The federal government’s proposed cybersecurity levy could impose an additional N1.5 trillion tax burden on businesses and households, according to leading accounting firm Kreston Pedabo.
Senior Partner Killian Khanoba highlighted that despite exempted transactions per the CBN circular, the Nigeria Inter-Bank Settlement System Plc (NIBSS) reported a 55% rise in electronic transaction value to N600 trillion in 2023.
Based on this volume, the government could generate approximately N1.5 trillion annually, equating to about 8% of the total revenue budget for 2024.
Khanoba expressed concerns about the broader economic impact of this levy, arguing that ad-hoc taxes like these are not sustainable and could lead to poor fiscal management and value loss for the nation.
He also pointed out that the levy might hinder efforts towards financial inclusion and a cashless economy, as increased transaction fees could push small businesses to revert to cash transactions, slowing overall business activity.
Additionally, Khanoba noted that the introduction of the cybersecurity levy is counterproductive to current efforts aimed at reducing the number of taxes in Nigeria. The levy would increase transaction and financing costs, disproportionately affecting MSMEs, which often transfer money between business and personal accounts, leading to significant value erosion for these smaller entities.
Khanoba suggested that the implementation of the levy should be delayed until it aligns with the overall tax framework being developed by the Presidential Committee on Fiscal Policy and Tax Reforms.
He also proposed that instead of instituting a new levy, the government could increase the existing Nigeria Information Technology Development Fund (NITDF) Levy, which already imposes a 1% tax on the pre-tax earnings of the same companies targeted by the cybersecurity levy.
The multiplicity of taxes and levies creates economic uncertainty and complicates investment decisions. Khanoba also touched on the proposed increase in the VAT rate, emphasizing the need for a complete reform of the Nigerian VAT system to ensure it operates as a true value-added tax rather than a quasi-goods and services tax (GST).
A reformed VAT system, targeting final consumers and allowing full recovery of input VAT, would benefit the economy, even with an increased VAT rate.
“A comprehensive VAT system reform, aligned with overall tax system reform, will be beneficial for the economy,” Khanoba concluded.
