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How new tax policies will impact Nigeria

As Nigeria grapples with the worst cost of living crisis in decades, the introduction of new tax policies by President Bola Tinubu‘s administration is causing further concern among citizens.

One of the most controversial new taxes is the 0.5% levy on electronic transactions imposed by the Central Bank of Nigeria (CBN). This levy is meant to fund cyber security initiatives and will be deducted from the initiator of the transaction.

The implementation of this new tax policy is set to take effect in two weeks, with the funds being remitted to the Office of the National Security Adviser. While the government argues that this levy is necessary to combat cybercrime and protect national security, many Nigerians are questioning the timing of such a policy during a period of economic hardship.

The memo issued by the CBN outlines 16 exemptions to this levy, including transfers between customers of the same bank and transfers to accounts in other banks owned by the same account holder. However, critics argue that this new tax will still place an additional burden on already struggling citizens.

Other exemptions from the ban on foreign exchange transactions in Nigeria’s financial institutions include loan disbursements and repayments, salary payments, instructions to correspondent banks, interbank placements, transfers to and from the Central Bank of Nigeria, inter-branch transfers within a bank, cheque clearing and settlements, letters of credit, banks’ recapitalisation-related funding, savings and deposits including long-term investments, government social welfare program transactions such as pension payments, non-profit and charitable transactions, educational institution transactions including tuition payments, and transactions involving banks’ internal accounts.

How new tax policies will impact Nigeria www.whoownsafrica.com
Nigeria President Bola Tinubu arrives for the closing session of the New Global Financial Pact Summit, on June 23, 2023 in Paris. (Photo by Lewis Joly / POOL / AFP) (Photo by LEWIS JOLY/POOL/AFP via Getty Images)

These exemptions ensure that essential financial activities can still take place smoothly despite the restrictions on foreign exchange transactions.

Transactions between banks as well as bulk fund movements and donations to non-profit organizations and charities are also exempt from the ban, allowing for continued support for social welfare and educational institutions.

Additionally, transactions involving banks’ internal accounts such as suspense accounts, reserve accounts, and escrow accounts are permitted to ensure the efficient operation of financial institutions in Nigeria.

The new levy being imposed on bank customers is just one of the many charges that they already face. In addition to the stamp duty, the Nigerian Inter-Bank Settlement System (NIBSS) charge, and the Value Added Tax, customers also have to deal with charges like maintenance fees and SMS charges from their banks.

According to a 2023 report by EFInA, a UK government-backed firm, only 52% of adult Nigerians have a bank account, which they attribute to poverty.

The report also states that about 64% of adult Nigerians use formal financial services, including insurance and mobile money.

Last year, NIBSS reduced its transaction processing fee for interbank Instant Payment to promote financial inclusion.

However, activists are concerned that the introduction of this new levy could hinder progress towards financial inclusion. They argue that the multitude of charges and levies imposed on bank customers may deter more people from joining the formal financial system.

The backlash against the new law imposing a 0.5% ‘cyber security levy’ on Nigerians has only intensified as more citizens express their opposition. Many are outraged at the lack of public consultation before the law was passed and are considering taking legal action.

Pro-transparency advocacy group, SERAP, known for its efforts in holding the government accountable through legal means, has announced its intention to sue the government over this controversial directive. Calling it “grossly unlawful,” SERAP has demanded the immediate withdrawal of the CBN directive to implement the Cybercrime Act 2024, citing a violation of an order by the ECOWAS court of justice.

How new tax policies will impact Nigeria www.whoownsafrica.com
President Bola TinubuPhotographer: Lewis Joly/AFP/Getty Images

With threats of legal action looming, the Tinubu administration faces growing pressure to address the concerns raised by Nigerians regarding the new law. The unfolding situation underscores the importance of transparency and public engagement in policymaking to avoid such contentious issues in the future.

For many Nigerians, the levy only adds insult to injury as they continue to feel the effects of the decisions made by Tinubu’s administration over the past year. With inflation rates at unprecedented levels, caused by the removal of petrol subsidies and the devaluation of the currency, the cost of living has become unbearable for many.

Food inflation stands at 40.1% and general inflation at 33%, leading to a decrease in purchasing power for citizens. The government’s efforts to curb inflation through increased interest rates have only hindered economic growth further. The recent increases in electricity and telecommunications tariffs have also added to the financial burden on Nigerians.

In an attempt to boost revenue, the Tinubu administration has implemented new taxes and reinforced tax laws, reminiscent of his tactics during his time as governor of Lagos. The recent directive for banks to deduct stamp duty charges on mortgages and impose charges on cash deposits have left many feeling the pinch of these financial burdens. Additionally, the lack of agreement on minimum wage between the government and labour unions has led to threats of industrial action, further exacerbating the economic situation for many.

The frustration and anger felt by Nigerians towards the Tinubu administration were summed up in a tweet by Lagos lawyer and activist, Inibehe Effiong, who accused the government of suffocating the poor and neglecting their well-being. As the economic hardships continue to mount, many are left to wonder when relief will come and if their voices will be heard.

Go to Who Owns Africa for more news from the African continent.

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