EXPLAINER: What to know about VAT fee for banking services
EXPLAINER: What to know about VAT fee for banking services
On Thursday, banks said they will start deducting 7.5 percent value-added tax (VAT) on banking services, including point of sale (POS) transaction fees, mobile banking transfer fees, from January 19.
In an email to customers, Moniepoint Microfinance Bank said the charge stems from a government-endorsed regulatory change, with the proceeds of the charge remitted to the Nigerian Revenue Service (NRS).
“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.
According to the statement, the VAT is not on the actual amount sent by customers but on the service fee.
In this report, TheCable provides a breakdown of what you need to know about the development.
WHAT ARE BANKING SERVICES?
Banking services comprise various financial products and services provided by banks and other financial institutions to individuals, corporations, and government agencies.
Banks usually deduct fixed service charges from customers per transaction on such financial services
For instance, a N50 stamp duty and a N50 electronic money transfer fee is deducted from customers when an electronic transfer is made on transactions.
Such charges include electronic banking charges such as point of sale (POS) transaction fees, mobile banking fees (transfers), unstructured supplementary service data (USSD) transaction fees, and POS activation fees.
Other charges include card issuance fees, SMS alert charges, and account maintenance.
WHAT WILL BE DEDUCTED?
Banks are required to deduct VAT on eligible banking charges and remit it to the NRS.
The fee applies to the service charge, not the actual transaction amount.
For instance, on electronic transfer fee, if a customer intends to send N50,000 to a loved one, the bank deducts N50 as bank charges, the customer will pay the 7.5 percent on the bank charge.
As a result, the 7.5 percent VAT will be applied to the N50, and not the principal amount (N50,000).
Consequently, a total amount of N50,053.75 will be deducted from the customer.
IS VAT CHARGE A NEW DEVELOPMENT?
In a statement on Thursday, the NRS said the VAT charge on banking services, fees, commissions, and electronic money transfers is not newly introduced.
“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 reads.
According to the service, the Nigeria Tax Act did not introduce VAT on banking charges, nor did it impose any new tax obligation on customers in this regard.
