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Value Added Tax (VAT) is an indirect tax payable by a consumer on the purchase and consumption of goods and services in Nigeria in compliance with Section 4 of the Value Added Tax Act (as amended).  The rate of VAT on the value of all taxable goods and services is currently 7.5%. VAT is administered in Nigeria by the Federal Inland Revenue Service (FIRS), although there is an ongoing debate that it should be administered at the State level.

In 2021, the Federal Inland Revenue Service (“FIRS”) published an Information Circular to provide clarifications on the chargeability of Value Added Tax (VAT) on services rendered by Financial Institutions.

Section 2 of the VAT Act (“the Act”) imposes tax to be charged and payable on the supply of all goods and services in Nigeria other than those listed in the First Schedule to the Act.  Part 2 of the First Schedule to the Act exempts services rendered by Microfinance Banks, Peoples’ Banks and Mortgage Institutions from VAT. This Circular clarifies that all other Financial Institutions are required to charge VAT on their services.


The Circular defines Financial Institutions to include Banks, Insurance Companies, Discount houses, Pension Fund Administrators, Brokerage Firms, Mutual and Hedge Funds and other Investment Companies. All commission, fees and other charges for services rendered by these Financial Institutions are liable to VAT. Ancillary services such as documentation and perfection of loan or overdraft agreements are also subject to VAT but the interest chargeable on loans and advances provided by Banks are not liable to VAT.

The Circular also states that fees or commissions earned by Insurance Firms’ Brokers, Agents, Surveyors, Loss Adjusters and other providers of services rendered to Insurance Companies, are liable to VAT. The burden of VAT in this instance is to be borne by the insurance companies. The premiums received on policies, on the other hand, are not subject to VAT.


The Circular explicitly distinguishes between activities that constitute Return on Investment and Consumption of Services rendered by Financial Institutions in stating what constitutes a Vatable service. Thus, below are some of the services rendered by Financial Institutions that are subject to VAT:

  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 counselling 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.

Though services rendered by Banks and other Financial Institutions are numerous, not all charges are liable to be paid by Customers save those approved by the Central Bank of Nigeria.


According to the Circular not all income from services that result in a Return on Investment rendered by the Financial Institutions are liable to VAT. The following incomes are not liable to VAT:

  1. Interest on loans and advances, including overdraft facilities;
  2. Interest on savings accounts;
  3. Interest on bank deposits;
  4. Interest on interbank placements;
  5. Premium on insurance policies;
  6. Dividends; and
  7. Profit or Gain on disposal of securities.



As Financial Institutions are taxable persons, the FIRS Circular, reiterates the obligation to register for tax, obtain Tax Identification Number (TIN) and file returns within 21 days of the next month after a Vatable transaction. Furthermore, the Circular provides for the compliance of Section 17 of the Act in relations to all Input tax. According to the circular;

  • All input VAT payable in respect of assets purchased for use by the Financial Institutions should be added to the cost of the assets on which capital allowances may be claimed.
  • All VAT payable in respect of services consumed by Financial Institutions should be regarded as part of operational expenses chargeable to statement of profit or Loss Account. Thus, input VAT on such items should not be claimed or deducted from output VAT collected.
  • Where Financial Institutions suffer input tax on goods supplied to customers, such input tax shall be allowed against the output tax on those goods.

The Circular also states that the primary obligation to charge and remit the VAT on services falls on the person providing the service. However, this obligation may shift in certain instances as stated below:

  1. In case of Agency or Broker arrangements where they act as intermediaries between the service providers and the customers, the obligation to charge and remit VAT shall be that of the Agent or Broker;
  2. Where the Agent or Broker cannot charge VAT due to being either individuals (including staff of the Financial Institution) or being a person below the VAT threshold, the financial institution has the obligation to self-account and remit same to the Service;
  3. Where the agent or broker fails to charge VAT it shall be the obligation of the financial institution to self-account and remit the VAT to the Service;
  4. Where the broker or agent fails to charge and collect, or charges and collects but fails to remit the tax, the penalties prescribed in the relevant tax laws shall apply.



The issuance of this Circular brings into limelight the different categories and services rendered by other Financial Institutions that are subject to VAT as well as those exempted from VAT such as Microfinance Banks, Peoples’ Banks and Mortgage Institutions etc. It is important to mention that FIRS may withdraw, replace, amend or update the provisions of the Circular.

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