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Communication service tax of controversy

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Adebayo Shittu, Minister of Communication

Adebayo Shittu, Minister of Communication

The notion that the information and communications technology sector is seen as a cash cow by the various arms of government is becoming reinforced as the Federal Government is considering the imposition of a fresh nine per cent tax on some operations in the industry.

Tagged ‘Communication Service Tax’, though, still a bill, is currently before the Senate and House of Representatives and has passed its first reading. Its becoming a law is projected to earn the Federal Government about N20 billion monthly.The Communication Service Tax (CST Bill 2015), if enacted into law, will require consumers of voice, data, Small Messaging Service (SMS), Multi Media Service and pay TV services to pay a nine per cent tax on the fees paid for the use of these services.

This tax would be collected on top of the five per cent Value Added Tax that consumers already paid when they purchase devices and communication services, the 12 per cent custom import duties paid on ICT devices, and the 20 per cent tax levied on Subscriber Identification Module (SIM) cards.

While the Minister of Communications, Adebayo Shittu, informed that the ministry is still consulting and would subsequently, after due consultations, advise President Muhammadu Buhari on the way forward, agitations against this bill have become intense, with various calls from telecommunications operators, subscribers; Organised Private Sector (OPS), and lately Trade Union Congress (TUC), on government to quash this idea.

CST Bill
Earlier in the year, industry groups including the Association of Licensed Telecommunications Operators of Nigeria (ALTON); Association of Telecommunications Companies of Nigeria (ATCON) and the National Association of Telecommunications Subscribers (NATCOMS), jointly wrote a letter to the Minister of Finance, Mrs. Kemi Adeosun, and her counterpact, Shittu, about the dangers the new tax system portends for the industry if it becomes a law.

The Global System for Mobile telecommunications Association (GSMA), the body, which represents mobile operators worldwide, also joined them in the letter, and dated March 30, 2016, a copy obtained by The Guardian.

According to findings, the CST Bill 2015 is a private member bill. For CST purpose, “User” is defined as “a customer or subscriber of any electronic communication network or broadcasting service and includes a customer that is an operator or provider of electronic communications network or service.”

In effect, customers who purchase ECS solely for resale (middlemen) are also required to pay CST on their purchases. As contained in the bill, providers of ECS are required to collect CST upon supply of services and remit the tax to the Federal Inland Revenue Service (FIRS) no later than the last working day of the month following the month of transaction. However, this timeline may be extended in certain circumstances, according to the proposal of the bill.

Failure to submit CST returns by the due date would attract a penalty of N50, 000 plus N10, 000 for each day of default, and interest at the rate of 150 per cent of the average prevailing commercial bank lending rate published by the Central Bank of Nigeria (CBN). Also, refusal of service providers to provide government access to the network nodes attracts a penalty of five per cent of the yearly gross revenue of the last audited financial statements. Failure to pay the interest due on default within one month would attract additional interest on the unpaid interest.

GSMA, operators kick against plan
According to the letter sent to the ministries of Finance and Communications respectively, signed by Mortimer Hope, Director Africa, GSMA; Gbenga Adebayo (ALTON); Lanre Ajayi, immediate past president of ATCON and Chief Adeolu Ogunbanjo (NATCOMS), the bodies stressed that if introduced, such tax will result in an increase in prices for consumers. It will also have adverse impacts on the adoption of mobile services and industry investment, and be counter-productive to the longer-term national digital strategy objectives set by the government.

Commenting on the matter, the Chief Executive Officer of Airtel Nigeria, Segun Ogunsanya, said the planned tax bill would lead to increase in call charges resulting in less minutes of use on networks.Ogunsanya seeks sector’s engagement with the National Assembly to dock the tax bill and the communications bill, in view of the potential adverse impact on the industry.

Furthermore, the bodies reminded the lawmakers that the socio-economic impact of mobile penetration has been widely recognised. They made reference to a research conducted by the World Bank, which predicted that a 10 per cent increase in mobile broadband penetration in low to middle income countries led to 1.38 per cent increase in GDP growth.

According to them, to connect the yet to be connected Nigerians to the mobile platform, affordability remains a key challenge to connect the unconnected, who are typically lower income population groups.They posited that further taxation on electronic communication services would hit lower income consumers the most, who are already struggling due to the adverse economic situation and increased price pressure and for whom affordable access to information and communication technology is critical to their social and economic inclusion.

According to the Alliance for Affordable Internet (A4AI), which is chaired by pioneer Minister of Communications Technology, Dr. Omobola Johnson, the new ICT tax being considered by the NASS would prevent over 50 million Nigerians from being able to afford basic broadband connection.A4AI noted that if passed, the Bill would make a basic Internet connection unaffordable for an additional 20 million Nigerians. “Broadband penetration stands at just 14 per cent right now imposing the tax may reduce this figure further,” it stressed.

OPS, TUC see tax improverishing telecoms subscribers
At the Lagos Chamber of Commerce and Industry (LCCI) meeting on the proposed nine per cent tax in Lagos, last week, the president, LCCI, Dr. Nike Akande, acknowledged the fact that the government is seeking to diversify its revenue base in the light of the dwindling oil revenue, but stressed that the private sector players would like to see an investment friendly tax environment, especially in the light of the prevailing high cost of doing business in the country.

She said the ICT sector is very strategic to sustainable growth and development, adding that the sector has witnessed an impressive growth over the last one decade.
Speaking also, the Partner, West Africa Tax Leader, PwC, Taiwo Oyedele, said the timing and the concept behind the bill could have been better, saying that making decisions without empirical evidences will only lead to wrong decisions.He added that engagement with stakeholders in the industry and the users of the services have not been taking into consideration, saying that stakeholders must give their views before such bill is passed into law.

He said the nine per cent in a sector that is very sensitive should have been a smaller rate to nine per cent, stressing that the tax is not only applicable to the big players in the industry but small and micro entities using the service.“We need to have a rethink on how we deal with tax matters in Nigeria, we have a national tax policy that was never implemented since 2010, and everything we seem to be doing seems to be the direct opposite of what we said we will not do in the national tax policy,” he said.

He said the way out is for Nigeria to seek ways to deal with tax and fiscal issues, calling for clarity in tax policies to be respected, saying that the way tax policies are implanted anywhere in the world is through engagements with experts, surveys, empirical evidences and analysis of positive impacts on the society.

The Trade Union Congress of Nigeria (TUC), has also condemned the CST, querying the rational behind such at a time Nigerians are going through a very difficult phase. TUC, in statement, said: “If we sufficiently understand the minister, we wonder how he expects such tax to be paid by any worker in a country where the national minimum wage is N18, 000 and at a time when workers’ take-home pay no longer takes them home. Apart from exploiting the already impoverished masses, the policy would also discourage investment and lead to loss of jobs.

“The Congress faults Mr. Adebayo Shittu’s claim that the country would earn as much as N20 billion monthly in consequence of passage of the proposed bill, and that it would help cushion some of the country’s economic challenges and fund budget deficits. While we appreciate the minister’s concern on how to fund the budget, should the government’s focus not rather be on ensuring more judicious use of revenue derived from value added tax (VAT), Pay-As-You-Earn (PAYE), stamp duties, vehicle license, passport fees, customs duty, petroleum profit tax (PPT) and other taxes collected from the masses and companies? And would it not be more appropriate for the desired additional taxes to be imposed on the GSM operators and other players in the communications industry rather than the poor masses?

TUC called on the Federal Government and the National Assembly to suspend the bill immediately because the masses are already overburdened with multiple taxation. According to the body, it makes no sense for the country to initiate policies that would stifle businesses when it seeks to woe and attract even more investors. “That bill must not be passed. The Federal Government should stop rubbing salt on the masses’ injury,” it stated.


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Adebayo ShittuNATCOMS
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