THE TRUTH ABOUT THE 7.5% VAT ON TRANSFERS: STOP PANICKING

By Adeboye Prince Adetu 

A wave of anxiety has swept across Nigeria following recent announcements and social media posts about a supposed new 7.5% VAT on all bank transfers. Many fear this will erode their hard-earned money and make transactions unbearable. But before you panic or share that alarming post, let’s separate fact from fiction.

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What’s Actually Happening?

First and foremost: This is not a new tax.

The 7.5% Value Added Tax (VAT) has been in effect in Nigeria since February 2020, when it was increased from 5%. This VAT is applied to goods and services categorised as VATable.

The recent confusion stems from a Central Bank of Nigeria (CBN) circular directed at Financial Institutions and Payment Service Providers. The circular reminds these institutions that they are required by the Finance Act 2021 to remit VAT on certain electronic transactions, specifically on commission/fees earned for transfers, NOT on the principal transfer amount itself.

What Does This Mean For You?

1. You are NOT paying 7.5% on every transfer.

      If you send ₦10,000 to a friend, you will not be charged ₦750 as VAT. Your ₦10,000 transfer remains ₦10,000 (minus your bank’s usual transfer fee, if any).

2. The VAT is on the SERVICE CHARGE, not your money.

      Let’s break it down: If a bank charges you ₦100 fee for that ₦10,000 transfer, the 7.5% VAT (₦7.50) is applied to that ₦100 service fee. So, your total debit would be ₦10,107.50. The VAT is on the service, not your principal.

3. It’s a Reminder to Banks, Not a New Law.

      The CBN circular is essentially ensuring that banks and fintech companies are compliant with existing tax laws by correctly charging and remitting VAT on their service fees. It’s about tax compliance in the financial sector.

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Why The Panic?

Misinformation spreads faster than clarity. Headlines screaming “7.5% VAT on Transfers” without crucial context caused unnecessary alarm. Many people skim headlines and assume the worst—that a flat tax is being applied to their capital.

What Should You Do?

· Stay Calm and Informed: Always verify financial news from official sources like the CBN website or reputable news platforms.

· Read Your Receipts: Check your transaction alerts. You’ll see the breakdown: Amount, Transfer Fee, VAT on Fee, Total Debit.

· Ask Your Bank: If unclear, contact your bank’s customer service for a simple explanation of their charges.

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The Bigger Picture

While the immediate panic is misplaced, this issue opens a necessary conversation about:

· Transparency: Banks and fintechs must clearly communicate charges to customers.

· Tax Compliance: Ensuring all sectors pay their fair share is crucial for national development.

· Financial Literacy: As digital transactions grow, understanding the details of charges is part of being a savvy user.

Final Word

Take a deep breath. Your bank transfers are not being slashed by 7.5%. The VAT has always been there on the service fee; the system is just being formalised for better compliance.

The goal is a more transparent and legally compliant financial system, not a stealth attack on your wallet. Share the facts, not the fear.

Stay informed, stay empowered.

Follow IgbeNews for factual, clear, and concise explanations of policies affecting your daily life.

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Adeboye Prince Adetu is a public affairs analyst and writes on socio-economic issues.