Electronic Transfer of Taxes and the Cost of Misunderstanding
By Zekeri Idakwo Laruba,
In markets, offices, WhatsApp groups and banking halls across Nigeria, one narrative has travelled faster than the reforms themselves, that the new tax laws introduced a fresh tax on electronic transfers and that government is now dipping directly into citizens’ money each time they send funds.
Just the week of the commencement of the tax laws, I spoke to a POS operator who was checking her account balance every minute, worried she has been taxed. That is what misinformation does.
But a closer look shows that much of the anxiety is rooted not in the law itself, but in widespread misunderstanding of how digital financial taxes actually work. Even worse is the fact that some Nigerians, including wealthy individuals, are not used to paying taxes.
At the heart of the confusion is the belief that 7.5% VAT is charged on the total amount transferred between accounts. In reality, VAT applies to the service fee charged by financial institutions, not the principal money being transferred. Nigeria’s tax authorities have repeatedly clarified that VAT on banking services is not new. It has long applied to fees, commissions and service charges from banks and financial institutions, including transfer and USSD service charges.
This means that when a customer transfers ₦100,000, VAT is not calculated on ₦100,000. Instead, it is applied only to the small service charge, often ₦10 to ₦50, resulting in VAT of just a few naira. The difference is critical: one is a tax on wealth; the other is a tax on a financial service, similar to VAT paid on telecom services or consumer goods.
For many citizens, however, policy communication is being drowned out by viral headlines and simplified social media explanations that blur the line between taxes on income, taxes on assets, and taxes on services. The result is panic that does not match the actual fiscal framework.
This gap between perception and policy was one of the key issues highlighted during industry engagement sessions involving regulators, financial institutions and reform architects. Taiwo Oyedele, Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, has consistently emphasised that the reforms are not designed to introduce new burdens on everyday banking transactions but to modernise administration and improve efficiency. In recent reform discussions, he highlighted that under the new framework, businesses can even benefit through mechanisms such as eligibility to claim input VAT credits on bank-related charges, shifting the system toward fairness and cost recovery rather than additional taxation.
The reform philosophy itself is broader than transaction taxes. It is anchored on formalisation of the economy, tax harmonisation across agencies, and expansion of financial inclusion. By standardising processes, improving tax intelligence, and aligning digital financial systems with tax reporting frameworks, policymakers aim to reduce leakages while also reducing compliance friction for legitimate businesses.
Another area where misunderstanding persists is the relationship between digital payments and government revenue visibility. Many citizens assume that increased digital monitoring automatically means increased taxation. In reality, digitalisation primarily improves traceability and compliance accuracy. In most cases, it does not change tax liability, it only improves enforcement of existing obligations.
Policy stakeholders also note that Nigeria’s historically low tax-to-GDP ratio has forced reforms to focus more on efficiency than on introducing new tax types. The strategy is to widen the net fairly rather than deepen the burden on already compliant taxpayers. This explains why reforms increasingly emphasise taxpayer protections, dispute resolution mechanisms, and oversight institutions such as the Tax Ombud framework.
The emotional dimension of tax communication cannot be ignored either. Taxes touch personal income, business survival and household costs. When reforms are announced in technical language, citizens often fill the information gap with speculation. In a digital era where screenshots travel faster than official circulars, public education has become as important as legislation itself.
Ultimately, the debate around electronic transfer taxation reveals something deeper about public trust and financial literacy. The real challenge is not only writing good tax laws, but ensuring citizens understand them. Where understanding is low, misinformation thrives. Where clarity exists, compliance tends to improve naturally.
The bottom line is simple: electronic transfers themselves are not being taxed as income or savings. What exists is VAT on financial service fees, something that has long been part of Nigeria’s VAT framework. The reforms mainly seek to standardise application, close loopholes, and make the system more transparent.
As Nigeria continues its transition into a digital-first financial ecosystem, the success of tax reform will depend less on legislation alone and more on communication, education and public trust. In tax policy, clarity is not just good governance, it is economic stability.