The Nigerian government recently introduced a new levy on electronic money transfers in foreign currency (FCY) as part of its efforts to boost its revenue and reduce its fiscal deficit. The levy, which took effect from January 1, 2024, imposes a 0.005% charge on all FCY transfers above $10,000, whether inbound or outbound. The levy is expected to generate about N20 billion ($48.8 million) annually for the government, according to the Minister of Finance, Budget and National Planning.
However, the levy has also raised some concerns among stakeholders in the financial sector, especially those involved in cross-border transactions. Some of the implications of the levy are:
Increased cost of doing business: The levy will increase the cost of doing business for Nigerian companies and individuals that rely on FCY transfers for their operations, such as importers, exporters, remittance service providers, foreign investors, and diaspora Nigerians. The levy will also affect the competitiveness of Nigerian businesses in the global market, as they will have to factor in the additional cost of transferring funds in their pricing and profitability.
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Reduced financial inclusion: The levy will discourage some Nigerians from using formal channels for their FCY transfers, as they may opt for informal or alternative methods that are cheaper or unregulated. This will reduce the level of financial inclusion and transparency in the country, as well as expose Nigerians to risks such as fraud, money laundering, and terrorism financing.
Potential breach of international agreements: The levy may contravene some of the international agreements that Nigeria is a signatory to, such as the African Continental Free Trade Area (AfCFTA) and the Economic Community of West African States (ECOWAS) protocols.
These agreements aim to facilitate trade and integration among African countries by eliminating or reducing barriers such as tariffs, quotas, and levies. The levy may also violate some of the bilateral investment treaties that Nigeria has with other countries, which guarantee fair and equitable treatment of foreign investors.
Possible retaliation from other countries: The levy may trigger a backlash from other countries that are affected by it, especially those that have a significant volume of FCY transfers with Nigeria. These countries may impose similar or higher levies on Nigerian transfers or take other measures to protect their interests. This may lead to a trade war or a diplomatic row that could harm the bilateral relations and cooperation between Nigeria and its partners.
In conclusion, while the levy may have some benefits for the Nigerian government in terms of revenue generation, it also has some negative implications for the Nigerian economy and society in terms of cost, inclusion, compliance, and relations. Therefore, the government should reconsider the levy and explore other options that are more conducive to the development and growth of the country.
