CEM REPORT, FINANCE| The battle of opinions and analysis on the newly introduced cybersecurity levy is yet to see a close. The Nigerian Economic Summit Group (NESG) has expressed concern that the levy could strain aggregate demand and hinder economic growth.
The NESG proposes targeting high-net-worth individuals for the levy, potentially easing concerns among the general public.
NESG View
Individuals and Businesses
The NESG expresses strong reservations about the levy’s timing. They argue that amidst a cost-of-living crisis and high inflation, the levy further burdens Nigerians struggling with financial difficulties.
Additionally, they posit that the cybersecurity levy can strain aggregate demand, hindering economic growth, noting that with rising product prices and potential income decline, household welfare could suffer, leading to a decrease in GDP during the initial implementation phase.
The levy’s impact on disposable income, already squeezed by inflation, could further limit spending on essentials like food and healthcare.
“Since increases in government revenue do not compensate for decreases in household income, especially in the face of increased product prices and income falls, the Gross Domestic Product (GDP) could decline during the immediate policy implementation period.
“Furthermore, amidst limited buffer for health, education and food security, the policy will exert adverse impact on household whose disposable income has been squeezed by persisting inflationary pressure.”
Businesses may pass on the levy as an additional cost, pushing up prices across the board. This could exacerbate social unrest, especially among low-income Nigerians already grappling with inflation’s grip.
“An increase in tax could stimulate an upward trend in other prices in the economy, further elevating inflationary pressure as businesses immediately factor such a levy as an additional cost into the price of goods and services which could aggravate social restiveness among the populace.
“The impacts of the fuel subsidy removal, exchange rate reform, and, most recently, the removal of electricity subsidies still permeate the operating costs of businesses and citizens’ welfare.”
Impact on Government
The NSEG believe this cybersecurity levy policy coincides with a crucial period for economic reforms spearheaded by the Presidential Committee on Fiscal Policy and Tax Reforms. Introducing a new levy could disrupt this process and hinder streamlining the tax system.
“This policy is coming when the Presidential Committee on Fiscal Policy and Tax Reforms is yet to finalise its mandate. One of the terms of reference of the Committee is that the number of taxes should be streamlined. Introducing a cybersecurity levy could thwart this essential mandate.”
The NESG also highlights the potential negative impact on financial inclusion. With Nigerians already battling high transaction costs, the additional levy could discourage them from using electronic financial services.
The NESG also highlights the potential for the levy to discourage electronic transactions, ultimately harming government revenue.
This could potentially reverse the progress made towards the 95% financial inclusion target set for 2025. A resurgence of cash-based transactions could also undermine the CBN’s efforts to promote a cashless society.
Furthermore, they stated that the cybersecurity levy adds to the list of levies and taxes collected by financial institutions on behalf of the government, including stamp duty, electronic transfer levy, and VAT.
“However, if this policy remains, several Nigerians will boycott electronic funds transfers, which does not even bode well for the government due to revenue loss from electronic transfer levy.”
“The mere news of charges on bank transactions will demotivate many Nigerians from accessing financial services, potentially propelling a surge in the demand for cash.
Impact on Financial Institutions
This embodiment of taxes increases the transaction costs of using a bank and could disrupt the financial intermediation role of banks. Furthermore, given the current strains that citizens face, perceived unfairness, lack of transparency and accountability would heighten distrust in the financial system.
The NSEG strongly believes the policy could also create loopholes for cybercriminals to devise alternative routes to perpetrate the heinous acts.
“For instance, the high transfer costs charged by the official channel (banks) have prompted many Nigerian migrants to route remittances via informal channels.”
Benefits
However, proponents of the levy argue that a robust cybersecurity infrastructure benefits the economy in the long run. Cyberattacks can cripple businesses and disrupt financial transactions, causing significant economic losses. The levy, they argue, provides a dedicated source of funding to fortify national cybersecurity defences.
Recommendations
The NESG, however, feels this is a critical time to implement such a policy;
The NESG proposes alternative solutions to address cybersecurity concerns. They advocate for a targeted approach, suggesting the levy be applied to high-net-worth individuals and specific high-value electronic transactions.
“The NESG posits that the levy should be targeted at high-net-worth individuals and a specific amount transferred electronically to allay the fears of the populace, who are still battling skyrocketing food and non-food prices.
Additionally, they emphasize the importance of a collaborative approach, urging financial institutions, security agencies, and other stakeholders to work together in combating cybercrime.
“To narrow the alternative ways of committing cybercrimes, the NESG posits an integrated approach in the fight against cybercrimes involving the collaborative efforts of financial institutions, security agents, the EFCC and other key stakeholders.
“Hence, introducing a cybersecurity levy penalises the populace for the failure of the system to uproot the sources of cybercrimes.”
The NESG, therefore, suggests the need to reduce banks’ transaction costs, signal clarity to improve trust in the financial system and entice people to become financially included.
“It is noteworthy that the policy is intended to fight cybercrimes and raise revenue for the government. However, higher revenue should be achieved without imposing a severe burden on poor and vulnerable Nigerians.”
On Exemptions
The NESG recognises the exemptions highlighted by the CBN. However, the CBN needs to be proactive in monitoring banks’ Implementation to curb citizen exploitation. With the exemption provided, we anticipate that there will still be overlapping transactions. Therefore, it is imperative for the monetary authority to develop an effective and practical framework to limit the levy to liable transactions.
Read Also: New 0.5% Cybersecurity Levy on Electronic Transfers in Nigeria: What You Need to Know
If You Ask Me
The battle over the cybersecurity levy is far from over. The NESG offers a compelling analysis of its potential downsides, urging the government to consider alternative solutions. Striking a balance between cybersecurity and economic growth is crucial. The government must address the NESG’s concerns and work with stakeholders to ensure this levy doesn’t come at the expense of the nation’s economic health and financial inclusion goals.
