Friday, 2nd June 2023

Disquiet as government’s revenue expansion plans gain momentum

By Mathias Okwe (Assistant Business Editor) and Onyedika Agbedo
12 October 2019   |   4:21 am
The Federal Government is earnestly looking for how to shore up its revenue and has from every indication settled for an increment in the Value Added Tax (VAT) rate by 50 per cent, from the current...

[File] Mr Babatunde Fowler, FTAX Chairman. PHOTO/TWITTER/FIRS

The Federal Government is earnestly looking for how to shore up its revenue and has from every indication settled for an increment in the Value Added Tax (VAT) rate by 50 per cent, from the current five per cent to 7.5 per cent by next year. The Finance Minister, Mrs. Zainab Shamsuna Ahmed, while announcing the plan recently, had explained that the VAT raise was part of the Federal Government’s revenue ramping up initiatives to shore up revenue performance to meet with budgetary implementation targets.

She said: “We have developed a strategic revenue growth initiative, which we have started implementing. Our target is to increase revenue to 65 per cent minimum in 2019 so that in the next three years, we are able to attain 80-85 per cent of our revenue target.

“We are looking at adding VAT from five per cent to 7.5 per cent. Five per cent is one of the lowest VAT globally. The increase will not be done overnight but hopefully, by the next budget (2020), the new increase will take effect.

“We recently increased the minimum wage and one of the agreements we had with labour was that there would be some marginal increase on VAT to enable us to handle the incremental cost of increasing wages.”

VAT is a type of consumption tax placed on a product at every stage of processing/value addition. The cost is usually paid by the consumer.

Already, President Muhammadu Buhari has forwarded the Finance Bill to the National Assembly, within which is embedded the VAT raise proposal. He has also gone ahead of the passage of the bill to apportion the expected revenue to be derived from the increase in the 2020 Appropriation Bill, which he presented to the National Assembly last Tuesday.

Aside from this, there is another bill before the Senate, the Communications Service Tax (CST) sponsored by Senator Ali Ndume, which passage will lead to the payment of a nine per cent tax on calls by telecoms users in the country.

This is as the Minister of Works and Housing, Babatunde Fashola, recently announced that the Federal Government has concluded designs for the return of toll plazas on federal roads.

Fashola had made the disclosure while briefing State House correspondents after the Federal Executive Council (FEC) meeting presided over by President Buhari on October 2.

“Let me just clarify this impression about toll gates; there is no reason why we cannot toll; there is no reason. There was a policy of government to abolish tolls, to dismantle toll plazas, but there is no law that prohibits tolls in Nigeria today. We expect to return toll plazas; we have concluded their designs; of what they will look like; what material they will be built with; what new considerations must go into them.

“What we are looking at now and trying to conclude is how the back-end runs and that is important because we want to limit significantly if not totally eliminate cash at the plazas while ensuring that electronic devices that are being used do not impede rapid movement,” he said.

As government’s revenue expansion plans gradually unfold, experts have remained divided on the propriety or otherwise of the move. While most experts believe the raise is belated, others argue that the government has not demonstrated transparency in the deployment of the revenue harvested yearly to warrant the increase, which they feel is an additional burden on Nigerians.

Reacting to the development, the Chairman of the Society of Analytical Economics, Prof. Godwin Owoh, said it was illegal for the Federal Government to have frontloaded appropriation of a yet to be approved revenue item in the budget.

“It is an illegality. How can you appropriate a yet to be approved revenue item for spending. In any case, government has not demonstrated enough will to account for the much revenue it has accessed. I don’t think this is necessary now,” he said.

His view is coming as the Chairman of the Joint Tax Board, (JTB) who is also the Executive Chairman of the Federal Inland Revenue Service, Mr. Babatunde Fowler, has explained that the Minister of Finance has the power under the law to raise VAT but just decided to waive the privilege so as to carry Nigerians along in the decision, by taking the proposal to the national Assembly.

Fowler made the clarification during the week at the presentation of operational trucks to the Nigerian Police Force at its Louis Edet Headquarters in Abuja.

The FIRS boss had last Monday also declared that there was no harm in introducing a communications tax. “I will put it this way. Nigerians talk a lot on the phone. They even talk more than is required so for them to have capacity or revenue to talk that much, I don’t see any harm in paying a little bit more to government.

“We compare ourselves to developing countries but Ghana introduced a two per cent education tax and used it to fund their universities and that is why Nigerians are now going to university in Ghana. They didn’t look for aid; they did it by themselves,” he noted.

A social activist and Lead Director of Centre for Social Justice, (CenSoj), Mr. Eze Onyekpere, seems to be on the same page with Fowler on government’s new tax drive as he has thrown his weight behind the planned VAT hike.

Speaking with The Guardian in Abuja last Thursday, Onykpere said: “I am fully in support of the planned increase of the VAT because Nigeria has the least VAT regime in the whole world. In fact, I am advocating for more taxes so that Nigerians can feel the pains and move to action to hold their leaders accountable for how they deploy their resources.

“Many Nigerians have been complacent on how their leaders spend their resources because they don’t pay taxes. This one that is consumption, not many people can escape it. It is a welcome development,” he added.

He, however, called on the FIRS to wake up from its slumber and enthrone efficiency in the collection and remittance of the tax.

Also, speaking in support of the raise, a Development Economist, Mr. Odilim Enwegbara, identified remittance as the only challenge of VAT.

“While I support the planned increase and call on the legislature to quickly pass the bill, I want to observe that the major challenge we may have as a country is in the ability to collect the VAT, as the tax agency is incapacitated in the collection as experience has indicated. But through technology, collection can be made seamlessly if the tax agency will be ready to adapt the application,” Enwegbara further posited.

Even the International Monetary Fund  (IMF) has thrown its back in support of Nigeria’s fiscal action.

The Breton Wood’s Institution, in its Article 4 Consultation with Nigeria this week, noted: “The outlook under current policies remains challenging. Growth is expected to pick up to 2.3 per cent this year on the strength of a continuing recovery in the oil sector and the regaining of momentum in agriculture following a good harvest. Revenue initiatives planned under the 2020 budget—including a VAT reform that increases the rate, introduces a minimum registration threshold and exempts basic food products—will help partially offset declining oil revenues and the impact of higher minimum wages, thus keeping the overall consolidated fiscal deficit elevated. The current account’s shift to a deficit is expected to persist while the pace of capital outflows continues to weigh on international reserves. Inflation will likely pick up in 2020 following rising minimum wages and a higher VAT rate, despite a tight monetary policy.

“A comprehensive package of measures—whose design and implementation will require close coordination within the economic team and the newly-appointed Economic Advisory Council—is urgently needed to reduce vulnerabilities and raise growth.”
Nevertheless, there are other strong opinions both for and against the above fiscal proposals, as you would find in the following reports.

Communications, CableTV Taxes May Stall Inclusion, Trigger Tariff Hike 
By Adeyemi Adepetun
Should the planned Communications Service Tax (GSM) eventually become a law, Nigerians are definitely going to see an increase in tariff. It will also impact negatively on the government’s financial inclusion drive. Largely, it is expected to cut telecommunications sector’s N450 billion yearly contribution to the country’s Gross Domestic Product (GDP). Besides, about 50 million Nigerians may be negatively impacted.

According to experts, who spoke to The Guardian, this is one tax that Nigerians and the sector, which are already over-burdened, don’t need at all.

The bill, which has passed first reading at the National Assembly, if passed into law, will require consumers of voice, data, Short Message Service (SMS), Multi Media Service (MMS) and pay television services to pay a nine per cent tax on fees paid for the use of these services.

As at August, telecommunications operators in the country have connected about 260 million Nigerians, of which 174 million are active telephone users. Nigeria, with 61 per cent Internet penetration in almost two decades, can also boast of 122 million Internet users. But Nigeria still has 195 access gaps, where some 40 million Nigerians reside with no basic forms of telephony services.

The CST bill, which was sponsored by Senator Ali Ndume, was first mulled in 2016, during the Eight Senate led by Senator Bukola Saraki. It was, however, suspended following several outcries both within the country and from abroad, including the Global System for Mobile Telecommunications Association (GSMA).

Babatunde Fashola

However, Ndume reintroduced the bill in the Ninth Senate following the outcry of the Executive over drops in revenue generation. According to him, this became necessary to move the country forward.

To him, the need is to expand the revenue base of government and stop borrowing to fund budget, among others. He explained that the tax will only affect a particular segment of the economy, rather than increasing the Value Added Tax (VAT) from five to 7.5 per cent, which will affect the entire population.

Excerpts from the bill reads: “There shall be imposed, charged payable and collected a monthly Communication Service Tax to be levied on charges payable by a user of an electronic communication service other than private electronic communication services. The tax shall be levied on electronic communication services supplied by service providers.

“For the purpose of this clause, the supply of any form of recharges shall be considered as a charge for usage of electronic communication service.

“The tax shall be levied on such electronic communication services like voice calls, SMS, MMS, data usage – both from telecommunication services providers and internet service – as well as pay per view TV stations.

“The tax shall be paid together with the electronic communication service charge payable to the service provider by the consumer of the service.”

Ndume further said the tax would only affect a segment of the society, instead of increasing VAT that would affect the larger economy.

“CST is not new! It is being practiced in so many countries, about 83 countries doing it. Ghana increased it from six to nine per cent on October 1. They have been charging this since 2008. I see CST as better alternatively compared to hike in VAT. Increasing VAT from five per cent to 7.5 per cent would affect the poor more. Those who use phone cannot be called to be the poorest people. Out of the 175 million users, only about 60 million are active users,” he noted.

However, the Association of Licensed Telecommunications Operators of Nigeria (ALTON) pointed out that the proposed nine per cent tax would make communication expensive and in turn make life difficult for the average Nigerians.

The Chairman of ALTON, Gbenga Adebayo, said communication was presently one of the most affordable basic needs of Nigerians but cautioned that the proposed increase was offensive and would make it inaccessible to many.

Speaking on the planned increase, the ALTON chairman said: “The bill is badly intended for the industry at a time when we are talking about the availability and accessibility to telecom services. If that bill is allowed to be passed into law, it will deny people access to these services and reduce the value of their recharge. Also, the terms of the bill, which we haven’t seen, may lead to significant compromise of people’s privacy because the way by which the collection of the money will be made may require the government to have access to the servers of the operators.”

To the Chairman, Association of Telecommunications Operators of Nigeria (ATCON), Olusola Teniola, enactment of CST law would eliminate Nigerians from having access to affordable voice and data tariff.

Teniola said government could look at other means of increasing taxes, especially by widening the tax base.

On the argument that Ghana increased its CST from six to nine per cent on October 1, the ATCON president explained that Ghana doesn’t have as many taxes as Nigeria in the telecoms sector. He disclosed that Nigeria’s telecoms sector is already overburdened with 39 taxes and levies, including an already existing five per cent VAT on telephony services.

According to him, failure of Nigeria to diversify its economy from oil had limited other revenue generating capacity. “In Ghana, though not as wide as Nigeria, they have diversified their economy. They are able to generate revenue from cocoa, gold, among others,” he stressed.

Teniola noted that the overburdened sector on a yearly basis, add N450 billion to the country’s GDP currently.

“That contribution will increase if the sector is allowed to breathe and it will go down, if the sector is stifled with unnecessary taxes. Government should look at reducing its cost. Senators should rather also look at how government spends this N450 billion rather than promoting bills that still stall inclusion,” he added.

Chairman of the National Association of Telecommunications Subscribers of Nigeria (NATCOMS), Chief Deolu Ogunbajo, on his part, said the argument that the CST is targeted at the rich is not sustainable because about 75 per cent of people, who own phone in Nigeria, are poor.

According to him, government should look at other means of widening the tax net.

In one of his interviews with The Guardian, the Chief Executive Officer of Airtel Nigeria, Segun Ogunsanya, had said the planned tax bill would lead to increase in call charges, which would result in less minutes of use on networks.

Ogunsanya therefore said it would be better if the NASS first engages the sector before going further on the bill.

The Alliance for Affordable Internet (A4AI), which is chaired by pioneer Minister of Communications Technology, Dr. Omobola Johnson, warned that the new tax being considered by the lawmakers would prevent over 50 million Nigerians from being able to afford basic broadband connection.

A4AI noted that if passed, the bill would make basic Internet connection unaffordable for an additional 20 million Nigerians.

The GSMA, the body that represents mobile operators worldwide, has also asked government to jettison the move on the basis that it portends a great danger to the industry.

GSMA Chief, Mortimer Hope, said that mobile phones are vital socio-economic necessities in modern Africa. He stressed that it is incumbent upon governments to view their proliferation across all societies as a priority.

“Imposing luxury taxes on mobile consumers is no longer appropriate. Poorer sections of society are hit hardest by the regressive taxes that widen the digital divide. Governments that levy luxury taxes on mobile consumers should urgently review such policies in consultation with the industry and other economic and taxation experts,” GSMA stated.

According to the body, by removing luxury taxes on mobile consumers and moving to a more optimal tax structure, millions of Africans would afford connecting to, and communicating through mobile networks for the first time; governments would reap incremental increases in tax payments from the industry and wider economic and social benefits would be enjoyed by all.