Much Ado About Nigeria’s New Cyber Security Levy
“In this world,” the great American author and statesman, Benjamin Franklin once wrote, “nothing can be said to be certain, except death and TAXES.”
Although tax income has historically accounted for only a small percentage of government’s total revenues in Nigeria (both at the national and subnational levels) no thanks to the high rates of tax avoidance and evasion, that seems about to change, with the slew of taxes, levies and tariffs the administration of President Bola Ahmed Tinubu has put in place since its assumption of office in May last year. Although the vast majority of Nigerians agree in principle that there ought to be a significant increase in taxation to enable the government fulfil its budgetary obligations, they are, however, not agreed as to whether the tax net should be widened – or deepened.
Just a few weeks after the Federal Government announced a hike in tariffs for electricity usage for certain categories of consumers across the country (which itself came on the back of the removal of subsidy payments for petroleum products, and the floatation of the country’s currency, the naira) it has decided to impose a levy on electronic transfers, known as the Cyber Security Levy. On May 6, 2024, the Central Bank of Nigeria (CBN) issued a circular mandating all banks, mobile money operators and payment service providers to implement the levy, following the provisions laid out in the Cybercrime (Prohibition, Prevention, etc.) Amendment Act 2024. According to the Act, a levy amounting to 0.5% of the value of all electronic transactions will be collected and remitted to the National Cybersecurity Fund (NCF), which is overseen by the Office of the National Security Adviser. Henceforth, according to the circular, financial institutions are required to apply the levy at the point of electronic transfer origination. They are also required to start implementing the levy within 2 weeks from the issuance of the circular; by implication, then, the deductions of the levy by financial institutions should commence by May 20, 2024.
There are penalties as well as exemptions for non-compliance. For example, the CBN has warned that non-compliant institutions are subject to a minimum fine of 2% of their annual turnover upon conviction. But it has also listed a number of transactions currently deemed eligible for exemption, so as to avoid multiple application of the levy. They include, among others: loan disbursements and repayments; salary payments; intra-account transfers within the same bank (or between different banks BUT for the same customer); and intra-bank transfers between customers of the same bank. Other exemptions include transactions involving long-term investments such as treasury bills, bonds and commercial papers; government social welfare programmes transactions; pension payments, non-profit and charitable transactions (including donations to registered non-profit organisations or charities); educational–related transactions such as tuition payments; and transactions involving banks’ internal accounts.
Needless to say, the introduction of the cyber security levy has elicited strong reactions from stakeholders. On one hand, some say it will inevitably increase the cost of doing business in Nigeria and even, more ominously, impact growth in the use of digital transactions by Nigerians. They also say that while Government is right to continue its quest to increase revenues, the introduction of this new levy appears ill-timed, considering the current economic climate. They allege, too, that the measure flies in the face of the government’s stated commitment to the National Tax Policy of 2017 (whose objective, ironically, is to REDUCE the number of taxes in Nigeria). Another implication of this measure, analysts say, is that financial institutions and payment service providers will need to adjust their financial and operational strategies to accommodate the new levy so as to remain compliant – and still manage the additional costs of compliance. This will, of course, trigger an increase in operational costs for business owners who rely heavily on digital transactions for reciept of payments.
The reaction from the proverbial street is even more vehement. Ordinary Nigerians, already burdened by the struggle to afford basic necessities, have weighed in on the socio-economic impact the new levy is going to have – with many simply saying the levy would push them back to using cash to avoid paying it – in what would to amount to a blow to Government’s cashless policy. Some even foresee a cash shortage soon if government doesn’t reverse the policy.
“There is no way,” says one, a bread seller, “that I will … be giving 0.5% of my transfers when I earn so little. Many people don’t buy bread these days, and business is fragile.”
Another said in respect to the potential impact on small businesses, “If you transfer a million naira, five thousand naira gets deducted as cybersecurity levy, which is not fair to ordinary persons.”
Away from the streets, dissent has also built up in reaction to the new levy. Already, the Nigeria Labour Congress (NLC) has issued a statement rejecting the measure, while the lobby group, SERAP (Socio-Economic Rights & Accountability Project) has threatened to sue the government. Even more significantly, the House of Representatives, Nigeria’s second highest legislative chamber on Thursday asked the CBN to withdraw the circular in question. In a motion introduced by Hon. Kingsley Chinda (who represents a Delta State constituency), the House argued that unless immediate pragmatic steps were taken to stop the proposed action of the CBN, “The Cybercrime Act (from which the levy derives its legitimacy) shall be implemented in error at a time when Nigerians are experiencing the aftermath of multiple removal of subsidies from petroleum, electricity and so on …’
In his reaction, prominent Lagos lawyer, Femi Falana, SAN, has said that the levy was NOT meant to apply to individuals, adding that the CBN’s circular was based on an ‘erroneous’ interpretation of the provisions of the aforementioned Cybercrime (Prohibition, Prevention, etc.) Amendment Act 2024. Therefore, he said, the CBN not only ought to withdraw its directive, but also apologize to Nigerians for contemplating it in the first place.
Other reactions – all of them negative – have also come in from other influential quarters across the country and beyond.
Despite the torrent of criticism, however, the Cyber Security Levy is not without its supporters. One of them is Senator Shehu Umar Buba, who sponsored the amendments to the Cybercrimes (Prohibition, Prevention, etc) Act on the floor of the Senate back in October 2023, in his capacity as the Chairman of the Senate Committee on National Security and Intelligence. The amendment, in turn, led to the inclusion of the levy in the law after being endorsed by his colleagues and signed into law by President Tinubu. The levy, Buba said in reaction to the controversy surrounding it, was far from punitive; on the contrary, he says, it contains numerous exemptions designed to protect and relieve ordinary citizens, particularly the poor. Underscoring the urgent importance of the Cyber Security Levy’s implementation, the Senator said that its prudent utilisation would greatly enhance the nation’s capacity to evaluate, execute, upgrade, and fortify the security of critical economic infrastructure, thereby safeguarding the nation’s cyberspace. He appealed for support for the levy, assuring Nigerians that the measure would yield maximum benefits for citizens before long.
But in a twist of irony that is probably not lost on many in the know, the Chairman of the Presidential Tax Reform Committee, Taiwo Oyedele (who prior to his current position was a senior tax consultant with PriceWaterhouseCoopers, PwC, and a fervent critic of Government’s tax policies over the years) had once described taxation policies in Nigeria as ‘trying to solve the problem of a basket that is leaking water by pouring more and more water into the basket.’ Of greater importance than taxing the same set of people and organizations out of their skins, he said then, was the imperative of accountability and transparency in the utilization of current tax revenues while widening the tax net – to avoid a situation where tax merely becomes a fine for doing well (just as a fine is a tax for wrongdoing).
To many Nigerians, this Cyber Security Levy is a bridge too far.
Not only that, it seems – like the electricity tarriff before it – to be the percursor of more and more taxes, levies and tariffs down the road, in an unending spiral. Where will it end, Nigerians wonder? Would it, perhaps, get to the scenario depicted in a recent online meme – in which a child was told, “Tell your Mummy to open an account for you in any of the commercial banks so you can start paying tax”?
The answer, as they say, is blowing in the wind.
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