAT applies only to the service fee itself, not to the principal amount of a transaction.
For instance, if a bank charges ₦10 for an electronic money transfer, VAT at the rate of 7.5 per cent (which amounts to ₦0.75) is levied on that ₦10 fee. The total sum being moved from one account to another is not subject to the tax.
Furthermore, the service reminded the public that interest earned on savings accounts, fixed deposits, or similar accounts is completely exempt from VAT. This is because interest income is not considered a supply of goods or services under the law.
Enforcement, Not New Law, is the Change
The NRS acknowledged the recent surge in public concern but attributed it to a shift in compliance focus. The core change is in enforcement and reminders to financial institutions about their existing obligations, not in the legislation itself.
"Financial institutions are being reminded of their existing obligation to remit VAT already charged and collected from customers, in line with the Nigeria Tax Act," the statement clarified. This suggests a tightening of oversight to ensure banks are correctly accounting for and remitting the VAT they collect on service charges.
The agency also reiterated that several essential items and services remain VAT-exempt to protect consumers. These include:
- Basic food items
- Essential medical services and pharmaceutical products
- Tuition and core educational services from recognized institutions
In conclusion, the NRS urged Nigerians to rely solely on its official communications for accurate tax information and to disregard misinformation. To aid public understanding, the agency has released a detailed FAQ section that breaks down the application of VAT across various sectors, including banking.
