Nigeria: Dead On Arrival?

17 October 2019

All over the world, governments impose taxes on individuals and organisations primarily to raise revenue. But some stakeholders have opposed the planned Communications Service Tax.

Some Nigerians have expressed dissatisfaction over the planned re-introduction of communication tax bill, which seeks to impose nine per cent Communications Service Tax (CST) on telecoms operators and cable television service providers.

The 8th National Assembly had in the last dispensation, tried to introduce the bill, but later dropped the idea, following the outcry by Nigerians who vehemently opposed it because they feared it would lead to hike in telecommunications services that would further worsen the economic situation of the country.

Following the alarm raised by the Association of Telecommunications Companies of Nigeria (ATCON) penultimate week, that the current Senate was planning to reintroduce the bill, Nigerians again, have widely rejected the plan.

They, therefore called on the Senate to drop the idea, saying it would increase the pains already inflicted by the harsh economic situation of the country.

Although stakeholders are not against government finding new ways of generating revenue to fund capital projects that will benefit the masses, they are, however, of the view that government must first address the issue of unemployment, provide basic infrastructure that will make Nigerians comfortable, before thinking of hiking telecommunications and other forms of taxes.

The CST Bill

The 2019 version of the CST Bill passed the first reading in the Senate penultimate week, a situation that prompted ATCON to raise the alarm. The bill proposes a nine per cent CST to replace the planned increase in Valued Added Tax (VAT) from five per cent, to 7.5 per cent by the federal government.

The CST when passed into law would be levied on the consumers of voice calls, MMS, SMS, data usage and Pay per View TV services provided by mobile telecommunication and internet service providers.

For the telecommunications sector, stakeholders are of the view that the proposed CST bill would worsen the issue of tax multiplicity, and that in addition to existing taxes, companies would bear increased costs of compliance and lower patronage as consumers would react negatively to new taxes.

Stakeholders said with the sector contributing 1.2 per cent to the real Gross Domestic Product (GDP) growth of 1.9 per cent in the second quarter of 2019, there would likely be even slower economic growth, when the bill is passed and implemented. Similarly, they noted that considering that the penetration of telecommunications services was lagging in rural areas, the planned tax would slow progress towards expanding national coverage.

Telcos Kick

Telecommunications Companies (Telcos), under the aegis of Association of Telecoms Companies of Nigeria (ATCON), penultimate week, raised the alarm over fresh Plans by the Senate to impose nine per cent Communications Service Tax (CST) on telecoms operators and cable television service providers.

Reacting to the development, the President of ATCON, Mr. Olusola Teniola, said telcos would reject it again because of the foreseen hardship it would create on telecoms subscribers.

Teniola said: "It has been brought to our attention the re-emergence of nine per cent Communications Service Tax (CST) that was previously suspended by the Eight National Assembly during the intervention of ATCON NEC to the Senate President on November 8, 2016 whereby it was acknowledged by the distinguished Senators that the growth of ICT is critical to the creation of jobs and reduction in youth unemployment.

The Senate President agreed and assured ATCON and members at large that the tax would be set aside. In attendance at the meeting were the Senate President of the Eight National Assembly, Bukola Saraki, the then Chairman of the Senate Committee on Communications, Senator Gilbert Nnaji and Senator Solomon Adeola Olamilekan respectively."

According to Teniola, ATCON had then recommended to government that the tax base of the country should be widened to include more tax payers. It was noted that only 13 million out 70 million were contributing to the tax revenue of the federal government.

"Since 2016, Nigeria has undergone a recession and experienced low GDP growth rate coupled with government recurrent expenditure that now exceeds oil revenue. Therefore, we understand that measures to shore up government income in the way of taxes should be explored," Teniola said.

He, however, explained that government needed to also consider a reduction in the cost of governance that will fit within the new government revenue generated through taxes and oil receipts.

"It is inconceivable that a CST Bill of nine per cent that was put aside, which is a direct copy of Ghana's CST, is now being pushed through the National Assembly without due consultation with all stakeholders and it is especially targeted at the telecoms and ICT sector.

"The impact of the adoption of nine per cent CST Bill is that it is a double tax on voice, SMS, and data service as 5 per cent VAT already applies on these services. This represents an additional burden when applied to a subscriber base of 174million," Teniola added.

He further said if the passage of the bill went through, it would negatively impact Nigerians and foreigners that use these services.

"The implementation of this CST Bill would take the affordability of data services out of the reach of the citizenry. Therefore, ATCON recommends that government reconsiders the passing of the bill, as it would add to the burden of the already suffering Nigerians. It is deemed as an additional multiple tax, loss of revenue to the industry and can lead to loss of jobs in the sector. We reiterate that the burden of shoring up government revenue should be across all segments of society in the way other climes use VAT and not to be targeted to a specific sector, " Teniola said.

Also, analysts at Afrinvest West Africa Limited described the move as "another misadventure" which would further place burden on Nigerians.

The analysts in a recent report, said it would also worsen the issue of multiple taxation in the country.

According to the financial advisory firm, the CST would overburden consumers who already bear five per cent VAT on telecommunications services.

"As Nigeria plans to boost digital connectivity and derive the attendant benefits, this could slow progress as consumers readjust spending patterns given the level of poverty in the country.

"We do not expect the CST to generate as much as the proposed VAT of 7.5 per cent which we conservatively estimate to bring in additional N545.1 billion as VAT revenue.

"Looking at data on the sectoral distribution of VAT collections, we discover that VAT from professional services, which includes collections from the telecommunications sector, was N86.3 billion in 2018.

"Revenues from the CST of nine per cent would clearly fall short of the federal government's expected increase in VAT, even without considering the changes to consumer demand and growth in the sector," the report added.

The financial analysts believe the strategies to boost revenues should be better coordinated and should be part of a comprehensive reform package that harmonises taxes, widens the tax net, reins in recurrent spending, reduce costs of compliance and eliminates spending on petrol subsidies.

"We believe the federal government approach towards taxes could affect economic growth and dampen the investment climate, with negative implications for tax collections," the report further added.

In a related development, the Association of Bureaux De Change Operators (ABCON) warned against the proposed increase in Value Added Tax (VAT) to 7.2 per cent from the initial five per cent.

Telecoms taxes in Africa

Ghanaian Finance Minister, Ken Ofori-Atta, had in July this year announced that the country's telecoms tax would be increased from six per cent to nine per cent with effect from October 1, and the service providers were informed of the increase through text messages. The service providers, however, said the increase would be applied to every recharge.

In Kenya, a recent Delloite report that was commissioned by GSM Association (GSMA), the global body that oversees telecom growth across regions, showed that Mobile Network Operators (MNOs) in Kenya are currently subject to a number of market and regulatory pressures, including a high level of taxation, which subsequently impacts consumption of mobile services by consumers.

The report warned that any further increase in tax burden could have negative impacts on investment, product development, the financial contribution made by MNOs to community projects and on the ability of MNOs to retain current levels of employment.

A proposed tax increase on mobile money transfers in Kenya is drawing protests from several services, including M-Pesa.

As part of a new tax proposal to raise government revenues, Kenya's government is pushing to raise duties on mobile cash transfers by two per cent. The government expects to net around $270 million in additional revenues and claims the extra income will fund a universal health care program to cover all households by 2022.

But Safaricom-owned M-Pesa said the move could take a big toll, as it will "negatively impact mobile-led transfer services and payments" and reverse the gains of financial inclusion by making it more expensive to conduct business transactions and make payments using mobile money services.

Telecoms growth in Nigeria

Similarly, telecoms stakeholders in Nigeria have argued that telecoms growth has been geometric in nature and should not be slowed down with the burden of taxes.

Citing the growth in telecoms in the last six months, as released by the Nigerian Communications Commission (NCC), the telecoms stakeholders said government should rather deploy means of sustaining telecoms growth across networks.

The NCC data showed that telecoms subscriptions across all networks increased by two million from July to August 2019, to reach a total of 176.9 million as at August, up from 174.9 million subscriptions in July this year.

The increase in telecoms subscriptions also increased its tele-density from 91.65 per cent in July to 92.67 per cent in August this year.

Tele-density is defined as the number of active telephone connections per one hundred inhabitants living within an area and is expressed as a percentage figure. Tele-density is calculated based on a population estimate of 190 million, up from 140 million.

The NCC statistics showed that in the last five months, both telecoms subscriptions and broadband subscriptions have been on the increase, which it attributed to the steady telecoms regulation, which protects telecoms subscribers and consumers, having declared 2017 as the Year of Telecoms Consumer, by the NCC.

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