Accounting Firm Says Cybersecurity Levy to Raise Tax Burden by N1.5tn

Emmanuel Addeh in Abuja

An accounting firm, Kreston Pedabo, has projected that the proposed cybersecurity levy may leave a tax burden of N1.5 trillion on businesses and households in the country.

Speaking on the issue, Senior Partner at the firm, Killian Khanoba, highlighted a report by the Nigeria Inter-Bank Settlement System (NIBSS) that the value of electronic transactions rose by 55 per cent to N600 trillion in 2023.

He added that this is about 8 per cent of the total revenue budget for 2024, adding that what remained unanswered is the cost to the overall economy.

 “Unfortunately, levies or special purpose taxes are not the best forms of taxation on which to build a sustainable economy. Their ad-hoc nature also makes them prone to poor fiscal management and loss of value to the nation,” he argued.

Khanoba also disclosed  that the implementation of the levy would  affect the drive towards financial inclusion and cashless economy in Nigeria.

According to him, rising charges associated with electronic transactions would make small business conduct transactions in cash, thereby intensifying the demand for cash and leading to a deceleration in business transactions and potentially impacting the overall business environment in the country.

He emphasised that introducing the cybercrime levy now and in the way suggested by the Central Bank of Nigeria (CBN) could be counter-productive to the efforts of the  tax committee.

Khanoba pointed out that the new levy will lead to higher transaction and financing costs , especially for small business owners more who easily transfer money from business accounts to private accounts and vice versa.

He added: “Obviously, a lot of revenue will be collected via this levy, if the CBN successfully implements it as is.  NIBSS reports that the value of electronic transactions rose by 55 per cent to N600 trillion in 2023.

“ Even if this is discounted by 50 per cent to account for the exempted transactions per the CBN circular, it means that the government will generate about N1.5 trillion per annum based on the 2023 volume.

“ This is about 8 per cent of the total revenue budget for 2024. The question that however stays unanswered is at what cost to the overall economy?”

According to him, the levy should be postponed until it aligns properly with the overall tax framework of the nation, a task assigned to the Presidential Committee on Fiscal Policy and Tax Reforms.

“It’s worth noting that the government already imposes the Nigeria Information Technology Development Fund (NITDF) levy on the same companies outlined in the Second Schedule of the Cybercrime Act, amounting to 1 per cent of their pre-tax earnings.

“So, why not increase the rate of this levy and allocate the proceeds to the diversified needs of the sector rather than institute a new levy?  The danger with multiplicity of taxes and levies lies within the uncertainty that it creates in the economic environment, and the difficulty investors have in their investment decision-making with regards to the country,” he added.

But he mentioned that the plan to increase the Value Added Tax (VAT) rate, also comes with the objective of reforming the Nigerian VAT system which currently is not purely a value added tax but a quasi-goods and service system.

He noted that ordinarily a VAT system targets the final consumer and not the businesses and is achieved via the full recovery of input VAT from output VAT generated.

“Unfortunately, this has not been the practice under the Nigerian VAT system, which places heavy restrictions against the recovery of input VAT by businesses, effectively making businesses bear the burden of VAT.

“A total reform of the VAT system, synchronised with the overall reform of the tax system will certainly portend well for the overall economy, even with an increase in VAT rate,” he argued.