New Tax: Your Bank Will Report Your Account If You Do ?5M+ Transactions In A Month — But Here’s What You Need to Know

The Nigerian government has introduced a landmark tax reform under the 2025 Tax Reform Act, mandating all commercial banks to report customer accounts with monthly transactions exceeding ?5 million to the Federal Inland Revenue Service (FIRS). This directive, detailed in Section 30 of the Act, reflects a strategic policy shift designed to improve tax compliance, enhance financial transparency, and reduce revenue leakage in Nigeria’s economy. Policy Implementation: How It Will Work Starting in 2026, commercial banks will be required to: Track the total monthly inflow and outflow for each individual and corporate account. Flag and report accounts with cumulative monthly transactions above ?5 million to the FIRS. Submit monthly reports to relevant tax authorities, including the FIRS and other regulatory agencies. The system will likely be backed by digital compliance infrastructure and automated bank reporting tools already used for Know Your Customer (KYC) and anti-money laundering (AML) purposes. Differentiating Income from Transaction Volume A critical issue is how regulators will distinguish taxable income from non-taxable transaction volume. Not every high-volume account indicates high earnings. For example: A business account may record inflows above ?5 million monthly but operate on thin profit margins. A real estate agent might collect large rental deposits or client payments that don't reflect personal income. Peer-to-peer traders, agents, or remittance handlers could be conduits of cash, not earners. To address this, tax authorities will rely on follow-up audits, financial statements, and declared income to: Compare declared annual income with bank-reported cash movements. Identify suspicious discrepancies or underreporting. Request justification and documentation (e.g., invoices, contracts, payroll records) from flagged individuals or entities. This means the ?5 million threshold serves as a risk-based trigger for further scrutiny, not an automatic tax liability. Broader Tax Reforms: A Two-Pronged Approach In tandem with increased surveillance, the government is providing reliefs and fairness adjustments, targeting inclusivity and taxpayer equity: Increased tax exemption threshold: Individuals earning up to ?800,000 annually (?66,667/month) are now exempt from personal income tax—up from ?500,000—shielding low-income earners from tax obligations. Capital gains exemption on primary homes: As per Section 31, selling your main home is no longer subject to capital gains tax—an incentive to support housing mobility and equity release. Tax relief on compensations: Under Section 50, payouts up to ?10 million for injury, job loss, or defamation are excluded from taxable income—offering legal and emotional redress without tax penalties. VAT Redistribution Model: Rewarding Consumption The reform also introduces a new VAT sharing formula effective 2026: Federal Government: Now receives 10% (down from 15%) States: Get 55% (up from 50%), with 50% of this evenly shared, 20% based on population, and 30% based on consumption Local Governments: Retain their 35% share This adjustment incentivizes economic activity at the state level. High-consumption states like Lagos and Rivers are poised to benefit, encouraging state governments to foster local production, commerce, and formal sector growth. Implications and Stakeholder Reactions Analysts expect this twin strategy—data-driven enforcement and relief-focused reform—to: Improve tax coverage, especially in the informal and high-income segments Expand Nigeria's currently narrow tax base without raising headline rates Encourage voluntary compliance through clarity and fairness However, privacy advocates and banks have raised concerns over: Data security and misuse risks in the absence of strict oversight Compliance costs for banks required to upgrade systems and ensure accuracy Potential misclassification of transaction volumes as taxable income Experts stress the need for: Clear operational guidelines from the FIRS An appeals process for wrongly flagged taxpayers Public education to ensure citizens understand their obligations and rights Conclusion The new policy reflects Nigeria’s broader ambition to digitize taxation, formalize informal activity, and rebalance public revenue without overburdening the poor. By pairing expanded oversight with targeted reliefs and state incentives, the government is signaling a more transparent, equitable, and performance-driven tax regime. But success will depend on careful implementation, public trust, and institutional capacity.

Legacy contact: Don Richie | Phone: +2348063973427 | Email: [email protected]