‘How communication service tax will cripple ICT sector’

Over the past decade, the number of mobile connections in sub-Saharan Africa (SSA) has increased nearly 10 fold, and over 350 million people in the region are now covered by mobile phone networks.

Last year, reports had it 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 is on the Internet, with 50.3 million active on social media platform, Facebook.

Nigeria alone is home to about 240 million connected lines with 154 million of them being active. There are 93 million Internet users in the country, and about 16 million of them visit Facebook regularly.

This development and further growth in Nigeria is currently being threatened by some unfriendly government policies, especially the plan to impose a new form of tax—Communication Services Tax (CST) on the people. 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.

To make things worse for the sector, the Central Bank of Nigeria (CBN) Governor, Godwin Emefiele, had also suggested that telephone calls above three minutes should be taxed.

These plans are coming at a time when some African countries including, Ghana, Liberia, Kenya and even South Africa have slashed taxes or mulled the plan.

The CST Bill
Earlier in 2016, 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 to the ministers of Finance and Communications, Kemi Adeosun, and Adebayo Shittu, stating 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 March 30, 2016-dated letter.

In it, they asked government to jettison the move on the basis that it portends a great danger to the industry. Findings further revealed that the CST Bill 2015 is a private member bill. For CST purpose, a “user” is defined as “a customer or subscriber of any electronic communication network, or broadcasting service (ECS) 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 bill.

Possible impact of the tax on development
Adebayo had at a function in Lagos State, disclosed that the Federal Government hoped to generate more than N20 billion monthly from CST.Indeed, while it is understandable that government needs to raise revenue in order to meet its growing funding demands, 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 the country, and the progress made so far on social and financial inclusion of the less privileged and unbanked public.

Buttressing this perspective, 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 National Assembly 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. “Broadband penetration stands at just 14 per cent right now. Imposing the tax may reduce this figure further,” it stressed.

According to the letter sent to the Finance and Communications ministries and signed by Director Africa, GSMA, Mortimer Hope; Gbenga Adebayo of ALTON; Lanre Ajayi, the then president of ATCON, and Chief Adeolu Ogunbanjo of NATCOMS, the bodies stressed that if introduced, such tax will lead to increase in prices for consumers. It will also impact adversely on the adoption of mobile services and industry investment, and be counter-productive to the long-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, which would result in less minutes of use on networks. Ogunsanya is therefore seeking the sector’s engagement with the National Assembly, with a view to rejecting the tax bill, and the communications bill.

The bodies in reminding the lawmakers of the socio-economic impact that mobile penetration has made in the country, 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 a 1.38 per cent increase in GDP growth.

According to them, to connect the yet to be connected Nigerians (who are typically lower income population groups) to the mobile platform, affordability remains a key challenge, just as they further posited that further taxation on electronic communication services would hit lower income consumers the most, as they are already struggling due to the adverse economic situation. Affordable access to information and communications technology is critical to the social and economic inclusion of this class of people.

Partner, West Africa’s Tax Leader at PwC, Taiwo Oyedele, noted that the timing and the concept behind the bill could have been better, saying that making decisions without empirical evidence will only lead to wrong decisions.He added that engagement with stakeholders in the industry and the users of the services has not been taken into consideration, noting that stakeholders must give their views before such a bill is passed into law.

“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.
Oyedele said the way out is for the country to seek ways to deal with tax and fiscal issues, calling for clarity in tax policies to be respected as tax policies anywhere in the world are executed through engagements with experts, surveys, empirical evidence and analysis of positive impacts on the society.

ATCON wants tax slashed to 0.2%
Meanwhile, ATCON has urged the Senate to use its legislative powers to reduce the proposed CST to 0.2 per cent from the nine per cent already proposed by the Federal Government.Besides, the body recommended, as an alternative, a tax reform that increases the current Value Added Tax (VAT) by a new one per cent for the purpose of development of communication services.

The President of ATCON, Olusola Teniola, who led a delegation of members on a courtesy visit to the Senate President, Dr. Bukola Saraki, in Abuja, reiterated that the new tax on ICT services would result in the exclusion of 20 million Nigerians, which represents 10 per cent of the country’s population, from accessing telecommunication services.“The proposed nine per cent on ICT services is capable of excluding 20 million Nigerians from accessing the Internet and other ICT services,” he warned.

Teniola noted that the survival of the Nigerian economy is tied to attracting more citizens to access Internet and therefore ICT services, stressing that it doesn’t add up if whatever the government does ends up not bringing more people into access.

According to him, the reality of Internet access in Nigeria is that it’s all about mobile, stressing that only about 13 per cent of Nigerians get broadband access via mobile, while less than one per cent does from fixed services.He explained that one of the main reasons the rate of Internet adoption and use is rather slow in Nigeria is the high cost of data subscription.

While urging the Federal Government to make the best of its tax efforts, which certainly are key components of strengthening the economy and sustaining industries, Olusola said the truth is that there is severe over-taxation in the telecommunications industry, which explains the slow penetration of services into unserved areas of the country.

“The truth is that, contrary to popular belief, telecommunication operators and service providers are barely sustaining existence in these times. There are reasons to suggest that the desire to widen the tax net is laudable and that as things stand, telecommunications is about one of the few areas where the net-capture may be widened,” Olusola stated.

Saraki in his response assured ATCON that the senate would only make laws that would get the economy going, adding that the telecommunications sector is critical to Nigeria economy.

“The ICT sector is critical to the Nigerian economy, as a result, the Senate would never make laws that would push the sector to negative performance, rather it would make laws that would increase its performance to generate revenue and create jobs,” he said.
GSMA, TUC, OPS perspective

GSMA recommended that mobile phones are a vital socio-economic necessity in modern Africa, stressing that it is therefore 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,” it stated.

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

President, Lagos Chamber of Commerce and Industry (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 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.

The Trade Union Congress of Nigeria (TUC), on its part also condemned the CST, querying the rational behind such at a time Nigerians are going through a very difficult phase. TUC, in a statement, said: “If we sufficiently understand the minister, we wonder how he expects such a 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 take them home. Apart from exploiting the already impoverished masses, the policy would also discourage investment and lead to loss of jobs.”