VAT COMPLIANCE BY FINTECH COMPANIES IN NIGERIA (POST-2025 TAX REFORM) CHALLENGES AND ENFORCEMENT

ABSTRACT

The rapid expansion of Financial Technology (FinTech) in Nigeria has transformed the delivery of financial services, introducing new digital products, payment systems, and cross-border transaction models. However, this growth has created significant regulatory and tax administration challenges, particularly regarding, Value Added Tax (VAT) compliance. The enactment of the Nigeria Tax Act 2025 (NTA 2025) introduces a modernized fiscal framework that broadens the scope of taxable supplies, strengthens digital tax administration, and expressly brings digital and technology-enabled services within the VAT net. This article examines VAT obligations applicable to FinTech businesses under the 2025 reform, analyzes the associated compliance challenges, and evaluates enforcement strategies adopted by the Nigeria Revenue Service (NRS). It concludes by recommending clearer regulatory guidance, phased compliance measures, and collaborative engagement between regulators and industry stakeholders to ensure effective VAT administration without stifling innovation.

Keywords: FinTech, VAT, NTA 2025

1. INTRODUCTION

Financial Technology (FinTech) has become one of the most dynamic sectors in Nigeria, driven by increasing mobile penetration, high demand for financial inclusion, and the rise of digital financial services. These innovations have created new business models – such as mobile payments, digital lending, online investment platforms, and virtual asset services – that operate beyond traditional banking structures. 

Despite these benefits, FinTech activities pose complex tax questions, particularly regarding the applicability of Value Added Tax (VAT), which is a consumption tax levied on goods and services at each stage of the supply chain, from production to the point of sale. Until recently, Nigeria’s VAT framework struggled to adequately capture digital transactions due to outdated provisions, jurisdictional ambiguities, and limited enforcement capabilities. 

On 26 June 2025, President Bola Ahmed Tinubu signed the Nigeria Tax Act 2025 (NTA 2025) along with three related bills: The Nigeria Revenue Service (Establishment) Bill, the Nigeria Tax Administration Bill and the Joint Revenue Board (Establishment) Bill, collectively known as the Tax Reform Bills. These laws should take effect from 1 January 2026. The NTA 2025 defines VAT as “a tax chargeable on the supply of all goods and services except those expressly exempted”The Nigeria Tax Act 2025 (NTA 2025) modernizes the VAT regime by broadening the definition of taxable supplies, establishing and strengthening the administrative powers of the, and enhancing digital tax administration mechanisms. This provides much more clarity about how VAT applies to newer sectors, especially digital services, foreign providers and ambiguous categories of goods. These reforms align with the global shifts toward taxing digital service providers and reflect Nigeria’s need to improve revenue generation in a rapidly digitalizing economy. However, FinTech companies still face substantial barriers in meeting VAT obligations, ranging from regulatory ambiguity to technological and administrative burdens. The pace of innovation within the FinTech ecosystem also outstrips the development of clear regulatory guidance, thereby complicating compliance. 

1. OVERVIEW OF THE 2025 VAT REFORMS AND THEIR IMPLICATIONS

The 2025 tax reform represents Nigeria’s most extensive fiscal restructuring in over two decades. Value Added Tax is imposed in accordance with the provisions of Chapter six of the NTA 2025, FinTech VAT compliance include:

1. Retention of VAT at 7.5%: The standard VAT rate in Nigeria remains 7.5%, unchanged since the increase from 5% in 2020.The House of Representatives rejected proposals to raise the VAT rate to 15% by 2030, opting to retain the existing 7.5% VAT rate under the new regime. This ensures rate stability but broadens the taxable base to increase revenue.
2. Broadening of Taxable Supplies. NTA 2025 expands VAT to cover all goods and services connected to Nigeria, explicitly including digital  and technology-enabled services. This means FinTech activities, whether delivered domestically or by foreign providers to Nigerian consumers, now clearly fall within VAT coverage.
3.  Input VAT Recovery: Nigeria now adopts globally recognized VAT principles that allow for the claim of input VAT on all purchases including services and fixed assets. Businesses providing services which were previously unable to claim input VAT can now do so, provided that the input VAT is directly related to their supplies that are also subject to VAT. FinTech businesses may now recover input VAT on services and capital expenditure (CAPEX).  This reduces the cost burden, particularly for firms that rely on heavy technology.
4. Introductions of Digital Filing, E-Invoicing, and Mandatory Tax Invoices (VAT fiscalization): Nigeria has now codified VAT fiscalization rules and mandatory e-invoicing for businesses operating in the country. This sets Nigeria apart as an early adopter of e-invoicing in Africa. This is particularly significant for FinTechs, whose operations rely heavily on automation and high volume transactions.
5. Strengthened Enforcement Powers of the Nigeria Revenue Service (NRS): The NRS which replaces the Federal Inland Revenue Service (FIRS), possesses enhance investigative and administrative capabilities under Nigeria Revenue Service (Establishment) Act 2025, enabling better monitoring of digital platforms and cross-border FinTech operators.

3.0 VAT OBLIGATIONS OF FINTECH COMPANIES

FinTech businesses generally fall into one or more of the following categories, each attracting distinct VAT obligations:

1. Payment Service Providers (PSPs): Payment Service Providers are businesses that participate in an electronic payment system by facilitating payments for goods services between customers and merchants. Mobile-money operators, payment gateways, and wallet providers may be liable to charge VAT on service fees, merchant-service charges, and transaction-processing fees. Examples of Payment Service providers in Nigeria include: Flutterwave, Paystack, Opay, Palmpay, Moniepoint, MoMo PSB, SmartCash, 9PSB etc.
2. Digital Lending Platforms:  A digital lending platform is an automated system that uses technology to provide loans online, from application and credit assessment to disbursement and customer service. FinTech lenders may incur VAT obligations on platform service fees, processing fees, or other non-interest components of lending. Examples of Digital Lending Platforms in Nigeria include: FairMoney, Okash, Carbon, Branch, QuickCheck, PalmCredit, Renmoney. etc.
3. Virtual Asset and Cryptocurrency Platforms: A Virtual Asset Service Provider (VASP) is a business that facilitates the exchange, transfer, safekeeping, or issuance of virtual assets – such as cryptocurrencies or tokens – on behalf of others.Although still evolving, Virtual Asset Service Providers (VASPs) that offer exchange or custodial services to Nigerian users may be liable for VAT under the NTA 2025. An example of Virtual Asset and Cryptocurrency Platform is Quidax.
4. Online Investment Platforms: An investment platform can be seen as a hub or shopping mall where retail investors are given access to a variety of asset managers and their funds, effectively functioning as a one-stop shop for their investment needs. They generally attract VAT not on the investment returns themselves but on the fees and commissions they charge for providing those services. Examples of Online Investment Platforms in Nigeria include: Kuda, Cowrywise, PiggyVest, Trove, etc. 
5. Foreign Fintech Platforms Serving Nigerian Users: Foreign Fintech platforms, which falls under non-resident companies, offering services to Nigerian customers may be required to register for VAT or appoint a Nigerian VAT representative. The NTA 205 mandates that any non-resident company making a taxable supply of goods or services to Nigeria must register for VAT with the commission if their supplies exceed the specified monetary threshold. This is based on the principle of Significani Economic Presence (SEP). Once a non-resident FinTech meets the criteria, it is deemed to have a taxable presence in Nigeria. Examples of Foreign Fintech Platforms serving Nigerians are: Binance, KuCoin, Luno, Bybit, etc. 

1.  KEY CHALLENGES TO VAT COMPLIANCE BY FINTECHS 

1. Regulatory Ambiguity: Although the 2025 tax reforms modernize the VAT framework, the legislation still does not clearly define VAT treatment of many FinTech business models, leaving companies uncertain about whether particular services qualify as taxable supplies.
2. High Transaction Volumes: Fintech platforms often process millions of micro transactions daily. Tracking, invoicing, and documenting these transactions for VAT purposes introduces significant administrative complexity.
3. Technology and Infrastructure Gaps: Implementing automated VAT systems, integrating e-invoicing tools, and ensuring accurate record-keeping can be costly for emerging FinTech startups.
4. Consumer Resistance: Users may reject additional VAT charges on digital services prompting FinTech firms to absorb the cost, ultimately reducing profitability.

5.0 ENFORCEMENT OF VAT UNDER THE NIGERIA TAX ACT 2025

The NRS’s strengthened enforcement capabilities include:

1. Digital Monitoring and E-Administration: Real time analytics, API integrations, and monitoring of payment platforms enhance the NRS’s ability to detect non-compliance.
2. Penalties and Sanctions: Non-compliance may result in:

• Denial of input-VAT recovery,
• administrative penalties,
• compounded interest on unpaid VAT, or 
• potential suspension of license (for regulated FinTech sectors such as VASPs).

1. Obligations for Foreign FinTechs: The Act empowers the NRS to compel foreign digital service providers to register for VAT or appoint local agents when servicing Nigerian consumers. To ensure compliance, the NRS has been empowered to appoint collection agents, including non-resident suppliers, digital platforms, and payment processors. The court reiterates this power in the case of Bolt operators OU v FIRS.This mechanism is expected to streamline the collection of VAT from cross-border services and reduce opportunities for evasion.

1. RECOMMENDATIONS

1. Clearer Regulatory Guidance: The NRS should issue sector-specific circulars defining VAT treatment for various Fintech activities.
2. Phased or tiered Compliance Mechanisms: Startups and small FinTech firms may require grace periods or simplified compliance thresholds, given the high cost of digital infrastructure.
3. Collaboration Between Regulators and FinTech Associations: Joint working groups can help harmonize tax and financial sector regulations,
4. Public Education: Consumer must be educated on the legitimacy of VAT charges on digital services to reduce friction and improve compliance.
5. Investments in Enforcement Technology: The NRS should continue investing in digital tool for tracking e-commerce and FinTech transactions.

1. CONCLUSION

FinTech represents one of the most transformative sectors in Nigeria’s economy, and integrating it into the formal tax system is essential for sustainable fiscal development. The Nigeria Tax Act 2025 modernizes the VAT framework by expanding coverage, digitizing administration, and establishing clearer obligations for digital service providers. Yet FinTechs face considerable compliance challenges due to regulatory ambiguity, high transaction volumes, and administrative burden.

Effective VAT compliance requires a balanced approach: regulators must enforce the law while ensuring that innovation is not stifled. With clearer guidelines, technology-driven enforcement, and constructive engagement with industry stakeholders, Nigeria can achieve a fair, modern, and innovation-friendly VAT environment/