The enforcement of the law included the operationalization of the National Cybersecurity Fund, targeting 0.5 per cent of all electronic transactions by businesses listed in the second schedule of the amended law.
The affected businesses include GSM service providers and all telecommunication companies, internet service providers, banks and other financial institutions, insurance companies and the Nigerian Exchange
The CBN circular, directed at all commercial, merchant, non-interest and payment service banks, other financial institutions, mobile money operators and payment service providers, reads, “The levy shall be applied at the point of electronic transfer origination, then deducted and remitted by the financial institution. The deducted amount shall be reflected in the customer’s account with the narration. ‘Cybersecurity Levy’.
“Deductions shall commence within two weeks from the date of this circular for all financial institutions and the monthly remittance of the levies collected in bulk to the NCF account domiciled at the CBN by the fifth business day of every subsequent month.”
Transactions that the CBN exempted from the levy included: loan disbursements and repayments, salary payments, intra-account transfers within the same bank or between different banks for the same customer, intra-bank transfers between customers of the same bank, other financial institutions’ instructions to their correspondent banks, interbank placements, banks’ transfers to CBN and vice-versa.
Others are “Inter-branch transfers within a bank, cheques clearing and settlements, letters of credits, banks’ recapitalization-related funding only bulk funds movement from collection accounts, savings and deposits, including transactions involving long-term investments, such as treasury bills, bonds, and commercial papers.”
Also, “Government social welfare programmes transactions e.g. pension payments, non-profit and charitable transactions, including donations to registered non-profit organisations or charities, educational institutions transactions, including tuition payments and other transactions involving schools, universities, or other educational institutions.”
The CBN said the exemption was to avoid multiple applications of the levy on the same transaction/transfer.
The move by the CBN came barely a week after the Federal Government directed Deposit Money Banks to immediately begin the deduction of the 0.375 per cent stamp duty charge on all mortgaged-backed loans and bonds.
The new directive was contained in a message sent to customers by banks as directed by the Federal Inland Revenue Service.
It indicated that the government was expanding the scope of stamp duty charges to include foreign transactions and loans, alongside regular bank transfers, as part of efforts by the tax authority to enhance fiscal performance.
Recall that banks were also in January directed to deduct stamp duty on old foreign transactions between January 2021 and December 2023 by January 31, 2024. Meanwhile, the Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture has described the cybersecurity levy as another stealth tax on the private sector.
In a statement shared with our correspondent on Tuesday, NACCIMA National President, Dele Kelvin Oye, said while it was important to bolster the country’s national cybersecurity infrastructure, the blanket imposition of the levy without a limit raised significant issues that warrant a thorough review and reconsideration by the authorities.
He said, “We are still in consultation with our stakeholders. However, we feel compelled to comment on the implementation of this cybersecurity levy as outlined in a circular signed by the respective Directors of the CBN Payments System Management Department and the Financial Policy and Regulation Department of the CBN.
“While NACCIMA recognises the importance of bolstering our national cybersecurity infrastructure, the blanket imposition of this levy without a limit raises significant issues that warrant a thorough review and reconsideration by the authorities.
“Firstly, the security and defence sectors are already substantial recipients of the national budget. They are responsible for tackling a hybrid of security challenges like terrorism, banditry and other internal conflicts in Nigeria. However, cybersecurity is firstly a transnational issue, which requires cooperation between international security agencies and requires highly skilled and experienced human resources. For this reason, we believe the burden should be shared across the current security and defence budget.”
According to Oye, with over N600tn in transactions annually, the projected revenue from this levy is considerable.
“Therefore, we expect transparency in the application of these funds through clear performance metrics essential to justify the additional levies.
“For this reason, we must ask: what proportion of all online transactions are fraudulent transactions? In what way will this levy counteract such transactions? With incidence rates significantly lower than the levy rate, there is a mismatch that needs to be addressed.
“We will, therefore, advise a maximum levy cap of N500. It is also a fact that other methods exist to reduce local online cybersecurity risks through professional private sector experts,” he stated.
The NACCIMA boss maintained that the allocation and administration of the levy funds were critical.
“The organised private sector must be involved in the oversight and management of these funds to ensure efficiency and effective use of the levy for public and private sector services, akin to an estate service charge model. Without this, there is a risk of misapplication and lack of accountability.
“Thirdly, the introduction of this levy may be in contravention of the constitutional provision mandating all revenues to be deposited into the consolidated fund, which can only be utilised following appropriations by the National Assembly. We await further guidance on this position,” he asserted.
Echoing the resistance to the cybersecurity levy on Tuesday, a financial economist and Professor of Capital Market at the Nasarawa State University Keffi, Uche Uwaleke, described it as ill-timed, with a chance of lessening the impact of monetary policy transmission.
He told The PUNCH, “I think the cybersecurity levy is ill-timed, coming at a time when the CBN is concerned about the increasing rate of currency circulating outside the banks. It carries the downside risk of discouraging financial intermediation as well as complicating the transmission of monetary policy, with more people shunning the banks due to high charges.
“The result is that it makes it a difficult effort by the CBN to tame inflation.”
He, therefore, called for the suspension of the policy, saying, “The circular should be withdrawn, especially against the backdrop of assurances by the government that its plan to increase revenue would not include introducing new taxes or increasing tax rates.
“To this end, the government should suspend the policy while getting set to implement the recommendations of the Presidential Committee on Fiscal Policy and Tax Reforms, whose mandate includes streamlining multiple taxes and levies currently inhibiting the growth of businesses in Nigeria.”
Also, the Socio-Economic Rights and Accountability Project warned the Federal Government to reverse the 0.5 per cent cybersecurity levy or face legal action.
SERAP threatened to sue the government if it failed to reverse the levy within 48 hours. The non-governmental organisation stated this Tuesday on its ‘X’ (formerly Twitter handle), @SERAPNigeria.
SERAP stated, “The Tinubu administration must immediately withdraw the grossly unlawful CBN directive to implement section 44 of the Cybercrime Act 2024, which imposes a 0.5 per cent ‘cybersecurity levy’ on Nigerians. We’ll see in court if the directive is not withdrawn within 48 hours.”
CBN data as of March 2024 showed that while currency in circulation was N3.87tn, currency outside banks stood at N3.63tn, indicating that over 90 per cent of the cash in circulation was in private hands.
An ICT expert and Senior Partner of e86 Limited, Olugbenga Odeyemi, in a chat with The PUNCH, said that while the cybersecurity level seemed right on paper, it would have negative consequences.
He said, “It sounds fantastic on paper, but the consequences will be far more terrible. It is one of those things that the government may come to regret. It will end up hurting more people. Prices will rise as businesses transfer the burden to consumers.
“The goal should not be to create more taxes, especially after eliminating fuel and power subsidies and floating the naira. The goal should be to increase the number of people who use existing tax options.”
An economist and investment specialist based in Lagos, Dr Vincent Nwani, in his submission, said, “The cybersecurity levy stands as an additional stream of income for the government more so that collection of the revenue comes at little or no cost. At a total of N600tn NIP transfers in 2023, if half of such transactions are eligible for the cybersecurity levy, the government will generate about N1.5trn.
“Nigeria loses $500m annually to cybercrime and this levy will potentially provide a dedicated source of funding for cybersecurity efforts. A strong cybersecurity framework enhances investor confidence because it boosts investors’ confidence in the security of their digital transactions.”
Nwani highlighted that businesses were increasingly scaling down, cutting back employment and adapting all sorts of lean measures in a bid to navigate an extraordinarily challenging business environment.
“Customers and the public on the other hand are struggling with high cost of living, declining real wages and lower consumption exacerbated by recent reforms such as removal of full subsidy, floating of the FX, increase of electricity tariff, increase of lending rate, etc. The new cybersecurity levy serves as another wave of financial burden on businesses and the public with attendant implications such as undermining financial inclusion drive and discouraging e-transactions.
“The timeline set for implementation of the new cybersecurity charge should be revisited because it coincides with a period when the public and economic agents have so much on their plate to deal with.”
According to Nwani, to absolve the poorest of the poor from the adverse impact of this policy, there is a need to set an ideal minimum threshold for the amount of electronic transfer that will be eligible for this charge.
“As the very poor in the society rarely instigate cybercrime, it is ideal that they are somewhat absolved. Hence, it is suggested that the levy should not apply to electronic transfers of less than N50,000,” he submitted.
According to the data by the Nigeria Inter-Bank Settlement System, the value of electronic payment transactions in Nigeria hit an all-time high in 2023, as it rose by 55 per cent or N213.29tn to N600.36tn, compared to N387.07tn in 2022.
A closer look at the data showed that in terms of volume, instant payment transactions also increased, and had an all-time high record of 1.1 billion in March 2023, but declined to 968.59 billion at the end of last year.
The NIBSS linked the hike in volume in March to the naira scarcity experienced in the country; an event that forced many Nigerians to adopt electronic payment channels. In the first quarter of this year, NIBSS data showed that e-payment transactions rose by 89.3 per cent to N234tn, from N123.8tn in the same period in 2023. The development showed a notable increase in growth, showcasing the expanding digital presence in the country’s financial landscape.
With this pace of growth, the space may deliver record results at the end of the year.
(Source – The Punch)
