Across Africa, fintech platforms are reshaping how people save and invest, offering higher returns than traditional banks. From PalmPay and PiggyVest in Nigeria to Eversend and Tala in East Africa and TymeBank in South Africa, these platforms are not only driving financial inclusion but also delivering significant interest payouts to users.
In 2024, Nigerian-based PalmPay and PiggyVest reached major milestones in helping Nigerians save and grow their money. PalmPay paid ₦4 billion in interest to over 10 million users through its savings platform, PalmPay Wealth. PiggyVest, on the other hand, surpassed ₦2 trillion in total payouts since its inception in 2016, with ₦835 billion paid out in 2024 alone which is 53% more than in 2023.
These impressive payouts come with significant tax implications. In Nigeria, interest earned from savings and investments is taxable. Individuals are subject to a 10% withholding tax (WHT) on interest income, which is deducted at source before they receive the funds. Companies, however, face a 30% corporate tax, with WHT serving as a credit against their final tax liability.
Using these rates, PalmPay’s ₦4 billion payout would generate approximately ₦400 million in withholding tax, while PiggyVest’s ₦835 billion payout could result in around ₦83.5 billion in taxes. However, actual tax liabilities may vary depending on each user’s tax status and any applicable exemptions.
While these platforms promote better saving habits with high-interest products; PalmPay’s SmartEarn offers 22% interest with instant withdrawals, and PiggyVest users were saving at a rate of ₦44,000 per second by the end of 2024, there’s a growing concern about the enforcement of tax compliance on these earnings.
How tax compliance can improve
We spoke with a Nigerian tax analyst from one of the Big Four consulting firms, KPMG, who shared several ways to improve tax collection from fintech savings platforms. The analyst, who requested to remain unnamed, provided these valuable insights on how to enhance tax compliance in this growing sector;
Linking fintech platforms to tax systems:
He advised that the Federal Inland Revenue Service (FIRS) can enhance tax compliance by integrating fintech platforms like PalmPay and PiggyVest into its tax systems. This would enable real-time tracking of interest payouts, making it easier to identify tax liabilities as they arise.
However, it is interesting note that the FIRS tried something similar with telecom companies to track revenue and improve tax collection, but it didn’t work out.
He also suggested that technologies like blockchain and Web3 could support this integration by offering transparency, security, and tamper-proof records of transactions. With these technologies, tax authorities wouldn’t have to rely solely on reports submitted by fintech companies. Instead, they could verify data independently, reducing the chances of tax evasion or underreporting.
Fixing gaps between FIRS and state tax offices:
The analyst noted that in Nigeria, both the FIRS and State Internal Revenue Services (IRS) are responsible for collecting Withholding Tax (WHT), but coordination between them is often weak. This creates gaps where taxes either go uncollected or are not remitted properly.
He suggested clearer roles, better data sharing between federal and state tax bodies, and regular audits to track how effectively each state is managing WHT collection.
Working with the Central Bank of Nigeria (CBN):
As it regards regulatory framework, the analyst suggested that fintech platforms be brought under a regulatory framework similar to that of banks, which are monitored by the Central Bank of Nigeria (CBN). The CBN conducts monthly checks, enforces strict reporting standards, and integrates banks into its monitoring systems.
He advised that a partnership between the FIRS and CBN could require fintech companies to submit proof of WHT deductions as part of their routine regulatory filings.
According to him, this would create an additional layer of oversight, ensuring that taxes are not just deducted but also properly remitted to the government.
Africa embraces fintech-driven savings
Across Eastern and Southern Africa, fintech platforms are also changing how people save money and invest, offering better returns than traditional banks and helping boost the economy.
Platforms like Eversend and Tala are making it easier for people in East Africa, especially in Uganda and Kenya, to manage their money. Eversend offers up to 7% interest per year on savings, helping thousands grow their wealth. Tala provides up to 6% interest, and while exact payout figures for 2024 haven’t been disclosed, both platforms are giving more people access to savings and banking services.
As it concerns interest earned from savings, Kenya applies a 15% withholding tax on these interests, deducted before payouts reach individuals. Companies, on the other hand, pay a 30% corporate tax on profits, including interest earnings, but can offset the 15% withholding tax against their total tax liability.
In South Africa, TymeBank is also helping people save money and invest. It offers up to 8% interest and has succeeded in reaching 10 million customers in 2024. Although it hasn’t shared the exact payouts for 2024, but it’s clear from their customer base that they are making a huge impact on people’s ability to save.
In September 2024, TymeBank, for instance, secured an investment of R169 million (approximately $9.5 million) from African Rainbow Capital (ARC) as it surpassed 9.5 million customers. Also in December 2024, it secured another $150 million investment from Nubank, a leading Brazilian digital bank, which increased its valuation to $1.5 billion, granting it unicorn status.
Individuals earning interest from savings in South Africa benefit from an annual tax exemption of up to R23,800 for those under 65 and R34,500 for those 65 and older. Any interest beyond this is taxed at their marginal rate. Companies pay a 28% corporate tax on profits, including interest income, while non-residents face a 15% withholding tax on interest earned from South African sources.
