Nigerian Banks’ 10% Withholding Tax on Savings Interest: Outrage, Analysis & Advice

Introduction: A Tax Implementation Sparks National Debate

In early February 2026, Nigeria experienced a wave of public frustration directed at its banking and fintech sector. The catalyst was the visible deduction of a 10% Withholding Tax (WHT) on interest earned from savings accounts and short-term investments. For many Nigerians, the appearance of this deduction on their statements came as a surprise, triggering immediate and vocal backlash on social media platforms, particularly X (formerly Twitter). The controversy quickly escalated beyond a simple banking fee, morphing into a broader discussion about tax policy, economic hardship, financial inclusion, and government communication. This article provides a comprehensive, SEO-optimized, and pedagogical breakdown of the issue. We will clarify the legal standing of the tax, analyze the economic and social implications of its enforcement, detail the reactions from key authorities and experts, and offer practical guidance for affected savers and investors.

Key Points: Quick Takeaways on the Withholding Tax Controversy

• The Tax is Not New: The 10% WHT on interest income is established under Nigerian law, notably the Finance Act 2022 and the Companies Income Tax Act (CITA). It is not a creation of the recent 2025/2026 tax reforms.
• Enforcement Intensified: The Nigeria Inland Revenue Service (NIRS, formerly FIRS) issued a directive in October 2025 to banks and fintechs to begin strict compliance and remittance of this WHT on previously exempted “savings interest,” effective from the 2026 financial year.
• Public Outcry is Multi-Faceted: Anger stems from perceptions of insensitivity during an economic crisis (high inflation, low real returns), confusion with new tax laws, and a lack of proactive public education by authorities.
• Economic Concern: Experts warn that taxing minimal or negative real interest returns could discourage formal savings, push people towards cash hoarding, and undermine financial inclusion goals.
• Policy Gaps Identified: The current structure lacks progressive elements like exemption thresholds for small savers or differentiated rates for high-net-worth individuals, making it feel like a flat, regressive burden.
• Communication Failure: A significant gap exists between tax authority pronouncements, state government actions, and public understanding, creating confusion and mistrust in Nigeria’s evolving tax regime.

Background: The Legal Foundation and Recent Directive

Historical Context of Interest Taxation in Nigeria

To understand the current uproar, one must first separate law from enforcement practice. For years, interest income from bank deposits and certain fixed-income investments was technically taxable under Nigerian law. However, to encourage a savings culture and formal financial participation, a practical exemption existed. The Finance Act 2022 amended the Companies Income Tax Act and formally introduced a 10% WHT on interest income, but with specific exemptions for interest earned on deposits in licensed banks, savings, and certain government securities. This created a de facto exemption for the average citizen’s savings account interest.

The Pivotal October 2025 NIRS Directive

The landscape shifted in October 2025. The then Federal Inland Revenue Service (now Nigeria Inland Revenue Service – NIRS), seeking to boost revenue and ensure full compliance with existing tax laws, issued a circular to all deposit money banks and financial institutions. This directive instructed them to commence the deduction and remittance of the 10% WHT on interest earned from savings and temporary investments, effectively removing the long-standing administrative exemption. The implementation date was set for the commencement of the 2026 financial year (January 1, 2026). This move was part of a broader, government-wide push for enhanced tax compliance under the administration’s fiscal policy reforms, but it was a separate action from the new Tax Reforms Bill or other legislative changes often discussed.

Analysis: Dissecting the Outrage and Expert Opinions

The public reaction is not merely about a 10% deduction; it is a symptom of deeper economic and governance issues. We analyze the core dimensions of the controversy.

The Presidency and Tax Committee’s Stance: Clarifying the Law

Reacting to the public attributing the tax to the “new tax laws,” Taiwo Oyedele, Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, was unequivocal. In interviews with DAILY POST, he stated: “Withholding tax on interest has always been in the law. Why is it being attributed to the new law?” His statement is legally accurate. The committee’s role is to design reforms, not to issue operational directives like the NIRS circular. This distinction is crucial but was lost in public discourse, leading to the erroneous linking of the WHT to the controversial new tax bill, which fueled additional opposition to that broader legislation.

The Economic Insensitivity Argument: Taxing “Nominal Gains”

Professor Godwin Oyedokun of Lead City University provides the most damning economic critique. He acknowledges the tax’s legality but argues its timing and design are profoundly insensitive. His analysis highlights several critical points:

• Erosion of Real Returns: Nigeria’s savings interest rates are notoriously low, often single-digit, while inflation has been persistently double-digit (hovering around 30% in recent years). This means savers are already experiencing a significant negative real interest rate—their money loses purchasing power in the bank. Deducting 10% from an already negligible or negative real return feels like a punishment for prudence.
• Counterproductive to Financial Inclusion: Government policies actively promote moving money from under mattresses into formal banking and fintech platforms (like Paga, OPay, Moniepoint). Taxing the meager interest on these accounts disincentivizes this behavior, potentially reversing gains in financial inclusion. Small-scale savers, a key target for fintechs, may withdraw funds or avoid formal systems altogether.
• Absence of Progressive Design: A well-designed tax system includes thresholds and gradations. There is no exemption for interest income below a certain level (e.g., ₦50,000 annually). This means the tax hits the small saver with ₦10,000 in interest just as hard as the large corporate investor earning millions. This lack of nuance is perceived as fundamentally unfair.

The Communication and Education Vacuum

Dr. Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise (CPPE), pinpoints the root of much confusion: inadequate public education and coordination among government arms. He notes a paradox: increased compliance with existing laws (like this WHT) is being misinterpreted as the introduction of a new, burdensome tax. He states: “The greater level of compliance, I believe, may be creating a level of concern… there are still instances where the tax authority will say one thing, but a different thing will be done. The state governments are saying one thing, and the committee is saying a different thing. There is a bit of contradiction in some of the pronouncements.” This inconsistency erodes trust. The government failed to launch a coordinated public awareness campaign before the NIRS directive took effect, leaving citizens to discover the change via deductions on their bank statements—a worst-case scenario for policy acceptance.

Legal and Operational Nuances

It is critical to understand that Withholding Tax is not a final tax; it is an advance payment. The bank deducts 10% and remits it to the relevant tax authority (primarily state governments, as per the Tax Reform Bill’s proposed revenue sharing). When the saver files their annual income tax return, they must declare the gross interest income. The WHT already paid is then credited against their total tax liability. If their total tax bill is less than the WHT withheld (common for low-income earners), they may be due a refund. However, the process for claiming such refunds is notoriously complex and bureaucratically challenging in Nigeria, meaning for most ordinary citizens, the WHT functions as a de facto final tax with no practical recourse.

Practical Advice for Savers and Investors

Given the legal requirement, what can individuals do? While systemic change requires advocacy, here is actionable advice.

1. Understand Your Obligations and Entitlements

Recognize that this is a legal deduction. When you earn interest from a bank, fintech, or fixed deposit, 10% will be withheld at source. Keep records of your annual interest statements from all financial institutions. You will need the gross amount (before WHT) for your annual income tax return filing.

2. Explore Exemptions and Thresholds (Currently Limited)

As of now, there is no statutory exemption threshold for small savers under the primary law. However, always verify with your specific financial institution if they have any internal policies or if there are specific government securities (like certain FGN bonds) whose interest remains fully exempt. The absence of a threshold is the primary advocacy point.

3. Factor WHT into Investment Decisions

When comparing investment products (e.g., Treasury Bills, corporate bonds, fixed deposits), calculate the after-tax return. A “15% per annum” fixed deposit yields only 13.5% after WHT. For high-net-worth individuals in higher tax brackets, this may be less impactful. For small savers, it further diminishes already low yields, making alternative assets (with their own risks) or even consumption seem more attractive in the short term.

4. Engage in Constructive Advocacy

Channel frustration into organized, evidence-based advocacy. Civil society organizations, professional bodies (like ICAN, ANAN), and banking customer unions can lobby for:

• The introduction of an annual interest income exemption threshold (e.g., first ₦100,000 exempt).
• Public education campaigns by NIRS and the Federal Ministry of Finance.
• Streamlining of tax refund processes for individuals.
• Harmonization of pronouncements between federal and state tax authorities.

FAQ: Addressing Common Questions

Q1: Is this a new tax introduced by the 2025/2026 Tax Reforms?

A: No. The 10% WHT on interest is established law under the Finance Act 2022 and CITA. The recent controversy is due to the NIRS’s October 2025 directive to enforce collection on savings interest that had a prior administrative exemption. The new tax reform bill contains separate provisions.

Q2: Does this apply to all my bank accounts and fintech apps?

A: Yes. The directive applies to all licensed deposit-taking institutions, including traditional banks and fintech platforms (like OPay, Moniepoint, PalmPay) that offer savings or investment products yielding interest. They are all obligated to deduct and remit the WHT.

Q3: Will I get this money back when I file my taxes?

A: Technically, yes. WHT is an advance tax payment. When you file your annual income tax return (Personal Income Tax Return for individuals), you declare your total interest income. The 10% withheld is a credit against your total tax liability. If your total tax for the year is less than the WHT paid, you are due a refund. However, the refund process in Nigeria is often slow, cumbersome, and requires active follow-up. For most low-income earners, the administrative burden means the WHT is effectively a final charge.

Q4: What about interest from Treasury Bills and Bonds?

A: The treatment varies. Interest from Federal Government of Nigeria (FGN) Treasury Bills and Bonds is exempt from WHT under specific provisions to encourage investment in government securities. However, interest from state government bonds or corporate bonds is generally subject to the 10% WHT. Always confirm the specific instrument’s tax status before investing.

Q5: Who ultimately receives this tax money?

A: Under the current tax sharing formula, WHT on interest is primarily remitted to the state government where the taxpayer is resident. This is a key reason for state governments’ interest in aggressive collection. The federal government also receives a smaller share. This revenue allocation structure is part of the ongoing national conversation on fiscal federalism.

Conclusion: Balancing Revenue Needs with Economic Reality

The 10% withholding tax on savings interest is a classic case of a technically sound law clashing violently with economic reality and public sentiment. From a pure revenue administration perspective, the NIRS is correct to enforce an existing statute and close a long-standing leakage. The legal basis is clear. However, the policy’s implementation has been a masterclass in misjudgment. It fails to account for the crippling effect of inflation on savings, lacks basic progressive features like a de minimis threshold, and was rolled out without the sustained, clear public education necessary for a population already distrustful of government fiscal moves.

The outrage is not primarily about a new tax, but about the feeling of being taxed on a loss—a feeling amplified by poor communication and a history of contradictory government signals. Professor Oyedokun’s warning is prescient: this policy risks driving the very savers the financial system needs back into the informal, cash-based economy, ultimately harming national savings rates, financial stability, and long-term growth.

For Nigeria, the path forward requires a dual approach. First, immediate and pragmatic steps: the government, through NIRS and the Finance Ministry, must launch a transparent public enlightenment campaign explaining the law, the process,