Nigeria’s Digital Protection Plan: “The 0.5% Levy and Its Implications”
For the past few years till date, the Nigerian economy has been experiencing severe decline in almost all its sectors, especially the economy. Inflation and currency devaluation has become the order of the day.
In response to this, the Nigerian government was prompted to take measures towards stabilising the Nigerian economy while sequentially restoring the value of Naira. These measures include a ban on cryptocurrency transactions; which is believed to have contributed in adversely affecting the economy and also the imposition of a 0.5% cybersecurity levy to aid in funding and improving cybersecurity.
These measures were greeted with large skepticism from the populace.
With regards to this; What are the positive and negative impacts of these measures on the Nigerian economy? Are these factors really responsible for the deficiency of the economy? Are there any hidden motives behind the implementation of such measures? What better policies can be deployed to achieve better results?
These are questions which this article seeks to provide answers to.
In a significant attempt to enhance national cyber security, the Central Bank of Nigeria, CBN issued a directive to all banks and financial institutions to implement a cyber security levy on banking transactions.
This new levy, set at 0.5% of the value of all electronic transactions was in response to the escalating concerns over cyber threats and follows the guidelines of the recently enacted Cybercrime Act, 2024. According to the CBN, this measure is crucial in enhancing the security framework of financial operations across the country.
The Cybersecurity Act, which was first passed in 2015 introduced a 0.005% levy on electronic transactions.
A memo by the CBN on June 2018 directed banks to collect a levy on “electronic transactions occurring in a bank or on a mobile money scheme or any other payment platform that have an accompanying service charge.”
In 2024, the Act was amended and the levy was increased by 900% to 0.05% and it was extended the levy to cover fintechs, payment service providers, and other financial institutions.
The policy which was implemented on 7th May, 2024, is set to be effective on 20th May, 2024 and will have only a few exceptions; money transfers within the same bank, salary payments, school fees payments and loan repayments.
The CBN said the funds will be managed by the country’s Security Adviser’s office and that non-compliance will attract a charge of 2% of an institution’s annual turnover.
The new levy follows a clampdown on cryptocurrency trading and transactions, which officials have blamed for Nigeria’s currency weakness. The naira has hit low records due to dollar shortages as crypto transactions in the country have flourished.
It can be recalled that In March, Nigeria charged Binance, the world’s largest crypto exchange and two of its executives, facing separate trials on tax evasion and money laundering, which the company is challenging. Binance Head of Financial Crime Compliance, Tigran Gambaryan, a U.S. citizen, is being held in detention in Nigeria.
The new levy is also said to be aimed at upgrading and securing electronic transactions with a view to curtailing cyber fraud.
From the above exposition, it is imperative to look into the effects of this policy on Nigeria and its economy at large.
From the realms of Economics, it is law that inflation is caused by much money circulation. For almost a decade, Nigeria has been bedridden with Inflation and massive economic decline. The implementation of this policy can curtail such by reducing the amount of money in circulation and reducing the purchasing capacity of individuals by widening the tax net.
The 0.5% levy is also aimed at strengthening cybersecurity. This entails upgrading technology, improving data security measures and investing in cyber defense tools in government parastatals.
But a policy of such standing and delicate nature is not without demerits.
A recourse back to the basic concepts of government will reveal that for a government and its policies to be legitimate, it must have popular support and acceptance by the populace. Can we say so in the case of such a policy?
The new levy has sparked widespread discussions and concerns among Nigerians about its potential impact on financial burdens amidst prevailing socio economic challenges.
Owing to the direction by the CBN, while some citizens have complained about the high rate of levies being paid to banks, others accused the government of lacking economic strategies, while extorting the poor.
Another trite issue worth addressing is the measurement of the transparency, accountability and effective utilization of the levy proceeds. This is so because most of the proceeds will be allocated to MDAs, and the populace is always kept in the dark about matters of security.
Apparently, Nigeria is a country “gifted” with corrupted institutions and officials. It would be very unethical for the government to take money from the poor and use it to enrich the rich.
It is apparent from the analysis above that the 0.5% Cybersecurity levy will do more harm than good.
From the overview above, it is important to proffer favourable and applicable policies which the government needs to implement to solve the prevailing problem.
The government and its institutions need to implement economic and taxation policies that will not have a direct impact on the citizens.
The government should focus on stabilising the macroeconomic environment. This can be achieved by aligning monetary, trade and fiscal policies in a coordinated manner. Non oil revenue should be accelerated through taxation on customs activities and introduction of taxation on luxury items.
Utilizing agriculture to achieve food security and job creation will also reduce dependence on importation of foreign goods and interaction with dollar, which will recover the nation’s currency value.
The move taken by the government to ban cryptocurrency transactions will also deal a blow to the Nigerian economy, because they provide employment and sustenance for countless citizens. With the ban, citizens, especially youths will resort to illegal activities and social vices for their sustenance, which will only worsen the status quo. Instead, the government should formulate laws to regulate such transactions within the realms of the economy.
Restoring confidence in the Nigerian economy is another crucial step for attracting investments, promoting growth and fostering sustainable development. This includes enhancing transparency, accountability and governance standards across all sectors of the economy. The government must demonstrate a commitment to fiscal discipline, policy consistency and the rule of law to reassure investors and businesses about the stability of the operating environment.
Economic diversification and industrialisation is also an effective way of generating revenue and ensuring economic stabilisation. The government should capitalise on the country’s arable land and favourable climate to support smallholder farmers, promote agribusinesses in order to enhance productivity.
Conclusively, while the just implemented cybersecurity levy has its advantages and potentials, it would do more harm than good judging from the current socio economic condition of Nigerians. The government should explore other ways of sourcing revenue, maintaining a favorable economy divorce from unfavorable policies and also maintain the rule of law at all times.
Image Credit: Techpoint Africa
About Author
Murtala Abdulmalik Ahmed is a Law student of the prestigious Faculty of Law, Ahmadu Bello University Zaria with a keen interest and passion for legal research and writing.
