Charge of Value-Added Tax (VAT) on Services of Financial Institutions

Charge of Value-Added Tax (VAT) on Services of Financial Institutions


In terms of the Value Added Tax Act, as amended (VATA) a tax is imposed on all goods and services supplied in Nigeria. Goods and services are deemed to have been supplied in Nigeria upon issuance of an invoice or receipt by the supplier or upon receipt of consideration by the supplier or when consideration becomes due from the buyer.[1]

Despite supply within Nigeria, an exemption from VAT is created for goods and services listed in the First Schedule to the VATA.[2] While Section 47(2) of the 2019 Finance Act modified Paragraph 2, Part 2 of the First Schedule to the VATA to exempt “Services rendered by microfinance banks, peoples’ banks and mortgage institutions” from VAT; Section 2(a) of the Value Added Tax (Modification) Order, 2021 modifies the same provision to exempt only “Services rendered by Unit Micro-Finance Banks and Mortgage Institution”. Accordingly, all financial institutions to the exception of UnitMicro-Finance Banks and Mortgage Institutions are the obligated to charge VAT on their services.

Imposition of VAT on Financial Services:

Section 66 of the Banks and Other Financial Institutions Act defines “other financial institutions as “individual, body, association or group of persons, whether corporate or unincorporated, licensed under this Act and any other related Act which carries on the business of a discount house, finance company, money brokerage and those whose principal objects include factoring, project financing, equipment leasing, debt administration, fund management, private ledger services, investment management, local purchases, order financing, export finance, project consultancy, financial consultancy, pension fund management and such other business as the Central Bank of Nigeria, Nigeria Deposit Insurance Corporation, Pension Commission and other regulatory body may, from time to time, designate. As such, ‘financial institutions’ means all the above including banks. Some examples of financial institutions include banks, insurance companies, pension funds administrators, discount houses, and brokerage firms.

According to FIRS circular no.: 2021/04, dated 31st March 2021 and titled Value Added Tax (VAT) on Services of Financial Institutions, “All charges arising from the services of financial institutions will ordinarily attract VAT and they include and not limited to the following:

  1. Commissions charged on forex trading or remittance;
  2. Commissions on sale of Bank drafts/certified cheques;
  3. Commissions paid to brokers, reinsurers, underwriters and other insurance agents by an insurer
  4. Commission on asset trading;
  5. Account Maintenance Fees, ledger fees etc.;
  6. Legal and other fees chargeable on lease arrangements;
  7. Fees charged for advisory services e.g. mergers and acquisition, financial strategy counseling, etc.;
  8. Fees chargeable on public/private issues;
  9. Debt conversion fees;
  10. Fees on asset trading;
  11. Fees earned on fund management;
  12. Fees earned on letters of credit/documentary collection to finance import/export;
  13. Fees chargeable on stock-brokerage and trust services;
  14. Fees charged on electronic banking, POS, and ATM charges.
  15. Fees charged on electronic bill payments.
  16. Mobile money transactions and other like transactions.”

On the contrary, Interest on loans and advances, Interest on savings accounts, interest on bank deposits, interest on interbank placements, premium on insurance policies, dividends, and gain on disposal of securities would not attract VAT because they are more of return on investment rather than on consumption of services provided by the financial institution.


Services supplied by financial institutions are subject to VAT in Nigeria except for Unit Micro-Finance Banks and Mortgage Institutions. In determining exactly what amounts are VATable, a distinction is made between return on investment and the actual amount paid for the supply of financial services. This distinction is important because VAT obligation does not arise on returns on investment since such would be subject to income tax in the hands of the beneficiary. On the other hand, VAT is chargeable on those commissions and fees charged by financial institutions for rendering their services.

Please do not treat the foregoing as tax advice as it is only an expression of our Tax Information Service. All enquiries should please be directed to our TaxThursday Desk at; +234 700 TAXAIDE or any of our following personnel:

     Adeola Adefuye Associate  
           Bidemi Olumide Partner  

[1] See Sections 1&2.

[2] See Section 3, VATA.

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