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Multiple taxes inimical to telecoms sector’s growth

By Adeyemi Adepetun
24 August 2022   |   4:15 am
Earlier in the year, a report by SB Morgen, titled “Inside Nigeria’s Subnational Fiscal Crisis, “revealed that the telecommunications industry appears to suffer disproportionately from the problems of over-taxation in Nigeria.

[FILES] Pantami

Amidst several outcries over the proposed new five per cent tax on the telecoms sector, ADEYEMI ADEPETUN, in this report, examines the danger of imposing more taxes on the industry.

Earlier in the year, a report by SB Morgen, titled “Inside Nigeria’s Subnational Fiscal Crisis, “revealed that the telecommunications industry appears to suffer disproportionately from the problems of over-taxation in Nigeria.

The report also disclosed that there are over 40 different taxes and levies meted out on the service providers, especially, mobile network operators (MNOs) rendering telecoms services in Nigeria.

It went on to say that the aggressive taxation of this sector is impacting service quality, which has suffered a series of degradation and Nigerians suffer the consequences.

Globally today, mobile, a subsector of the telecoms industry is the main gateway to the Internet for consumers in many parts of the world, particularly in developing countries. Despite this, governments in many of these countries are increasingly imposing, in addition to general taxes, sector-specific taxes on consumers of mobile services, devices and on mobile operators.

This is said to pose a significant risk to the growth of the services among citizens, limiting the widely acknowledged social and economic benefits associated with the telecommunications sector.

It is on this note that the recently proposed five per cent excise duty on telecoms services (calls, SMS, and data) has been described as a misfit of a policy by stakeholders, going by other several taxes that have been slammed on the sector, whose brunt are largely borne by subscribers.

Genesis of 5% tax on telecoms services
While the Ministry of Communications and Digital Economy and the Nigerian Communications Commission (NCC) have recognised the importance of policies that support the ICT sector, resulting in digital agendas that set ambitious connectivity objectives, the Minister of Finance, Budget and National Planning, Zainab Ahmed, seems not to align with the need to digitise the economy, following her call that more taxes should rather be slammed on the telecoms sector.

Speaking through her Special Adviser on Media, Tanko Abdullahi, some weeks back, the finance minister cited the Finance Act 2020 as the enabling legislation for the tax on all voice calls, SMS and data services, in addition to the existing 7.5per cent Value Added Tax (VAT) paid on goods and services across all sectors of the economy. The addition of another five per cent would result in subscribers having to pay as much as 12.5 per cent tax on calls, data, among others.

Finance Minister, Zainab Ahmed

While there is no doubt that the ministry is empowered constitutionally to collect and disburse government revenue; formulating policies on taxation, tariffs, fiscal management, preparing and managing the yearly budget, among others, the situation in the country, appears to have made the minister more desperate.

Justifying her position, Ahmed highlighted that countries in Africa like Malawi, Uganda, Tanzania and others have all keyed into this revenue generation pattern, emphasizing that this is needed to change Nigeria’s economic situation for good.

Already, the Federal Government through the Budget Office has revealed that it will begin the implementation of the proposed excise duties on telecommunication services and others in 2023.

The tax, which is under the purview of the Nigeria Customs Service (NCS), the government said the NCS would introduce frameworks for recovering duties, taxes, and appropriate fees from transactions conducted over electronic networks.

Revolts against implementation
In apparent dislike for the policy, the Minister of Communications and Digital Economy, Dr. Isa Pantami, opposed the planned five per cent excise duty on telecoms services, insisting that such a plan is detrimental to the growth of telecoms in Nigeria.

Pantami in Lagos, said he would explore every legitimate means to stop the planned five per cent excise duty tax on the telecoms sector.

Pantami faulted the timing and process of imposing the tax on the industry, insisting that part of the responsibility of a responsive government is not to increase the problems of the citizens.

Pantami urged the tax masters to expand the scope of other sectors that are not contributing to the economy to do so.

“We must come together and salvage the sector. Only the telecoms sector contributed 13 percent and you want to add more. This is unacceptable,” Pantami added.

On his part, Chairman of the Association of Licensed Telecoms Operators of Nigeria (ALTON), Gbenga Adebayo, insisted that the new tax burden would be passed to subscribers.

According to him, “it is a strange move, it appears a bit unusual. Excise duty is supposed to be apportioned to goods and products, but we are surprised this is on services. We will continue to support the government but ALTON won’t be able to subsidise this on behalf of subscribers in addition to the 7.5 per cent VAT, making it12.5 per cent payable by subscribers to the Federal Government.

“We currently pay a lot of taxes, running over 39 of them, so we can’t add more to the existing burden. We won’t be able to absorb this on behalf of subscribers.”

Why the tax should not be implemented
Different quarters in the sector believed strongly that should the new tax sail though, it will definitely erode some of the gains of the sector and affect the consumer-centric stance of the industry as being pushed by the NCC.

For instance, a telecoms expert, Kehinde Aluko, said in the last two decades, the industry regulator has shown itself as a consumer-oriented regulator by deploying various regulatory frameworks and initiatives to ensure a consistent reduction in the cost of telecommunications services in the country.

Danbatta, NCC EVC

Aluko said: “NCC dedicated the whole of 2017 as the “Year of Telecoms Consumer,” with a campaign programme designed to give concrete expression to the centrality of the consumer in the telecoms ecosystem to explain why tariffs should not be increased indiscriminately.

“Deriving life from items 2 and 6 of the NCC Management’s 8-point Agenda launched February 272016, the declaration of year 2017 focused on the needs and satisfaction of the Nigerian telecoms consumer.”

According to him, the Danbatta-led NCC has maintained solidarity with the consumer on matters of tariffs and issues like Quality of Service (QoS) and other complaints. He added that the commission has also waded into matters regarding Right of Way, state governments shutting down base transmitter stations, multiple taxations, and protection of critical telecoms infrastructure, which has produced results.

Aluko disclosed that tariff regulations and determinations are made by the commission in line with the provisions of Sections 4, 90, and 92 of the Nigerian Communications Act (NCA) 2003, which entrusts the NCC with the protection and promotion of the interests of subscribers against unfair practices, including but not limited to; matters relating to tariffs and charges. “Therefore, it won’t be out of place for the Minister of Finance to work with NCC on this matter,” he stated.

The NCC has also stressed the need for implementing agencies of the planned tax to meet directly with telecoms industry stakeholders to address areas of concern.

Concerns for broadband penetration and 5G deployments
Stakeholders also believe that the Nigeria National Broadband Plan 2020-2025 (with a target to achieve 70 per cent broadband penetration and 90 per cent population coverage) would be at risk. The reasons are obvious. NCC plans to crash the cost of data to N390 per gigabyte by 2025, as contained in the NNBP; so any additional tax on the telecoms operators implies that the cost of call, data and SMS would go up.

With the planned deployment of 5G at top stage in the country, stakeholders also believe that the tax could slow the technology, especially the ability of subscribers to purchase 5G enabled devices.

“5G comes with enormous benefits. 5G is a game-change for Nigeria’s economy. But if we fail to overcome the elementary issues like ensuring Ease-of-Doing-Business for industries like telecommunications, then, it means the government is not encouraging investors,” they stated.

Subscribers kick against taxes
President, National Association of Telecoms Subscribers (NATCOMS) Chief Deolu Ogunbanjo, hailed Pantami for protecting telecoms subscribers on the issue of five per cent excise duty.

“I am happy that our Minister is feeling our pains as subscribers. The five per cent excise duty will be an additional burden to the existing burdens in the telecoms sector. We are solidly in support of the minister’s position and we, as telecom subscribers, will go to any length to stop the planned implementation because it will not be healthy for the telecom sector,” Ogunbanjo said.

Speaking on the negative impact of multiple taxation, the Chief Executive Officer of PanAfrican Towers, Azeez Amida, said multiple taxation and fees pose a huge threat to the growth of the Nigerian telecoms market.

“There should be a uniform tax system, and the same should apply to fees. Taxes are essential to providing funding for infrastructure; it is important for the growth of any society. But taxing and levying businesses multiple times inhibits growth. This is where regulation is needed to streamline the tax system and other fees for tower companies.”