I have read many documents on the Central Bank of Nigeria’s e-Naira including the presentation which the apex bank made to financial institutions. Yet, there is one thing many are not discussing: efficient tax collection through the visibility e-Naira will give the central bank and the tax agency. Yes, I expect the tax revenue in Nigeria to improve by 17-24% by 2023 if this new currency is adopted at scale. The government has made it clear that companies must accept the new currency. Why not if I may ask? In the next coming quarters, expect digital platform classification and how transactions therein could be taxed, automatically.
Nigeria’s digital currency, eNaira, is a legal tender just like the naira that must be accepted by all merchants and business outlets as a form of payment in the country, Musa Jimoh, Central Bank of Nigeria (CBN) director of payment system management, has said.
The CBN official disclosed this during an interview on Channels TV’s ‘Business Morning’ show on Monday.
“Today, anywhere you present naira to pay, compulsorily it must be accepted because that is our fiat currency. So, the same way naira is accepted that you can’t reject it, is the same way e-naira must be accepted,” Mr Jimoh said.
The CBN on August 30 announced plans to launch its own digital currency on October 1 after instructing banks to close crypto-related accounts in February.
The CBN governor, Godwin Emefiele, said the e-Naira would operate as a wallet against which customers can hold existing funds in their bank account, and that the currency would accelerate financial inclusion which will enable cheaper and faster remittance inflows.
This national playbook will track the nation’s plan to boost ecommerce from the current market value of $13bn to about $75bn by 2025: “The Federal Government has said that it is targeting an increase in e-commerce trading, from the current market value of $13bn to about $75bn by 2025. The Permanent Secretary, Ministry of Industry, Trade and Investment, Dr Evelyn Ngige, who disclosed this on Tuesday in Abuja at the second National E-commerce Roundtable organised by the ministry noted that e-commerce had grown from 14 percent in 2019 to 17 percent in 2020.” If you can efficiently collect VAT of 7.5% on that number, you get $5.6 billion which is ahead of the $5.5 billion total VAT, across all sectors, planned for 2022.
Nigeria is ahead planning that it would rake in N2.26 trillion from VAT despite the agitation of some states like Rivers and Lagos states. Yet, the key data there is that Nigeria will be spending about 13 trillion in the plan: “Based on the key parameters driving the fiscal framework, the net amounts accruable to the Main Pool and VAT Pool Federation Account are projected at N10.52 trillion and N2.26 trillion respectively in 2022. The share of oil revenue is about 51.1% of total Federation Account receipts.”
If e-Naira is well executed, Nigeria can double its VAT tax receipts by 2024. My thesis remains that Nigeria is innovating on tax collection but not doing enough on growth initiatives. The biggest impact of e-naira in the short-term for the government would be an efficient tax regime especially on digital platforms.
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Simply, if you have a national strategy to boost ecommerce and digital platforms trade and business, with e-naira which will make transactions more visible to the apex bank, you have a higher chance of collecting VAT. Why? I can say, any payment leaving any e-Naira wallet to Jumia (an ecommerce platform) must be assessed 7.5% (VAT rate) at source with no need of even asking Jumia to do that. Yes, CBN can help FIRS do that automatically.
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Have the promoters thought about all these, or you are helping them to update their playbook now?
We will soon know how well they have been thinking.
It is a catchy caption but not much of any logic.
Sorry about that – let me try again if that helps. If you have a national strategy to boost ecommerce and digital platforms trade and business, with e-naira which will make transactions more visible to the apex bank, you have a higher chance of collecting VAT. Why? I can say, any payment leaving any e-Naira wallet to Jumia (an ecommerce platform) must be assessed 7.5% (VAT rate) at source with no need of even asking Jumia to do that. Yes, CBN can help FIRS do that automatically. That is the logic.