The Federal Government of Nigeria is implementing a 7.5% Value-Added Tax (VAT) on fees for various electronic banking services, including USSD (Unstructured Supplementary Service Data) transactions, mobile transfers, and card-related fees. Effective January 19, 2026, banks and fintech companies are required to collect and remit this VAT to the tax authority on these service charges. While many banks have long been charging VAT on such fees, some fintech firms had not, leading to an uneven playing field. The government’s recent directive aims to standardize VAT collection across all financial platforms, boosting compliance and revenue without imposing a new tax per se.
This newsletter explores the historical context of VAT on financial services in Nigeria, how the new enforcement affects USSD and other digital channels, and the broader implications for consumers and policymakers. We will also compare Nigeria’s approach with other countries to understand potential impacts on cashless policy and user behavior.
Historical Context: VAT and Financial Services in Nigeria
VAT was introduced in Nigeria in 1993 at a rate of 5% and later increased to 7.5% in 2020 as part of fiscal reforms. Under Nigerian law, VAT applies to most goods and services, but certain items are exempt. Historically, basic financial services often enjoyed VAT exemptions worldwide; Nigeria followed suit to a limited extent. For many years, interest earnings (e.g. on loans, savings, and deposits) and core investment returns have been excluded from VAT, since these are considered returns on investment rather than consumption of services. However, fees and commissions charged by banks were generally not exempt unless specifically carved out by law.
A key shift came with the Finance Act 2019, which clarified VAT treatment for financial services. This Act (and a subsequent 2021 VAT Modification Order) explicitly exempted only services provided by certain institutions, notably microfinance banks (specifically small “unit” microfinance banks), people’s banks, and mortgage institutions. In effect, all other financial institutions, including commercial banks and fintech service providers are required to charge VAT on their services. The tax authority reinforced this in a 2021 circular, listing a range of taxable financial service charges. These include typical bank fees such as account maintenance and ATM charges, as well as modern digital transaction fees like electronic banking charges, POS transaction fees, bill payment fees, mobile money transaction fees, and USSD banking fees. The rationale is that these fees constitute payment for services, hence subject to VAT, whereas things like interest or dividend income are not viewed as a VAT-taxable service.
In summary, Nigeria’s VAT law has long intended for most banking service fees to attract VAT. Only specific categories of small-scale financial institutions were exempt to encourage financial inclusion. Mainstream banks were expected to comply with VAT on their service charges, but fintech companies, some of which emerged from microfinance roots or operated in regulatory gray areas, may not have uniformly applied VAT. This set the stage for the recent push to enforce compliance across the board.
VAT on USSD and Other Digital Banking Services
USSD banking is a popular channel in Nigeria for performing quick transactions via mobile phones (by dialing short codes like *737#). It’s widely used for balance checks, transfers, and bill payments, especially by users without smartphones or reliable internet. Alongside USSD, Nigerians use mobile banking apps, internet banking, POS terminals, and card services as part of the growing digital finance ecosystem. All these channels sometimes carry small fees – for example, a fee per transfer or a charge for a USSD session (historically around ₦3 – ₦6.98 per USSD session, split between banks and telecom operators).
Under the new directive, VAT at 7.5% will be applied to the fees charged for these digital services, not on the transaction amounts themselves. This distinction is important: if you transfer money via USSD or a mobile app and the provider charges a service fee (say ₦100 or ₦20, depending on the transaction), the VAT is only on that fee. For example:
- If a bank charges ₦100 as a transfer fee, an additional ₦7.50 (7.5% of ₦100) will be added as VAT.
- If a USSD session costs ₦20, the VAT would be ₦1.50, making the total ₦21.50 for that session.
- If a fintech card issuance fee is ₦1,000, VAT would be ₦75 on that service charge.
These VAT-inclusive charges will be clearly itemised for customers, receipts or bank statements will show the base service fee and the VAT separately. Notably, the VAT does not apply to the money being sent or withdrawn, only to the service fees. So sending ₦5,000 via mobile transfer doesn’t mean an extra ₦375 tax on ₦5,000; it means perhaps ₦0.75 extra if the transfer fee was ₦10.
The kinds of services now explicitly subject to VAT include:
- Mobile banking transfer fees (charges for using banking apps or internet banking to transfer funds).
- USSD transaction fees (charges for banking via USSD codes on mobile phones).
- Card issuance and replacement fees (e.g. fees for getting a debit card or replacing one).
- POS and ATM service fees, and other electronic payment charges (for example, fees paid for using POS terminals or ATM withdrawals beyond free limits).
Services that remain VAT-exempt include the interest on loans, savings, and deposits, and other non-fee-based financial activities. In short, earning interest from your savings account or being paid dividends doesn’t incur VAT, aligning with the principle that those are returns on investment, not service consumption.
Banks vs. Fintechs: Bridging the Compliance Gap
One reason this policy direction has made headlines is the perception of a compliance gap between traditional banks and fintech companies regarding VAT. Many bank customers were already familiar with VAT being deducted on certain fees, for instance, seeing a small VAT amount whenever an account maintenance fee or transfer fee was charged. Banks, being closely regulated, largely treated those fees as VAT-able and either embedded VAT in the fee or itemized it in statements (as required by law). Fintech firms, however, often did not charge VAT on similar service fees, effectively giving their users a slight cost advantage and, intentionally or not, operating as a “tax haven” for digital transactions. This disparity arose even though the law did not exempt fintech services; it was more an issue of patchy enforcement and perhaps competitive strategy.
The Federal Government’s directive in January 2026 reminds all banks, microfinance institutions, and electronic money operators of their duty to collect and remit VAT on service charges. In other words, no new tax is being created, rather, the tax authority (now called the Nigerian Revenue Service, NRS) is closing loopholes and enforcing uniform compliance. An official statement from the NRS clarified that reports of a “new” VAT on banking services are misleading; “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 difference now is that fintech companies are explicitly included and must play by the same rules as banks, eliminating any ambiguity. The NRS communicated a firm deadline of January 19, 2026 for all platforms to begin this collection and remittance, covering commercial banks, microfinance banks, and licensed electronic payment providers.
To illustrate, a prominent fintech platform notified its customers of the change, emphasizing that it’s a government mandate and a statutory obligation, not a price increase. Other major fintechs are expected to follow suit, so that the 7.5% VAT is applied industry-wide. The government’s broader aim is to standardise VAT collection on digital financial services and ensure a level playing field. In doing so, it effectively ends the scenario where a bank transfer via a traditional bank might incur VAT on the service fee but the same transfer via a fintech app did not, a situation that was unfair to compliant banks and deprived the government of revenue.
It’s worth noting that NRS officials have stressed this is not a new tax law, but improved enforcement. “What has changed is compliance and enforcement, not the law,” explained a media adviser to the NRS Chairman, underscoring that financial institutions are simply being held to their existing obligation. By closing the compliance gap, Nigeria expects to increase VAT remittances from the booming fintech and digital payments sector, contributing to government coffers without raising the VAT rate.
Impact on Consumers and the Cashless Policy
For everyday Nigerians, the immediate effect of this enforcement is that some digital transactions may become slightly more expensive – specifically, those using fintech apps or platforms that previously did not add VAT to service fees will now see a small 7.5% extra on those fees. In absolute terms, the amounts per transaction are often small (fractions of a naira to a few naira). For example, a ₦20 USSD fee rising to ₦21.50 with VAT, or a ₦50 transfer fee becoming ₦53.75. On their own, these increments are modest.
However, Nigeria’s experience with its cashless policy shows that even small charges can add up and influence behavior, especially for price-sensitive users and small businesses. Nigeria has been aggressively promoting electronic payments and reducing cash usage for over a decade, a policy aimed at improving efficiency, security, and financial inclusion. The volume of e-payments has surged (over ₦600 trillion in electronic transactions recorded in 2023, a 55% jump from the prior year). Yet, alongside this success, there is growing concern that multiple fees and taxes on digital transactions are creating friction for users.
Consumers today face not just VAT on service fees, but also other levies like the Electronic Money Transfer Levy (EMTL) – a fixed ₦50 stamp duty on transfers of ₦10,000 and above – plus charges for SMS alerts, ATM withdrawals, account maintenance, USSD usage, card maintenance, etc.. For a small trader or everyday user, these costs can accumulate. A 2025 news feature highlighted market traders in Ilorin who prefer cash for payments above ₦10,000 to avoid the myriad of e-payment charges. One trader admitted her bank charges for a month totaled nearly ₦15,000 – a significant sum for a low-income earner, essentially “someone’s food budget”. Another individual described splitting large transfers into multiple ₦9,999 transactions to dodge the ₦50 stamp duty on ₦10,000 transfers. These anecdotes underscore a crucial point: if digital payments become too costly, users may revert to cash, undermining the cashless initiative. What was meant to be progress can start to feel like a “hidden tax on the poor,” as mounting fees eat into small incomes. A taxation expert warned that while charges like the transfer levy and VAT may boost government revenue, they “risk reversing gains in financial inclusion and digital payment adoption” if people begin avoiding formal financial channels.
On the flip side, the government has assured that the VAT on service fees is tiny per transaction and should not materially deter most users. Unlike a direct tax on the amount sent (which could indeed drive people to cash), this is a percentage on service fees. In practice, a customer might hardly notice an extra ₦0.75 on a ₦10 transfer charge. Clear communication and transparency (showing the VAT line on receipts) might also help users understand that these charges are government taxes, not arbitrary fees by providers. Over time, as digital finance becomes ubiquitous and competition possibly drives base fees down, the hope is that transaction volumes will grow and the relative burden of these small taxes will remain manageable. The authorities will nevertheless be keen on monitoring the situation. If VAT enforcement on fintech services were to significantly slow the adoption of digital payments in certain segments, policy adjustments might be considered to keep the cashless drive on track.
International Comparisons and Policy Insights
Nigeria’s approach to VAT on financial services is somewhat unique when compared to many other jurisdictions. In the European Union, for instance, most financial services (banking, insurance, lending, etc.) have traditionally been VAT-exempt by law. The logic is that it’s administratively complex to apply VAT to financial intermediation, and exempting such services avoids taxing consumers for basic banking. This leads to overall lighter taxation of financial service users in the EU, though it creates an “irrecoverable VAT” problem for banks (banks cannot reclaim VAT on their own purchases because their outputs are exempt). The net effect is that European consumers generally do not see VAT on things like bank transfer fees; such fees might exist, but they’re not taxed, which keeps digital banking costs lower for users than they would be under a VAT regime.
Many African countries initially mirrored the EU model by exempting financial services under their VAT laws. Instead of VAT, some countries levy alternative taxes on financial transactions or on bank revenues. For example, Kenya does not apply VAT to banking or mobile money services, but it imposes an excise duty on those services. Kenyan consumers pay an excise tax of 15% on fees for mobile money transfers and bank transactions, which functions similarly to VAT on that narrow base. (In fact, Kenya recently aligned the excise rates for banks and mobile money providers to ensure a level field.) This approach shows that governments can tax digital finance, but the mechanism may vary, VAT or no VAT, consumers may still bear some form of consumption tax on financial services.
Other nations have attempted more direct taxation of digital payments. Ghana famously introduced an “Electronic Transaction Levy (E-Levy)” in 2022, a 1.5% tax on the value of mobile money and other electronic transfers. Unlike Nigeria’s VAT (which is on fees), Ghana’s levy was on the transfer amount itself. The move was met with fierce public opposition and an immediate drop in mobile money usage as users sought to avoid the tax. Transaction values and volumes in Ghana fell significantly in the months after E-Levy’s introduction, leading the government to later reduce the rate to 1% amid ongoing controversy. The Ghanaian case is a cautionary tale: over-taxing digital transactions can prompt people to revert to cash or informal means, undermining financial digitization efforts.
Compared to these examples, Nigeria’s 7.5% VAT on service fees is relatively moderate and aligned with the existing consumption tax framework. The policy targets the service charges (which were always technically taxable under the law) rather than the transaction principals. This is less likely to distort consumer behavior than a tax on the transaction amount, and it ensures that fintech services are taxed similarly to other services in the economy. Nonetheless, the Nigerian authorities are aware of the need to balance revenue goals with the cashless policy. They have indicated that the measure simply brings fintechs into compliance rather than punishing consumers, and they will likely calibrate the approach if unintended consequences arise.
From a policymaker’s perspective, the key insight is the need for balance:
- Encourage people to use electronic payment channels by keeping costs reasonable and transparent. Small “nudges” or incentives (like free transactions up to a certain number per month) could offset tax impacts for vulnerable users.
- Ensure tax laws are uniformly applied so that no category of financial service provider has an undue advantage. This prevents market distortions and leakage of tax revenue, as seen in the fintech-vs-bank VAT gap that Nigeria is now addressing.
- Monitor the impact. If the VAT on service fees appears to significantly deter digital transactions or push users toward cash, be ready to fine-tune the policy. This could mean adjusting other fees (e.g. reducing certain bank charges) or providing exemptions/reliefs for micro-transactions to protect low-income users.
International practice ranges from broad VAT exemptions (to encourage financial service use) to specialized taxes on financial activities. Nigeria’s current approach is to enforce taxation without fundamentally altering the cost structure of transactions. By studying how other countries tax (or don’t tax) financial services, Nigerian policymakers can strive to raise revenue in a way that doesn’t inadvertently send citizens “back to cash” and erode the gains of digital finance.
Conclusion
The imposition (or rather, enforcement) of VAT on USSD transaction fees and other digital banking charges in Nigeria marks an important step in leveling the financial playing field. It closes loopholes that allowed some fintech platforms to bypass taxes that banks were already factoring in, thereby improving compliance and potentially boosting public revenue. Historically, Nigeria’s tax law always intended for most banking services to be taxable, with only narrow exemptions for certain institutions or for income like interest. The renewed enforcement from January 2026 is essentially a policy alignment with that long-standing principle, now applied evenly across all providers.
For consumers, this means a bit more transparency, you might start seeing VAT explicitly noted on your transfer or USSD fees if you weren’t seeing it before and a reminder that digital convenience doesn’t come tax-free. The actual financial impact per transaction is minor, but the cumulative effect of fees is something to watch. Both the government and financial industry will need to remain attentive to customer reactions: if people begin to feel too “nickel-and-dimed” by digital banking costs, they might reduce their usage, which would be counterproductive to Nigeria’s modern banking goals.
In a global context, Nigeria’s move reflects a broader trend of bringing digital finance into the tax net as economies digitize. The country is asserting that fintech innovations should not outpace the tax framework meant to ensure everyone pays their fair share. The lesson for policymakers is clear: tax policy must evolve with technological and market developments, but it should be calibrated carefully. By learning from other countries’ experiences (such as the EU’s cautious approach or Ghana’s overzealous one), Nigeria can adjust its strategies to avoid discouraging the very progress it seeks.
As this VAT enforcement takes effect, stakeholders ranging from banks and fintechs to consumers and regulators will be watching closely. The goal is to achieve tax fairness and revenue mobilization, while still keeping Nigeria’s digital finance revolution on track. With open communication, perhaps some flexibility for small transactions, and continued investment in the digital infrastructure, Nigeria can aim for the best of both worlds: a flourishing, cash-lite economy and a robust, equitable tax system that supports national development.
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