How new tax law impacts banks’ operations in Nigeria — Analysis

THE recently introduced tax reform bills spearheaded by the Presidential Fiscal Policy and Tax Reforms Committee, chaired by Mr. Taiwo Oyedele, are reshaping the Nigerian financial landscape—with the banking sector at the heart of the transformation. The reforms, which aimed to broaden the tax net and enhance government revenue, place significant operational and compliance responsibilities on banks, affecting their profitability, customer engagement strategies, and internal structures.

One of the most notable and immediate impacts of the new tax framework is the sharp increase in the levy on banks’ foreign exchange (FX) revaluation gains. Previously taxed at 50 per cent, these windfall profits—typically earned when the naira depreciates against foreign currencies—will now attract a 70 per cent levy.

To further tighten oversight on the foreign exchange market, the reform includes an excise tax on FX transactions carried out outside the official market—commonly executed through informal platforms or hawala networks. While banks may not directly engage in such trades, they are expected to assist in detecting, reporting, and potentially blocking unofficial FX movements. As official players in the FX ecosystem, banks now play a central role in curbing tax evasion and stabilising FX flow transparency.

In line with global best practices on transparency, the reforms mandated banks to disclose account-level information to the newly proposed Nigeria Revenue Service (NRS). This includes data on multiple bank and investment accounts per customer.

In 2025, a one-time voluntary disclosure program will be introduced, allowing individuals to declare assets before enforcement mechanisms are activated. Banks will serve as data pipelines to support this initiative, requiring upgrades in data capture, analytics, and reporting.

The reforms also proposed simplifying Nigeria’s complex withholding tax (WHT) system. For banks, this means reduced ambiguity when applying WHT on interest earnings, interbank transactions, and client investments. Although procedural changes are still expected, the goal is to lower administrative costs and improve ease of doing business across the financial sector.

One of the more structural shifts involves using banks and fintech platforms as “third-party payment processors” to automate tax remittances. Under the Tax Administration Bill, the NRS will be empowered to collect taxes directly through these platforms. While banks will no longer need to collaborate with third-party consultants for revenue collection, they must now invest in more robust IT systems that support real-time tax deduction, payment processing, and government reporting.

Furthermore, Previous reforms under the Finance Acts (2019–2023) already positioned banks as key agents in collecting stamp duties and VAT. Transfers above N10,000 attract stamp duties, while standard financial services such as ATM card issuance, maintenance charges, and electronic banking fees are now VAT-inclusive.

These changes increase the administrative overhead for banks and may lead to higher service charges passed on to customers—potentially impacting banking behavior and customer retention.

The rising tax burden—from the FX levy to revised CIT (Corporate Income Tax) treatment and limitations on foreign loan interest deductions—will erode bank margins. Banks may respond by adjusting FX pricing, tightening credit conditions, or passing costs to customers.

Additionally, changes to tax incentives and pioneer status programs may influence banks’ lending decisions across strategic sectors such as agriculture, manufacturing, and technology. Higher compliance costs could also discourage banks from extending credit to SMEs and startups, who are less equipped to absorb such tax-related pressures.

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With regulators demanding more detailed financial insights, banks must modernize their systems to facilitate digital tax collection and detailed Know Your Customer (KYC) verification. Surveillance will extend to customer behavior, cross-account activity, and unreported income—requiring collaboration between compliance, legal, IT, and operations departments.

As individuals and businesses adapt to the new tax rules, some may seek to bypass formal financial systems. The imposition of taxes on even low-value transactions could discourage the unbanked from adopting digital platforms, complicating Nigeria’s financial inclusion agenda. Banks, therefore, must balance enforcement with education, ensuring customers understand the benefits of staying within the formal economy.

he Oyedele-led tax reforms signal a strategic pivot for Nigeria’s financial system, with banks now serving as critical agents of tax administration, enforcement, and transparency. While this central role supports national development goals, it imposes significant demands in terms of compliance, system upgrades, risk management, and customer communication.

Ultimately, banks that can swiftly adapt—by investing in technology, building strong internal tax advisory teams, and realigning customer services—will not only survive the transition but may emerge stronger in a more transparent and digitized economy.