Hefty, questionable taxes stunting telephony expansion
In the last 15 years, the number of mobile telephone connections in sub-Saharan Africa (SSA) has increased by nearly 10 folds, consequently, over 444 million people in the region are now covered by mobile phone networks.Last year, reports claimed that 1.13 billion, (estimated to be 67 per cent of Africa’s population), now have mobile phones. Besides, about 26.5 per cent (297, 885, 898) of the population are on the Internet, with over 50.3 million active on social media platform.
Nigeria alone accounts for over 250 million connected lines, 160 million of which are active. There are 100 million Internet users in the country, and about 26 million of them visit Facebook regularly. The country’s teledensity as at June rose to 116 per cent, even as the country’s telecoms sector has attracted over $70b investments both local and foreign.
It is worthy of note that the country’s telecoms added N600b to government coffers by 2014. It has equally created over 20, 000 direct jobs since liberalisation and 1.5 million indirect jobs since deregulation. While these statistics are good and can be a source of reference to would be investors in the country, and Africa as a whole, a major threat is unfolding, and it has the capacity to stall the next millions of connections. This challenge is the disparate and multiple taxes and levies slammed on the telecoms sector, most especially by states governments.
Indeed, from Nigeria to Congo to South Africa and even up north to Morocco, Egypt, and Algeria, taxes are increasing, especially on mobile network operators. Suffice to say that governments have conflicting objectives regarding the tax treatment of cellular telecommunications industry. On the one hand, they know that telecoms services are an important input into productivity and growth, in part because of possible externality and social inclusion effects, as well as consumer welfare. They, therefore want telecoms companies to provide services as widely and cheaply as possible, and to rapidly introduce new technologies. They may even provide tax incentives for certain inputs (such as capital equipment or handsets), build essential infrastructure, or provide subsidies to extend service to remote areas. Broad telecom coverage is also seen as a security and safety imperative in many countries, and telecoms increasingly deliver vital services such as banking, health and education.
On the other hand, governments, particularly in developing countries also regard telecommunication companies as good sources of revenues, given their formal sector status, as well as, large and growing turnover. In addition to this, mobile phone operators are among the most important taxpayers in many low- and middle-income countries. In Jamaica and Malawi—two countries with relatively heavy telecoms-specific taxes—total telecoms revenues (including license and spectrum fees) averaged 1.8 per cent and 1.3 per cent of their GDP, respectively in 2013-2015.
In Senegal, mobile phone companies accounted for 20 to 30 per cent of corporate income tax between 2005 and 2009, while in Haiti, over a quarter of the country’s sales tax (excluding customs) came from the telecoms sector in 2014. In Nigeria, between 2010 and 2015, the Association of Telecommunications Companies of Nigeria (ATCON) revealed that telecoms operators remitted over N450b as taxes to government’s coffers. Over the years, the tax burden on telecom companies has gradually increased.
For instance, Deloitte (2007 and 2015) reported that the average ratio of direct and indirect taxes on mobile telecommunications to the “total cost of mobile ownership” rose from 17.4 per cent in 2007 to 20.1 per cent in 2015. It claimed that this increasing burden has led the industry to complain of over-taxation and raised concerns among policy experts regarding negative growth effects.
The total tax burden on telecoms includes not only consumer, corporate, and trade taxes, but a variety of sector-specific taxes such as corporate income tax (CIT) or value-added tax (VAT) surcharges, service and handset excises, and elevated customs charges on capital equipment. In addition, there are also substantial regulatory charges, notably spectrum and/or operator license fees. According to the GSM Association (GSMA), sector-specific taxes have indeed become as prevalent in the telecoms industry as in the extractive industries. In oil and mining, higher tax levels are justified by the presence of economic rents related to the exploitation of an in-elastically supplied, non-renewable resource.
Taxes Robbing 200 Communities Access To Telecoms Services
THIS GSMA’s view that public policy will continue to support network expansion to underserved areas through such policies like build out requirements in telecom license agreements, is yet to truly take roots in Africa, as some states are yet to come to terms with the benefits that the telecoms sector is capable of unleashing.Consequently, this challenge has left so many communities out of the telecoms revolution. For instance, over 200 communities, which houses about 33 million Nigerians, are still without any form of telephone services.
According to the Executive Vice Chairman of the Nigerian Communications Commission (NCC), Prof. Umar Danbatta, over 40 million Nigerians are still deprived of Internet access, despite the fast- pace of adoption in the country.For President, Association of Telecommunications Companies of Nigeria (ATCON), Olusola Teniola, these gaps on low expansion drive should majorly be blamed on the challenge posed by the disparate taxes by state governments, and their agents in their bid to increase Internally Generated Revenues (IGR).He said taxes impact the collective bottom line of the industry and squeeze out all the margins, so prices are under threat, adding that unwarranted levies, fees and taxes are inhibitors to investments considering that over the past decade, no tax holidays or other NIPC initiatives have been targeted to address the funding gap in the industry.
Sector Bogged Down By 39 Different Taxes, Levies
To date, according to Teniola, there are about 39 different taxes, fees and levies that network providers are slammed with.These multiple taxes are seen as far too many to attract the much-needed foreign Direct Investment (FDI) and funds to continue to grow the sector in a serious manner. And for the ATCON president, harmonisation should reduce this to about 10 taxes paid at the federal level and distributed to the states wherever duplication exists.
Chairman, Association of Licensed Telecoms Companies of Nigeria (ALTON), Gbenga Adebayo, is of the view that while the industry appreciates the fiscal pressure on ministries, departments and agencies (MDAs) of the respective federal, state local councils, particularly in the face of dwindling federal allocation, multiple taxation on the industry has remained the most critical factor militating against the growth of the sector and making the environment difficult for businesses to thrive.
Adebayo maintained that taxes are created in most states with no economic basis and refusal to pay them often led to arbitrary closure of telecoms base stations and seizure of tools and equipment in very crude ways by tax agents hired by state governments.ALTON, he said, is very concerned about recurring cases of closure of telecoms sites by government agencies.
“We continue to record cases of arbitrary site closure in many states of the federation in an attempt to force service providers to pay taxes and levies some of which are multiple in nature and most of which are only aimed at telecoms operators for the purpose of revenue generation,” he stated. Adebayo listed some of the taxes the industry finds appalling to include: eco tax for gaseous emission; sewage, sanitation and public convenience levy; sanitation and refuse effluent tax; business premises tax for base stations situated in farmland and tenements rates.He said tenements rates charged per base station in some states were far higher than rates per square metre charged by the same state for residential and commercial buildings when the infrastructure occupies the same plot of land.
Operators Threaten Tariff Hike If Challenge Persists
FACED with the dire challenge of staying afloat, Adebayo said operators might be forced to increase tariff charged for calls originating and terminating from networks in some states as a result of increased cases of multiple taxation and incessant closure of sites.He listed states that might be affected by the hike to include Ogun, Ondo, Akwa Ibom, Ebonyi, Osun, Kaduna, Rivers and Taraba, due to arbitrary closure of telecoms sites and actions of the respective governments, which impact on telecoms operations.
He said the association was deeply concerned about recurring cases of telecoms sites closure by government agents in these states all in the name of revenue generation. “This is an attempt to force operators to pay local taxes and levies, some of which are multiple in nature and most of which are only aimed at telecoms operators. What has telecoms operations got to do with eco tax for gaseous emission, when we do not have moving machinery and production lines?“What has telecoms service got to do with sewage, sanitation and public convenience levy, when we are not hotel and bar operators? What has telecoms service got to do with sanitation and refuse effluent tax, when we don’t operate fast food centres?
“How can a base station situated in a farmland be regarded as business premises and therefore liable to business premises tenement rate payment?” Adebayo questioned.He also warned that operators have resolved that arbitrary sealing of their sites by state agents, without following guidelines clearly provided by the NCC, and in line with best practices will no longer be tolerated.
Global Bodies Seek Better, Friendly Tax Systems In Africa
THE Head, Sub-Saharan Africa, GSMA, Akinwale Goodluck, has said that the association would continue to advocate for a favourable business environment devoid of unwarranted taxes and levies on operators, just as he informed that the association has achieved a fair amount of success in advocating for reduction in taxes. Goodluck, who said the group has a big tax advocacy team, which is saddled with the task of conducting tax and coming up with best practices in different countries noted: “Affordability is key, and one of the drivers is often the way the industry is taxed. We definitely oppose it when people/government try to tax the mobile industry, for instance, with excessive excise duty.
“For instance, you are taxing mobile telecommunication as if it is a seen product. There are industries all over the world that governments typically tax them because they need to discourage certain behaviours, but mobile is an enabler, so it should be encouraged, instead of been over-taxed. Goodluck added that taxation is a complex area and in developing markets, the establishment of an effective tax policy has to contend with numerous practical difficulties, including widespread informal activities, limited institutional capabilities and political pressure to avoid taxing special interests.
“Consequently, tax policy frequently has to sit somewhere between the theoretically correct response, and the one that recognises the practicalities of taxation in a market,” he stressed.On its part, however, the GSMA said there are a number of principles that are generally recognised as contributing to an effective tax system. It stressed that taxation should be broad-based; taxes should account for sector and product externalities; the tax and regulatory system should be simple, easily understandable and enforced, and different taxes have different economic properties.
The body added that taxation alters incentives for production and consumption, and so economic distortions will generally be minimised where the burden of taxation is spread evenly across the economy. In practice, this equates to adopting broadly defined bases for taxation, rate variations that are limited and effective enforcement of tax compliance.
It added that a lack of transparency over taxation systems and liabilities may deter investors, and is also likely to increase enforcement costs for government. Different taxes, it said have different economic properties, and there is a general consensus that, for most products, a broad-based consumption tax will be less distorting than taxation on income or profits.
Need For A More Coordinated
EXPERTS believe that the telecoms sector may continue to struggle under tensed tax regime, unless there is a better regulation.It is in this direction that telecom lawyer, Paul Usoro, is challenging the NCC to stamp its authority and ensure that double taxation and multiple regulations of the telecom industry are mitigated, if not totally abolished, pointing out that these two unfortunate developments have been responsible for the slow infrastructure roll-out and the attendant poor quality of service that comes with it.
His words: “multiple taxation and duplicated regulation are major factors militating against telecoms infrastructure roll-out. They hinder the satiability of the telecommunications industry, stifle infrastructure roll-out and threaten broadband penetration. Taxation in Nigeria is statutory, and any tax liable to be paid by an individual or corporate entity must be authorised and governed by a written statute,” he said.
He listed other factors also contributing to slow roll-out of infrastructure to include, lack of requisite investment and funding for massive roll-out; land tenure system and procurement of governor’s consent; lack of adequate security of the infrastructure exemplified by vandalism and theft; disruption by communities; destruction during other infrastructural developments, especially engineering constructions.
Usoro frowned that the approved Taxes and Levies Act Cap T.2 LFN 2004 as amended by S.I No. 25 of 2015, which grants the Federal Government the powers to collect National Information Technology Developmental Levy, and also grants state governments the power to collect Infrastructure Maintenance Charge or Levy.
For him, these levies arguably are only different in names, but not in substance and therefore should be harmonised.The Registrar/Chief Executive, Institute of Chartered Accountants of Nigeria (ICAN), Rotimi Omotoso, also advised against encouraging unorthodox and aggressive methods of tax collection, noting that electronic filing of tax returns is the safest, fastest and easiest way to submit individual and business tax returns.According to him, every Nigerian individual and business must be able to e-file his or her tax returns, and low income earners should be able to e-file individual tax returns for free.
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