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Why Nigeria’s Crypto-Friendly Company Flutterwave was Denied Tax Incentive

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Image Credit: Kabiru Yusuf (Bitcoin and regulations)

On Flutterwave;

Flutterwave, a fin-tech company based in Lagos and San Francisco that provides payment infrastructure for global merchants and payment service providers across the continent, recently had its application for a Pioneer Status Incentive (PSI) denied by the Federal government. It is no news that Flutterwave has made its mark in the digital space as a fertile startup group that aids tons of dealers and foreign businesses in actualizing digital payments that transcend borders through a smooth mechanism. It is, therefore, no surprise that the company keeps growing in leaps and bounds. 

Earlier this year, it joined the league of top companies like Apple, Microsoft, Pfizer, Netflix, Facebook among others in TIME’s list of 100 most influential companies creating critical impacts across the globe. It has also partnered with Binance, a leading crypto-exchange platform to bridge the fiat-to-crypto currency gap. By this, Nigerians can purchase cryptocurrencies directly with the Naira. 

Why then is PSI important? 

The Pioneer Status Incentive (PSI) is a program set up by the Industrial Development (Income Tax Relief) Act, No. 22 of 1971 to promote increased investments in the economy. It is simply a form of tax holiday. And this incentive seeks to stimulate growth by granting an income tax exemption to qualified companies in key sectors of the economy. 

Furthermore, this exemption can either be a full or partial one and is made available for a period of (5) five years (an initial 3 years, renewable for another 2 years). The Pioneer Status Incentive is regulated by the Nigerian Investment Promotion Commission (NIPC) and its Exec. Secretary, Ms Yewande Sadiku in a statement remarked that the commission had entered into multiple partnerships with the private sector in a bid to harness potentials in the country. So why then was Flutterwave denied a chance at a Pioneer status certification? 

It was revealed that several reasons contributed to the rejection of a company’s application for PSI — ranging from having an ineligible business activity, submitting a request later than required et al. In the words of Emeka Offor, the director of strategic communication at NIPC; “The Industrial Development Act gives guidelines and one of the requirements is that an applicant for pioneer status or tax relief must make an application in the first year of production or service delivery, which most of them failed to do… In the case of Flutterwave, for instance, they applied within the third year of operations. Therefore, it is time-bound, according to the Industrial Development Act. Some other firms who had their applications for tax reliefs declined had a similar concern.” Hence, it was gathered that (3) three firms were approved in principle, while six were granted a full three-year certification. In this category, we have groups like Tiamin Rice Ltd, Medlog Logistics Ltd, African Foundries Ltd, Aarti Rolling Mills Ltd, Pan Africa Towers Ltd and Princess Medi-clinics Nig.

Some of the companies whose requests were also rejected included Flour mill of Nig., Benchmark Constructions Ltd, Envoy hotels, Al-hamsad Rice mills Ltd and a host of others. 

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Business

From Libra to Diem: What happened to Facebook’s Digital Currency plans

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Facebook digital currency
Source: Getty Images (modified)

In 2019, Facebook Inc. announced the Libra, a digital currency project being developed by the company. Libra was unveiled to be a blockchain based stablecoin backed by bank deposits and short-term government securities and was to be integrated into Facebook’s services like Messenger and WhatsApp. The Libra blockchain was said to be able to handle 1000 transactions per second, in stark contrast to Bitcoin’s 7 transactions per second. Needless to say, the news that the largest social media company was working on a cryptocurrency rocked the market for a while. But for some reason, we haven’t seen anything really significant happen since then. Why?

First off was the regulatory hurdle. It would appear that Facebook realized that it didn’t have top marks in the trust department, especially in public opinion. To this end, the Libra project was grilled by U.S lawmakers in July 2019 and the central theme was the issue of trust and data privacy. Other regulators also commented on the issue, with European Central Bank board member Benoit Coeure reportedly saying that digital currencies such as the Libra could challenge the supremacy of the U.S. dollar. Similarly, France’s and Germany’s finance ministers at the time had expressed concerns over the Libra, citing risks around financial security, investor protection and anti-money laundering laws.

Libra also faced the hurdle of its project partners dropping out of the initiative. Founding members eBay, Visa, Mastercard as well as PayPal withdrew from the project which may have had a hand in stalling it. The regulatory scrutiny surrounding the project and Facebook’s own unpalatable reputation might have influenced the decisions of the partners who left the project.

This story would be incomplete without mentioning the efforts at rebranding which morphed the project from Libra to Diem in late 2020. These efforts may have been subtly aimed at distancing the digital currency from the scandals and scrutiny that plagued Libra as a result of its association to Facebook. However, those efforts haven’t been particularly successful. As a result of these factors and more, the Diem association scaled back its earlier hoped for global launch and instead settled for a U.S. stablecoin. That doesn’t seem to have happened.

All in all, it would appear that Facebook is adamant in the pursuit of this blockchain system. However, regulators aren’t completely convinced. The headache seems to be about the issues around it’s possible widespread use, considering the amount of Facebook users. The apprehension is about such a currency’s competitive power with other fiat currencies as well as privacy concerns.

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News

Financial Leaders from G7 Release Guidelines for Central Bank Digital Currency

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Source: World Atlas

At a meeting that was held in Washington, yesterday, October 13, G7 leaders discussed central bank digital currency and endorsed 13 public policy principles with regards to their implementation. The financial leaders from G7 agreed that CBDCs would complement cash and should not be detrimental to the monetary system. The G7 leaders have been discussing CBDCs this week concluding that they should do no harm and meet rigorous standards.

It should be noted that G7 includes finance leaders in advanced economic nations comprising of Canada, France, Germany, Italy, Japan, the U.S and the U.K. the G7 leaders make it mandatory that any newly launched CBDC should not harm the central bank’s ability to perform its duty of maintaining financial stability. In a joint statement by the G7 finance ministers and central bankers, they said that, 

“Strong international coordination and cooperation on these issues help to ensure that public and private sector innovation will deliver domestic and cross-border benefits while being safe for users and the wider financial system.” 

The joint statement further states that CBDCs are complements to cash and could serve as a liquid or safe settlement assets with an added advantage of anchoring existing payment systems. CBDCs issuance should be entrenched in a long-standing public commitment to transparency, rule of law, and sound economic governance. The statement added at CBDCs must be so efficient that they are fully interoperable on a cross-border basis. 

The G7 leaders agreed that they had a duty to minimize the incidence of ‘harmful spillovers to the international monetary and financial system” 

The G7 statement reiterated a similar statement earlier made by G20 that no global stablecoin project should begin operation until such a token has addressed legal, regulatory and oversight requirements. 

Countries like China and Nigeria are ahead of the pack with regards to the adoption of digital Yuan and Naira respectively. China’s crackdown on cryptocurrency may be a step forward for the country’s plan to promote its digital Yuan. Nigeria, on the other hand, postponed the launch of its eNaira in deference to the 61st anniversary of Nigerian independence on Oct 1. 

However, countries like the US and the UK are dragging their foot with regards to the introduction of CBDCs to their financial system. There are insinuations that America is in danger of being left behind technologically and financially if it doesn’t get serious with the implementation of CBDC in its financial system.

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Bitcoin

El Salvador’s Bitcoin adoption – What you need to know

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El Salvador made history (and headlines) after becoming the first nation to endorse and approve the world’s most popular cryptocurrency, Bitcoin, as a legal tender. The move makes Bitcoin acceptable for transactions within the Central American country alongside the U.S dollar, which has been serving as the paper currency since 2001. This comes after the so-called “Bitcoin Law” came into force after passing legislation in June of 2021. El Salvador’s government announced that it had purchased 400 Bitcoin in 2 tranches of 200 each and plans to get more in the future.

The move to adopt Bitcoin has been justified by the government’s need to boost financial inclusion in the country. It is estimated that 70% of El Salvadorans do not have access to financial services and the government believes that Bitcoin can help close the gap. The Bank of America has outlined a few benefits that they believe will result from El Salvador’s bitcoin adoption. These include promotion of financial digitization, streamlining remittances as well as opening the country to digital currency miners. However, not all agree that the move is a step in the right direction.

Amongst the detractors of the scheme are the International Monetary Fund and the World Bank, each having warned El Salvador about the risks of Bitcoin’s use as legal tender. The World Bank has been irked by what it described as “environmental and transparency shortcomings” with bitcoin, while the IMF cited “economic and legal concerns” in relation to the move.

Other than the push back from these international bodies, there has been some internal opposition to the adoption of Bitcoin. Citizens had held protests over Bitcoin’s adoption in August and about 67.9% of respondents in a poll said they disagreed with the government’s decision to adopt crypto. The results of the poll showed that 8 in 10 people had little confidence in the use of bitcoin as the currency.

In spite of the criticism, El Salvador’s government is moving forward and has reportedly installed 200 Bitcoin ATMs across the country. And in response to the World Bank’s environmental concerns, El Salvador’s president, Nayib Bukele, has said the country plans to power mining activities using renewable energy from the country’s volcanoes. In order to incentivize the use of Bitcoin in the country, any citizen who signs up for the country’s “Chivo” wallet will get 30$ worth of bitcoin.

All in all, the adoption of a cryptocurrency by a sovereign nation is seen as a testing ground for many, as this is a use case Bitcoin has never experienced in its 12-year history. Countries such as Brazil and Panama seem to be watching the move to draw insights on whether to follow suit.

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