The Nigeria’s New “0.005” Electronic Transaction Levy

South Africa wants to regulate Showmax; Naspers, the owners of Showmax, also wants the country to regulate Netflix. Where South Africa cannot regulate Netflix, then Showmax should be left alone, Naspers maintains. Naspers sees Netflix as a mortal threat since South Africans can use their credit cards and subscribe to Netflix with no stress. So, if you cage Showmax in South Africa with regulation, it would die because South Africans will switch to the world of Netflix.

Through DStv, MultiChoice has been the dominant player on African television screens in the last decade, available in 48 African countries. Yet, in the last week, the Naspers-owned media giant has been appealing to South African regulators, trying to make a case for why it could not survive any regulation in the face of streaming.

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To it’s advantage, Netflix’s standard $11.99 monthly subscription has made it more attractive than DStv’s satellite services that cost more than $40 in Nigeria and nearly $65 in South Africa for all-access subscriptions. MutliChoice is clear, though, that it wants all streaming services regulated.

The Central Bank of Nigeria (CBN) as part of the implementation of a certain section of the Cybercrime Act 2015 would be collecting a new levy on all electronic transactions into a National Cyber Security Fund account with the CBN. The Association of Telecommunications Companies of Nigeria (ATCON) hates that because it would make your phone calls and browsing more expensive since telcos would pass the costs to you. Banks, insurers and fintechs would also help to collect the new levies since anything electronic transaction would be levied the 0.005%. Unfortunately, WhatsApp, Skype, Instagram etc would not be in that list. And that is the problem.

The Association of Telecommunications Companies of Nigeria (ATCON) has rejected the move of the Central Bank of Nigeria (CBN) to start the implementation of a certain section of the Cybercrime Act 2015. The section provides for the collection of ‘0.005’ levy on all electronic transactions into a National Cyber Security Fund account with the CBN.

Its National President, Mr. Olusola Teniola, warned yesterday in Lagos that the collection of the levy would inevitably lead to a sharp increase in ‘charges paid by customers’ for telecoms services.  He said tariff on voice calls and data cost would certainly go up because the impact of the levy would be passed on to the end user of telecoms services.

The businesses which are to be affected by the levy include telcos, Internet Service Providers (ISPs); banks and other financial institutions; insurance companies and Nigerian Stock Exchange.

Africa’s Web Regulatory Challenge

I have noted that Internet would destroy value; it would also create new value. However, the translation of that value may not necessarily go to government, immediately. If government loses taxes on SMS and phone calls because people are using WhatsApp and Skype, the citizens have saved money but government has lost that tax revenue since the telcos cannot pay for them. Any government that is pushing to recover the bulk of that value destruction and shifting will end up hurting its local companies. In other words, if Nigeria wants to tax more on SMS in order to recover lost revenues because of WhatsApp, it would be making a big mistake. This new levy for cybercrime in Nigeria will be a burden on local companies; the foreign ones will not be part of it. Yes, the local companies have paid their usual corporate taxes which ordinarily should be used by government to protect those companies in any way possible from cybercrimes.

Nigeria is not paying attention to the potential risks of value destruction to the economy which Internet will bring to the nation. We will continue to see the erosion of tax Naira as more industries are disrupted. The telcos are first, but our banks are not immune. If the banks face this problem and fail to compete, the tax Naira will go as more value will be destroyed.. The challenge is that value is destroyed, and our local digital companies do not actually drive the destroying process – most times, foreign firms do and get the value. I project that Internet will erode more than 17% of Nigeria’s total tax revenue over the next decade. This does not mean that the absolute tax revenue will drop, rather, some sectors where government makes money, via tax, will earn less. If the telcos earn less because of OTT, they will pay lesser tax. Period. But government can still get more artisans and farmers to pay tax (I want to make that clear – my prediction is not the absolute tax which can be compensated if more people join the tax paying base. I am focusing on taxes from those paying tax right now. While those paying now can drop, proportional to growth, the total absolute tax could be higher because of bringing more informal sector participants into formal sector).

Our digital companies are supposed to help us cushion the impact from this Internet-enabled value destruction. Yes, but they will need to grow and blossom first. I will explain how they can do this.

All Together

In the age of unconstrained and unbounded internet, distribution is no more what it used to be. That is a very important element African regulators must consider. If you continue to pile fees on telcos, you are simply making it easier for more people to be pushed to WhatsApp since SMS would become more expensive as the telcos would certainly increase prices to recover their costs. And when you think your indigenous streaming company is dominant, you have forgotten that it is competing with extremely more dominant global empires. The old adage that business is local remains, but for internet companies, local means everywhere. Yes, everyone on the web is local to all!

Specifically for Nigeria, the push to digital & cashless society should not be seen as an avenue to make more money from the citizens. We already pay stamp duty on electronic transactions. This new levy needs to be revisited.

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