At a time when Nigeria ought to receive accolades as the leading digital banking powerhouse in the world, the country’s apex bank started rolling out perverted policies—the ones with a potential to create stagnancy in the digital economy.
At first, the Central Bank of Nigeria (CBN) instructed the digital banking institutions to stop onboarding new users, then ordered the implementation of the law that prescribed a 0.5 percent cybersecurity levy on all electronic transactions. No matter the good intentions of the legislators at the time of passing the law last year, taxing digital banking at this time is unfavourable to the poor Nigerians willing to enter digital banking.
In the past year, Nigeria has recorded significant success in digital banking, with the unbanked population decreasing every day. According to a 2023 Finance Survey, financial inclusion in Nigeria increased to 74 percent last year, up from 68 percent the previous year. This brought the adult population still excluded from banking to just 28.8 million. Agnes Martins, the Chairman of Enhancing Financial Innovation and Access (EFInA), an organisation that promotes inclusive finance in Nigeria, commended the feat as “encouraging progress”. Unfortunately, the mobile money operators that contributed significantly to this feat have now been halted.
While this lingers, with the implementation of the cybersecurity levy, the apex bank doubled down in an incident that looks as though it aims retrogression for digital banking. Coincidentally, this order came when the world already hailing Nigeria as Africa’s most digitised banking country.
More Success Story
In 2021, Nigeria recorded 3.7 billion real-time transactions, making the country the world’s sixth most developed real-time payment market. This achievement means more Nigerians are becoming digitised and actively involved in digital and real-time payment services, making trade seamless and connected. The impact is that by the end of the year, Nigeria garnered an additional $3.2 billion in economic output, contributing 0.67 percent to the country’s Gross Domestic Product, the value of goods and services produced in a country during a specific period.
Several economic indicators show Nigeria’s digital banking revolution could even get better. With the current trend, they projected the real-time transactions to hit 8.8 billion in 2026, generating an economic output of $6 billion, thereby contributing up to one percent of the GDP.
Unfortunately, the good news might change in the coming years, thanks to CBN’s order instructing fintech firms like Kuda, Opay, Palmpay and Moniepoint from onboarding new customers. And as if that is not enough. With the inflow of cash in digital banking, the authority sees an ocean to fetch free cash for the government.
If care is not taken, the CBN’s arbitrary policies and tax law implementation will reverse years of progress, awakening digital banking distrust in citizens.
Multi-level Electronic Banking Levies
Cybersecurity levy is not the first tax imposed on electronic payment. Before now, five different taxes and levies, including VAT fee, Stamp duty and Transfer fee, were placed on e-banking transactions. Last year, StatiSense calculated the real cost of transferring N10,000 to be N76. This year, the cost is now N134.88, leaving the real value of the amount at N9,865.12, after deducting all taxes.
According to a report by the Nigerian Inter-Bank Settlement System, Nigeria recorded N600 trillion transactions in 2023–up from N387 trillion recorded in 2022. This means starting next year, the Nigerian government will be milking a whopping N3 trillion from Nigerian banking users.
The effect of different tax regimes taking more than one percent—after indirect taxes—on digital banking transactions creates an impression of the government’s intention to accrue wealth at the expense of its citizens. This creates distrust and limits the citizens’ involvement in the banking system. In this case, the government’s greediness to get more into its coffers may hinder projected progress in the e-payment transactions and the country might lose the golden opportunity to connect more people to its digital economy.
Whatever Nigeria’s CBN thinks the money accruing from the cybersecurity levy will achieve, the authority should consider the threat it poses to electronic banking.
