Loan: A Good or Service and Application of VAT


Section 2 of the Value Added Tax(VAT) Act, Cap. V1, LFN 2004 (as amended) imposes tax on the supply of all goods and services in Nigeria other than those goods and services listed in the First Schedule to the Act. Part 2 of the

First Schedule to the Act exempts services rendered by microfinance banks, peoples’ banks and mortgage institutions from VAT. Accordingly, all other financial institutions are required to charge VAT on their services.

The Finance Act,2019 amended Section 46 of the VAT Act which defines goods and services as follows;

Goods; all forms of tangible properties, movable or immovable, but does not include land and building, money or securities.


a) anything, other than goods, or services provided under a contract of employment; and

b) includes any intangible or incorporeal (product, asset or property) over which a person has ownership or rights, or from which he derives benefits, and which can be transferred from one person to another, excluding interest in land and building, money or security.

A loan is when you receive money from a friend, bank or financial institution in exchange for future repayment of the principal, plus interest. The principal is the amount you borrowed, and the interest is the amount charged for receiving the loan.


In arriving at what constitutes vatable financial services, a distinction should

be made between activities that constitute return on investment and consumption of services rendered by financial institutions. All charges arising from the services of financial institutions will ordinarily attract VAT and they include and not limited to the following:

a. Commissions charged on forex trading or remittance;

b. Commissions on sale of Bank drafts/certified cheques;

c. Commissions paid to brokers, reinsurers, underwriters and other insurance

agents by an insurer

d. Commission on asset trading;

e. Account Maintenance Fees, ledger fees etc.;

f. Legal and other fees chargeable on lease arrangements;

g. Fees charged for advisory services e.g. mergers and acquisition,

financial strategy counseling etc.;

h. Fees chargeable on public/private issues;

i. Debt conversion fees;

j. Fees on asset trading;

k. Fees earned on fund management;

l. Fees earned on letters of credit/documentary collection to finance


m. Fees chargeable on stock-brokerage and trust services;

n. Fees charged on electronic banking, POS and ATM charges.

o. Fees charged on electronic bill payments.

p. Mobile money transactions and other like transactions.


A simple criterion for determining whether an activity is vatable or not is the

identification of those that result to return on investment or consideration

for risk, etc. as distinct from those that constitute supply of services. The

income of Financial Institutions that will not attract VAT include:

a. Interest on loans and advances, including overdraft facilities;

b. Interest on savings accounts;

c. Interest on bank deposits;

d. Interest on interbank placements;

e. Premium on insurance policies

f. Dividends; and

g. Profit or Gain on disposal of securities.


Loan is neither a good nor service.Financial institutions charge commissions, fees, or other charges for services rendered to their customers which are liable to VAT.

The provision of loans and advances does not, in itself, constitute a transaction liable to VAT. The interest chargeable on the loans and advances is not liable to VAT. However, ancillary services such as documentation and perfection of loan or overdraft agreements are subject to VAT.

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Olatunji is the founder Taxmobile.Online and Managing Partner/CEO of AOA Professional Services. Prior to this, Olatunji worked as Director, Tax & Regulatory Services at Nolands Nigeria Professional Services, Senior Manager -Tax, Regulatory & Advisory Services at Saffron Professional Services.


The information contained herein is general and is not intended, and should not be taken, as legal, accounting or tax advice provided by Taxmobile.Online Inc to the reader. This information remains strictly the opinion of Taxmobile.Online Inc.

The reader also is cautioned that this material may not apply to, or suitable for, the reader’s specific circumstances or needs, and may require consideration of other tax factors if any action is to be contemplated. The reader should contact his or her Tax Advisers before taking any action based on this information.

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