Much ado about the proposed communications tax
The subject of tax has gained prominence on the political and boardroom agenda in Nigeria. The severity of the economic downturn has also offered a life lesson to key stakeholders on balancing the odds. Consequently, there’s pressure on the government to expand the tax net and curb aggressive avoidance and evasion, while board executives are managing tax efficient strategies with competing consumer demands and projecting a positive corporate image.
Whatever a country’s level of economic development, the administration of taxes across sub Saharan Africa, and indeed the world over, face the same fundamental issues. Citizens will continue to demand more from their government, and businesses always need an enabling environment to sustain profitability and essentially contribute to the economy.
Recently there has been a flurry of commentary around the proposed CST (Communication Service Tax) bill. A draft of this bill seeks to introduce a tax of 9 percent on telecommunication services spanning voice, data usage and other specified services. Communication service providers will be required to charge CST on in-scope services, and remit the CST charged to the Federal Inland Revenue Service.
Severe and cumulative non-compliance penalties have been proposed. While it is understandable that government needs to raise revenue in order to meet its growing funding demand, questions are being raised by stakeholders regarding the economic impact of the proposed tax, given that the established size and growth potential of the ICT sector could unintentionally be stifled by the impact of the bill.
Key areas likely to be affected include the desired broadband penetration across Nigeria, and the progress made so far on social and financial inclusion of the less privileged and unbanked public. There’s no doubt that the sector offers huge prospects for economic diversification plans, but the pertinent question is, whether the economic costs of the CST will outweigh its benefits? This question is especially pertinent, as tax should exist to create benefits for society, and not be a burden upon it.
ACCA supports that a clear exposition of what makes an efficient and just tax system in government is essential. Going back to the basics of the fundamental objectives of tax to achieve revenue generation, wealth redistribution, resource reallocation and behaviour modification, ACCA’s report on the 12 tenets of tax , looks at the wider tax landscape and the new pressures facing governments. These tenets offer a sounding board to the effectiveness of any tax bill.
Ensuring the “openness and transparency” of a proposed tax will do well to nurture public ownership and acceptance. It wouldn’t be far from the truth to say that no one likes to pay tax, but if tax payers understand what they are paying, why they are paying it, and what the benefits of paying will be, the demonstration of a fair tax policy through open and transparent engagement with government, would make compliance more palatable.
There has been some positive steps in this direction seen in the recent laudable efforts of the Lagos Chamber of Commerce and Industry to bring government and sector stakeholders in dialogue over the pros and cons of the proposed CST bill.
How this initiative will influence the law will depend on the policy makers’ actual involvement in the dialogue process, and if they indeed have the ears of stakeholders who represent the public.
In any case, to foster healthy relationships between business owners, tax payers and the authorities, government should institutionalize transparent clearance mechanisms for constructive dialogue in advance of a proposed tax legislation.
Tax should be “simple and straightforward” to enable public understanding and compliance. The bill raises some degree of complexity, which include the appointment of third party agents in the monitoring process and the filing requirements.
The former flags concerns around data protection and security of user information and the latter indicates the possible challenges in the remittance process and complying with the tax in the first instance. In a PwC tax report on the ease of paying taxes, Nigeria currently ranks 181 out of 189 economies surveyed. If passed into law, how will this tax legislation impact Nigeria’s ranking?
“Tax neutrality” arises where certain economic behaviours are not encouraged over others as a result of the tax. The motivations of the CST bill should not be discriminatory or an instrument of social policy seeking to modify the behavior of the tax payer such as the heavy duties imposed on tobacco to discourage smoking.
If this is not the case, then it would be critical to consider the counter economic drawbacks which may arise from its implementation. The ICT sector is already contending with multiple taxes across all levels of government. Given the sector’s role in digital transformation, improving the level of literacy, social and financial inclusion across the country, any success to be achieved by the tax bill could be short-lived considered within the context of impact on further investment, broadband penetration, access to ICT services in remote areas, and reduced service usage by existing users.
It is essential that government commits to facilitate simple tax laws and administration, as society ultimately pays the price for complexity. In the same vein, open and transparent processes should be institutionalised within the tax system and the overall legislative process.
In the long run, this will also reduce administrative costs resulting from proper understanding of the tax pitfalls and challenges; and increased stability of tax revenue as unintended consequences will be avoided and counter measures instituted.
• Ohadike is the Regional Head of Policy, sub-Saharan Africa, at ACCA.