UNDERSTANDING THE NEW ELECTRONIC MONEY TRANSFER LEVY (EMTL): IMPLICATIONS FOR FINTECH USERS AND BUSINESSES IN NIGERIA

The rise of digital transactions in Nigeria has prompted significant changes in the country’s tax framework. One of such development is the introduction of the Electronic Money Transfer Levy (EMTL), which has reshaped the financial ecosystem for individuals, businesses, and fintech users alike. The Federal Government of Nigeria introduced a ₦50 levy on electronic money transfers exceeding ₦10,000, effective September 9, 2024. This policy, a part of the Electronic Money Transfer Levy (EMTL) under the Finance Act 2020, has significant implications for individuals, businesses, and financial technology (fintech) platforms like OPay and Moniepoint.

This newsletter breaks down the key aspects of the EMTL, its implications for fintech operations, and what businesses and users must know to navigate this evolving landscape effectively.

What is the Electronic Money Transfer Levy (EMTL)?

EMTL was introduced through the Finance Act, 2020 and came into effect in January 2021, replacing the previous Stamp Duty on electronic transactions. Governed by the provisions of Section 89A of the Stamp Duties Act, CAP S8 LFN 2004 (as amended) this levy imposes a flat charge of ₦50 on electronic money transfers or electronic receipts of money of ₦10,000 and above. Transfers below ₦10,000 and transfers between accounts held by the same person are exempt.

The N50 levy per transaction is therefore applicable to any electronic transfer of funds exceeding ₦10,000. Transactions conducted by individuals and businesses through mobile banking apps, USSD, point-of-sale (POS) terminals, or other digital platforms fall within its scope.

Key Features of the EMTL

1. Flat-Rate Charge: A consistent charge of ₦50 per eligible transaction, irrespective of the amount transferred above the threshold.
2. Applicability: Applies to transactions processed by banks and non-bank financial institutions, including fintech operators.
3. Collection and Remittance: The levy is collected by the financial institution facilitating the transaction and remitted to the Federal Inland Revenue Service (FIRS).

While the EMTL covers most digital transactions, certain categories are exempt:

• Transfers below ₦10,000.
• Transfers made by or to government ministries, departments, and agencies (MDAs).
• Transfers between accounts held by the same individual within the same bank.
• Transfers specifically designated for humanitarian purposes.

Implications for Fintech Platforms

Financial technology platforms like OPay and Moniepoint, known for providing affordable and convenient financial services to millions of Nigerians, will play a critical role in implementing the levy.

• Compliance Requirements: These platforms must update their systems to automatically deduct the ₦50 levy from qualifying transactions and remit it to the government.
• Increased Operational Costs: Platforms may face higher administrative costs to ensure compliance, which could translate into additional fees or service charges for users.
• User Perception: Fintech platforms might encounter resistance from users who perceive this levy as an additional financial burden, potentially affecting transaction volumes.

Key Implications for Fintech Users and Businesses

1. Increased Cost of Transactions: The levy increases the cost of electronic transfers for individuals and businesses. With SMEs and startups heavily reliant on fintech platforms for payment processing, users may experience marginally higher service charges when transferring funds through digital channels.
2. Compliance Obligations for Fintech Operators: Fintech companies must integrate the EMTL collection mechanism into their platforms to ensure seamless remittance to the Federal Inland Revenue Service (FIRS). This integration requires investment in technology upgrades and adherence to reporting requirements.
3. Shift in Consumer Behavior: The EMTL could influence consumer preferences, leading to reduced electronic transactions or increased use of cash for smaller payments to avoid the levy. Fintech businesses must adapt by offering incentives or reducing transaction fees to retain customers.
4. Operational Complexity for Businesses: Businesses relying on fintech solutions for payroll, supplier payments, or e-commerce may face challenges in tracking and reconciling EMTL deductions. Proper accounting systems are essential to mitigate this complexity.

Broader Economic and Regulatory Impacts

• Revenue Generation for the Government: The EMTL aims to support national development initiatives, but its success depends on effective enforcement and compliance.
• Potential Setback to Cashless Policies: While the government promotes a cashless economy, additional levies could discourage the adoption of digital payments.
• Legal and Compliance Concerns: Businesses and fintech platforms must ensure strict adherence to the levy’s guidelines to avoid penalties.

The following considerations are brought to fore in light of the EMTL implementation;

The EMTL aligns with Nigeria’s broader goal of increasing revenue generation through digital taxation while reducing reliance on oil revenues. Fintech operators, in particular, are under increased scrutiny, as the FIRS continues to refine its enforcement mechanisms.

To maintain compliance, fintech companies must:

• Implement robust systems for accurate levy collection and ensure prompt remittance of collected levies to avoid legal disputes or reputational damage.
• Ensure regular reporting to the FIRS to avoid penalties.
• Educate their users on the levy to enhance transparency.

Strategies for Mitigating the Impact

1. Optimize Transaction Frequencies: Consolidating smaller transfers into larger, less frequent transactions can help reduce the cumulative levy burden.
2. Leverage Fintech Solutions: Businesses can adopt fintech platforms that offer automated transaction summaries and levy tracking to improve financial oversight.
3. Engage Tax Advisors: Professional advice can help businesses and fintech operators ensure compliance while exploring possible cost-saving measures within the bounds of the law.

Conclusion

The EMTL represents a paradigm shift in Nigeria’s approach to leveraging digital transactions as a significant revenue source. While it holds the potential to bolster government revenue, it also raises critical questions about its impact on the cashless economy, financial inclusion, and business operations, thus underscoring the need for financial institutions and their customers to adapt to evolving regulatory frameworks.

Stay informed, compliant, and ahead of the curve.