Many Nigerians have recently noticed small extra deductions on their bank transactions and are asking the same question: “Why is my bank deducting 7.5% VAT?”
This article explains it clearly, simply, and without jargon, so anyone can understand.
What Is VAT?
VAT means Value Added Tax.
In Nigeria, VAT is 7.5% and is charged on certain goods and services. It is not new, has existed for years and applies to many everyday services like airtime, cable TV, hotels, and now more visibly, banking services.
What Exactly is the Bank Charging VAT On?
Here is the most important thing to understand:
👉 The VAT is NOT on the money you send or receive.
👉 The VAT is ONLY on the bank’s service charge.
When a bank helps you:
- transfer money
- use USSD (*737#, *919#)
- withdraw from ATM (where fees apply)
- use POS services, etc.
…the bank charges a small service fee. The 7.5% VAT is applied to that service fee, not to your money.
Example
Let’s say:
- You send ₦10,000
- The bank charges ₦100 as a transfer fee.
VAT = 7.5% of ₦100 = ₦7.50
What happens?
- ₦10,000 goes to the person you’re sending
- ₦100 goes to the bank (service charge)
- ₦7.50 goes to the government (VAT)
✅ The receiver still gets the full ₦10,000
Why People Think It’s a New Tax
Many people feel this VAT is “new” because:
- Digital banking is now used daily.
- VAT is now shown clearly as a separate deduction.
- USSD and mobile banking are used more than ever.
So even though VAT has always existed, people are noticing it more now.
What Transactions Attract VAT?
VAT may apply to bank service charges, such as:
- Mobile app transfers.
- USSD banking.
- POS transaction fees.
- ATM service charges (where applicable).
- Card issuance or replacement fees.
What Does NOT Attract VAT?
You do NOT pay VAT on:
- The money you send or receive.
- Salary payments.
- Interest earned on savings.
- Deposits into your account.
If someone sends you ₦50,000, VAT is not deducted from that amount.
Who Collects the VAT?
- The bank collects the VAT.
- The bank remits it to the government.
- The bank does not keep the VAT.
So while the deduction shows on your statement, the money goes to government revenue, not bank profit.
Why the Government Is Doing This
The government says this helps to:
- Standardise taxation on digital services
- Ensure proper tax collection
- Support public services funded by taxes
Whether people agree or not, banks are legally required to collect it.
Key Takeaways
✔ VAT rate is 7.5%.
✔ VAT applies to bank service charges, not your money.
✔ The deduction is usually small.
✔ The bank sends the VAT to the government.
✔ Your transfer amount remains unchanged.
Final Thought
The VAT deduction can feel frustrating, especially with frequent transactions. However, understanding what is being taxed and what is not helps remove fear and confusion.
Knowledge protects your peace.
