NRS confirms: Banks now charge 7.5% VAT on ATM card fees, not on savings

Nigerian banks and fintechs have started deducting 7.5 per cent Value Added Tax (VAT) on ATM card issuance and maintenance fees, acting on federal government orders. The Nigerian Revenue Service (NRS) has clarified that the charge applies only to service fees, not to customers' account balances or savings.

The NRS confirmed this is not a new tax but an enforcement of existing VAT rules, with banks and fintechs acting as collection agents for the government. The clarification came after customers noticed additional deductions linked to ATM card charges and feared the Federal Government had introduced another tax burden amid rising living costs.

How the VAT deduction works

According to the NRS, the 7.5 per cent VAT applies only to the actual service fee charged by banks and fintechs for ATM card issuance or monthly maintenance. It does not apply to the total amount held in a customer's account.

For instance, if a bank charges N50 as a monthly card maintenance fee, the VAT will be calculated on that N50. At 7.5 per cent, the VAT amounts to N3.75, bringing the total deduction for the service to N53.75. This means customers are not being taxed on their savings, deposits, or account balance, but only on the specific banking service they use.

The NRS stressed that VAT has always been applicable to taxable goods and services under Nigerian tax laws. The current directive is simply an enforcement measure to ensure banks and fintech companies comply with the existing VAT framework. The agency explained that financial institutions are acting as collection agents, deducting the VAT from applicable service fees and remitting it to the government.

Breakdown of charges by service fee

The impact on customers will depend on the specific fee charged by their bank or fintech provider. The NRS provided a table showing how the VAT is calculated proportionately:

For a service fee of N50, the VAT at 7.5 per cent is N3.73, making a total charge of N53.75. For a service fee of N100, the VAT is N7.50, for a total of N107.50. For a service fee of N1,000, the VAT is N75.00, for a total of N1,075.00.

This shows that the VAT is proportionate to the service fee and not a flat charge on all account holders. For millions of Nigerians, the immediate effect will be a slight increase in the cost of obtaining or maintaining an ATM card.

What customers should expect

Banks and fintechs are expected to display the VAT separately on transaction receipts or account statements, making it easier for customers to understand what portion of the deduction is the original service fee and what portion is tax. The NRS urged customers to note that the VAT deduction should only apply to eligible banking services. Any deduction beyond the approved service fee and its corresponding VAT should be reported to the relevant financial institution or regulatory authority, according to a report by TheCable.

This development follows the Central Bank of Nigeria's recent directive raising the cost of issuing and replacing ATM debit and credit cards to N1,500, a 50 per cent increase from the previous N1,000 fee. The directive applies to banks across the country, including major lenders such as Access Bank and United Bank for Africa, which are expected to implement the revised charges in line with the regulator's new guidelines.

For Nigerian consumers, the combination of higher card issuance fees and the new VAT enforcement means banking costs are rising. While the additional VAT amounts may appear small on individual transactions, they add to the broader cost of living pressures facing households across the country.