Many Nigerians opened their January bank and fintech statements with surprise—and frustration—as a 10 per cent withholding tax (WHT) was deducted from interest earned on savings and short-term investments.
For millions of savers already under pressure from rising inflation, fuel price adjustments, and higher living costs, the deductions felt like a fresh blow.
On social media, complaints quickly mounted, with users questioning why income that had already been taxed through salaries should again be taxed when saved or invested.
Yet tax experts insist the deductions are lawful and form part of the Federal Government’s broader push to widen Nigeria’s tax base and improve revenue collection.
Withholding tax on savings interest: why deductions suddenly began
The renewed enforcement of withholding tax on savings interest follows a directive issued by the Nigeria Revenue Service (NRS)—formerly the Federal Inland Revenue Service (FIRS)—on October 29, 2025.
The directive instructed banks, fintech platforms, and other financial institutions to deduct withholding tax from all interest payments on savings, fixed deposits, and short-term investment instruments at the point of payment.
President Bola Tinubu later confirmed that the implementation of newly signed tax reform laws would commence nationwide from January 1, 2026, effectively activating the policy across the financial system.
Under the directive, financial institutions are legally required to deduct the tax before crediting interest to customers’ accounts and remit it directly to the government.
This explains why many Nigerians only became aware of the tax in January, when accumulated interest from December and early January was credited—minus the 10 per cent deduction.
Why the policy is hitting digital savers harder
While the withholding tax applies across the board, its impact has been most visible among users of digital savings and investment platforms, which typically offer higher interest rates than traditional bank savings accounts.
Many fintech apps advertise annual interest rates of 10 to 12 per cent, meaning deductions are more noticeable in naira terms.
For some users, the experience has triggered concerns about returning to informal saving methods or switching to foreign currency holdings.
Financial analysts warn that if not properly communicated, the policy could unintentionally discourage formal savings, especially among young Nigerians who rely heavily on digital platforms for wealth management.
What withholding tax really means under Nigerian law
Contrary to popular belief, withholding tax is not an additional or new tax.
According to tax advisory firm Forvis Mazars, withholding tax is an advance payment of income tax applied to specific categories of income, including interest, dividends, rent, and certain service fees.
In practice, the responsibility to deduct the tax lies with the payer, not the recipient. This means banks and fintech companies are legally obligated to deduct the tax before paying interest to customers.
Once deducted, the tax is remitted to the relevant tax authority as part of the recipient’s tax obligation.
However, in the case of interest earned by individuals, withholding tax often becomes final tax, meaning it cannot be reclaimed or offset against other taxes.
Is withholding tax on savings interest double taxation?
One of the most common complaints from savers is that the policy amounts to double taxation, especially for salaried workers whose income has already been taxed under the Pay-As-You-Earn (PAYE) system.
Tax professionals disagree.
According to Peter Nwofia, a tax partner at Forvis Mazars, interest income is treated as a separate stream of income under Nigerian tax law.
“Salaries are taxed as employment income, while interest earned on savings or investments is classified as investment income,” Nwofia explained.
Because they fall under different tax categories, taxing both does not meet the legal definition of double taxation, which occurs only when the same income is taxed twice by the same authority.
For individuals, interest income is regarded as franked investment income, meaning the withholding tax deducted at source represents the final tax liability on that income.
Why you can’t offset it against PAYE
Another source of confusion is whether withholding tax on savings interest can be used to reduce PAYE or claimed as a refund.
According to Marvis Oduogu, a tax partner at Stren & Blan, this is not possible.
“Withholding tax is called an advance tax because it is deducted before tax returns are filed, not because it is refundable to individuals,” Oduogu said.
Since PAYE and investment income tax apply to different income streams, one cannot be used to offset the other.
This legal distinction explains why the deduction feels punitive to individuals, even though it complies with existing tax laws.
Transparency gaps fuel public anger
Experts argue that part of the backlash stems from poor disclosure by financial institutions.
Many banks and fintech companies advertise headline interest rates without clearly explaining that returns are subject to withholding tax.
As a result, customers often calculate expected returns based on gross interest figures, only to receive lower net amounts after deductions.
Analysts say clearer communication—especially in app interfaces and product terms—could reduce public frustration and rebuild trust.
Government’s broader tax strategy
The renewed enforcement of withholding tax on savings interest aligns with the Federal Government’s strategy to expand the tax net, reduce revenue leakages, and improve fiscal sustainability amid declining oil revenues.
With Nigeria’s tax-to-GDP ratio among the lowest globally, authorities are increasingly focusing on non-oil revenue sources, including personal income and investment income.
While the policy is legally sound, economists caution that authorities must balance revenue generation with incentives that encourage savings, investment, and financial inclusion.
What savers should do going forward
Financial advisers recommend that Nigerians focus on net returns, not advertised interest rates, when choosing savings and investment products.
Understanding how withholding tax affects actual earnings can help savers make more informed decisions and avoid surprises.
As tax reforms continue to reshape Nigeria’s financial landscape, awareness—not avoidance—remains the most effective response.
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