According to this article, the Federal Inland Revenue Service is considering introducing a 5% levy on card-based online purchases in Nigeria, which may become effective in 2020. The implementation is not confirmed, but it would not come as a surprise given prior expectations for tax hikes. As this would increase the cost of card-based online payments, we would expect a shift towards alternative payment channels, but we see a risk that the levy could be extended to cover all online transactions, beyond just bank cards as mentioned in the article.
The main negative impact will be to the revenues of e-commerce businesses (Jumia) and digital payment platforms (Interswitch), with a ripple effect on banks’ digital banking drive. There could also be some erosion to the Central Bank’s push for cashless transactions and financial inclusion, which are reliant on low transaction costs, although other transaction channels such as agents, ATMs, POS terminals and mobile money are more readily accessible to, and needed by, the bottom of the pyramid. Overall, we could see pushback from the CBN, which has made no comments on this news yet.
For banks, the impact should be largely manageable, unless other branchless products/services are taxed. This is based on the low value of all web transactions in 2018 (including non-card-based purchases), compared to transactions through other channels (Figure 1), using data from Nigeria Interbank Settlement System (NIBSS). However, if the levy is extended to other products/services, banks and other players might have to adjust their charges in order to mitigate volume loss.
Source: NIBSS
Within our coverage, it is worth noting that FBNH and Fidelity had the highest e-banking contribution to non-interest income in FY18 (Figure 2) and available data shows Access and FBNH currently have the highest number of debit/credit cards in issue. As highlighted in a previous report, FBNH, GTB, Stanbic and Zenith are our top e-banking plays in Nigeria.
Source: Company accounts