As the Central Bank of Nigeria (CBN) go full throttle on its push to get more Nigerians to adopt digital banking, there are indications that the federal government’s stamp duty policy could be a clog in the wheel for cashless drive.
Last week, the CBN announced that banks will be allowed to take charges on customer deposits and withdrawal in excess of N500,000 and N3 million respectively.
“The cashless policy deposit/withdrawal is only on the amount in excess of the limit,” the CBN clarified in a tweet on Friday, 20 September. “For instance, if you deposit a cash of N501,000.00. N1,000.00 is in excess of the limit. The bank will charge you 2 percent of N1,000.00 which is N20.00”
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According to Unified Payment (UP) data, less than 5 percent of individual Nigerians have a turnover of N15 million monthly or N500,000 daily. Similarly, less than 5 percent of businesses in Nigeria have turnover of N90 million monthly or N3 million daily.
Following the announcement, the CBN in collaboration with Nigeria Interbank Settlement System (NIBSS) also directed that banks should charge N50 Stamp Duty on individual transactions that occur on Point of Sales (PoS), rather than the previous practice of charging on aggregate transactions.
Section 89 (2) of the Stamp Duty Act provides that “Every receipt given by any person in acknowledgement of good produced or services rendered should be denoted by an adhesive postage stamp worth N50 issued by the Nigerian Postal Service.” Section 14(2) of the same Act compels a mandatory receipt to be denoted.
Government expects to raise about N2.2 trillion annually from Stamp Duty collection.
Data from NIBSS showed that total volumes of PoS transactions for 2017 stood at 146.3 million worth N1.4 trillion; 285.9 million transactions in 2018 worth N2.3 trillion; and 187.7 million at N1.4 trillion in the first six months of 2019.
PoS transaction in 2019
Although the volume of PoS transactions are impressive numbers, failure rate continues to be a daily worry for many merchants, contributing significantly to their disenchantment with the cashless policy.
In a January guide, NIBSS noted that the failure rate of card transactions on POS terminals ranges between 13 per cent and 15 per cent. This means that in every 100 attempts to process card payment on POS terminals, 13 to 15 would fail. NIBSS Instant Payment (NIP) on the other hand has a 0.7 per cent failure rate, meaning that only about 7 NIP fund transfer transactions will fail out of 1,000 attempts.
The latest directive from the CBN raises a new set of challenges for merchants. For proper context, take a typical eatery that does about 500 serving a day at N1,200 per plate. That comes to about N600,000 gross revenue per day. Based on previous regime, the eatery owner would be settled by his bank N595,500 after paying 0.75 percent MSC on each of the N1,200 card transaction. He would also pay N50 for Stamp Duty and N4 for SMS. The Merchant Service Charge (MSC) is the amount that a merchant is debited for a PoS service.
The CBN had in September, 2019 reduced the fee that businesses pay for accepting electronic payments at Points-of-Sale (PoS) by 33.3% from 0.75% to only 0.5% of transaction value with a ceiling or maximum charge of N1,000. This is about the lowest rate in the world.
In the new CBN regime, the owner’s MSC would reduce to N3,000 which is good, however, he would have to pay N50 Stamp Duty for every transaction which comes to N25,000 and additional SMS of N4 for each of them. This creates additional N27,000 fees without his business getting better or additional benefits from a government that would tax him to death than support him.
According to Taiwo Oyedele, Tax Leader, PricewaterhouseCoopers (PwC), Nigeria is in the top 10 in the world, for the highest income tax rate. A firm pays Company Income Tax (CIT) 30 percent; education tax, 2 percent, and withholding tax of 10 percent. When added together, it comes to 40 percent.
Nevertheless, there is no gainsaying that cashless remains the future of payment.
“Huge circulation and adoption of cash is very costly to every economy,” Agada Apochi, managing director and CEO of Unified Payment said in an email response to BusinessDay. “It is costly to the government, businesses and individual citizens. The costs include printing of notes and coins, handling & processing, high operating costs for banks who pass the costs to customers, high interest rates, lack of transparency, black market economy, violent and non violent crime, etc.”
Adedeji Olowe, CEO of Trium Networks told BusinessDay that merchants can avoid the Stamp Duty charge simply by opening a Savings account and directing payments there.
“The Stamp duty regime only applies to Current Accounts,” he explained. “And all Nigerian banks do offer Savings account to corporate bodies. Also, the merchant could tell his bank not to send an SMS and email, which is free.”
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