Nigerians were met with a sting in their January statements as financial firms commenced 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.
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.
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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 saving 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.
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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.” Oduogu said.
