….Why was Withholding Tax deducted from savings interest
The Federal Government is poised to generate an estimated N160.92 billion in annual revenue from Withholding Tax (WHT) as the nation’s leading financial institutions manage a staggering N32.19 trillion in collective savings deposits.
BusinessDay’s analysis of projected revenue is based on figures from the 9-month financial report for the period ending September 30. The estimate assumes an average interest yield of 5 percent across the various savings products of the 11 banks, with the statutory 10 percent Withholding Tax (WHT) applied to the resulting interest income generated by the N32.19 trillion total deposit base.
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The analysis is based on 11 of Nigeria’s most prominent financial institutions, which include Zenith Bank PLC, Access Holdings PLC, United Bank for Africa (UBA) PLC, FBN Holdings PLC (First Bank), and Guaranty Trust Holding Company (GTCO) PLC.
The list also features major Tier-2 and national players, including Ecobank Transnational Inc (ETI), Fidelity Bank PLC, FCMB Group PLC, Stanbic IBTC Holdings PLC, Sterling Financial Holdings Company PLC, and Wema Bank PLC.
Collectively, these institutions represent the vast majority of the Nigerian banking sector’s deposit base,
With Zenith Bank leading the pack with N7.34 trillion in deposits, the 10% statutory deduction on interest earned, now treated as a final tax for individual savers under current tax laws, represents a significant pillar in the government’s drive to broaden the tax net amidst tightening fiscal conditions.
There are over 320 million active bank accounts in Nigeria (according to NIBSS 2025 data), and there are only about 67.8 million unique BVN-linked individuals.
While Nigerian banks report the total number of customers or total active accounts, they rarely break down the exact number of “Savings Accounts” specifically in their 9-month financial summaries.
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However, given that roughly 80 percent to 90 percent of retail banking accounts in Nigeria are structured as savings accounts, this puts it at over 200 million estimated savings accounts across these 11 banks, the N161 billion Withholding Tax isn’t coming from a few wealthy people. It is a “micro-tax” being collected from millions of ordinary Nigerians.
However, the actualised revenue for the Nigeria Revenue Service (NRS) may fluctuate based on shifting Monetary Policy Rates and the effective interest paid by banks.
Also, actual interest expenses can be suppressed by the three-withdrawal rule, which disqualifies active savers from earning interest for the month.
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For instance, an analysis of Zenith Bank’s recent N296 billion interest expense suggests an effective payout rate of 4.03 percent, slightly lower than the industry average.
Fintechs are not left out of the rule; WHT also applies to interest on savings on fintech platforms.
Nigerians were met with a sting in their January statements as financial firms enforce the 10 percent Withholding Tax (WHT) deduction on savings interest.
The move, which stems from a Federal Government directive to broaden the tax net, has sparked a wave of double taxation concerns among savers already grappling with inflationary pressures and diminished purchasing power.
“They now remove withholding tax from interest on savings? How does this make sense? If salary has been taxed already, why still tax what I’m saving?” an X user, @hairplug, wrote.
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Another user, Adeniyi Joseph, complained: “PiggyVest just removed N28,700 from my account as tax. Why do I have to pay tax on return on investment?”
On October 29, the Nigeria Revenue Service (NRS), formerly Federal Inland Revenue Service (FIRS), directed banks to deduct withholding tax from all interest payments on short-term investment securities.
The agency said the tax must be deducted from interests payable to any person, including non-corporate entities, on the date of payment.
On December 30, Bola Tinubu, Nigeria’s president, said implementation of the tax reform laws will commence as scheduled on January 1, 2026.
The tax is hitting the digital savings generation much harder because they actually see significant interest (10-12 percent) accrued, which might drive people away from formal savings apps and back into keeping cash or saving in dollars.
What is withholding tax
According to Forvis Mazars, the Withholding Tax (WHT) is not another form of tax, but rather an advance payment of income tax on specific transactions.
Generally, when such transactions are executed, the person or company making payment is required by law to deduct WHT at the specified rate depending on the type of transaction and the party involved.
The tax withheld is then remitted to the relevant tax authority. The objective of withholding tax is basically to minimise tax evasion, ensure that more taxpayers are captured in the tax net, and provide revenue to the government to meet its budget.
Under Nigerian tax law, the obligation to deduct withholding tax lies with the payer, not the recipient. When interest, rent, dividends, or certain service fees are paid, the paying institution is required to deduct a prescribed percentage and remit it to the tax authority.
“Withholding tax is called an advance tax because it is deducted before the recipient (in this case the fintech) files their normal tax returns, not because it is refundable or paid back to individuals.” Marvis Oduogu, tax partner Stren&Blan said.
Why is the interest on savings treated differently?
A key source of confusion is the belief that interest earned on savings should not be taxed because the original funds came from already-taxed salary or income.
However, tax experts explain that interest income is treated as a separate stream of income, different from employment earnings.
“For individuals, withholding tax on savings interest is treated as franked investment income, meaning the tax withheld is the final tax on that income and cannot be claimed as a future deduction,” Peter Nwofia, tax partner at Forvis Mazars, said.
“You cannot use withholding tax on interest income to offset PAYE because it is a tax on a different category of income, not a tax on salary,” Nwofia said.
Is WTH double taxation on your salary?
According to experts, the WHT charged on interest gained on savings is not double taxation.
Double taxation occurs when the same income is taxed twice by the same tax authority. In this case, what is being taxed are two different income streams.
While salaries are taxed under Pay-As-You-Earn (PAYE), interest earned from saving or investing that salary is treated as a separate source of income.
“Tax authorities treat interest earned on savings as a separate income stream, even if the original funds came from salary, which is why the withholding tax becomes final and is not considered as double taxation,” Nwofia said.
“Many financial institutions advertise headline interest rates without clearly disclosing the effect of withholding tax, which is often only explained in the underlying agreement.” Mavis Oduogu
