What many Nigerian telecom services users may not be aware of right now is that there is a Bill in the making at the National Assembly, NASS called the Communication Service Tax, CST, bill that could make such services highly unaffordable to many.

 

The Communication Service Tax Bill is a private bill that seeks to impose a 9% Service charge payable monthly by the user of an electronic communication service as supplied by the service providers.

 

The Bill which has passed the first reading at the lower chamber, the House of Representatives, will on approval compel communication service subscribers to pay additional tax on voice calls, SMS, MMS, Data and Pay TV viewing.

 

So far, the controversial Bill has drawn the ire of some subscribers, consumer rights advocates, civil society groups, among others, who see the CST as another form of double taxation.

 

On the business side, there are fears that the Bill, if passed into law will affect the frequency of voice calls, SMS, MMS and data usage by subscribers thereby reducing expected return on investment in the nation’s nascent telecommunications sector.

How would you feel if you must pay much more to use data for browsing and related activities; to make phone calls with your numerous phone lines, send SMS and MMS, or even to watch your favourite movies, live football matches and other shows on your beloved pay-tv channels?

These are some of the unpleasant experiences we may all be confronted with, should the Communication Service Tax Bill see the light of day.

The tax will be charged at 9 percent of the fees payable for every service and will be borne by the customer. These include users of Short Messaging Service (SMS), Multi Media Messaging Service (MMS), voice calls, data and Pay-tv services supplied by service providers, and the service providers are not exempted.

Analysts posit that in a blind pursuit of taxation income, which will take more than it gives, that the government is about to mortgage all the gains of the liberalisation of the telecom sector. Before it goes on with its plans, they stress that government should realise that among other things:

•       The CST will increase the cost of communication services thereby
making services unaffordable for consumers.

•       It amounts to double taxation because consumers already pay VAT on
communication services.

•       The tax is discriminatory because it targets only the communication
sector to the exclusion of other sectors of the economy.

•       Government needs to stimulate the economy to generate additional tax
streams rather than overtax an already overburdened tax paying
populace and sector.

•       Government needs to expand the tax base to include taxable people
and sectors that are currently not included and those that are evading
tax.

•       The tax will lead to a reduction in revenue to operators due to
reduced use of affected services (SMS, MMS, Voice, etc.).

•       The Bill is detrimental to the country’s broadband plan.

•       The additional tax will discourage adoption of the electronic communication
services e.g. data use.

•       The CST will discourage further investment in the industry due to
reduced returns on investment, ROI.

•       The introduction of new taxes without harmonizing existing ones will further compound the issue of multiple taxation and this could make the industry unattractive to investors.

In the face of the current development, 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) have jointly written a letter to the Minister of Finance, Mrs Kemi Adeosun and Minister of Communications, Adebayo Shittu, about the dangers the new tax system portends for the industry if it becomes a law.

As a mark of solidarity, the Global System for Mobile telecommunications Association (GSMA), the body which represents mobile operators worldwide, has also joined them in the agitation, according to a letter dated March 30, 2016, copies of which was made available to the media in Lagos.

In the letter, the bodies reminded the lawmakers that the socio-economic impact of mobile penetration has been widely recognized. According to them, a research conducted by the World Bank, which predicted that a 10 percent increase in mobile broadband penetration in low to middle income countries (to which Nigeria belongs) led to 1.38 per cent increase in GDP growth.

They stressed that to connect the yet to be connected Nigerians to the mobile platform, affordability remains a key challenge, since the unconnected are basically found among the lower income population groups.

According to them further taxation on electronic communication services would hit lower income consumers the most, who are already struggling due to the adverse economic situation, adding that increased price pressure would be working against their social and economic inclusion.

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“Moreover, this will result in a double taxation for consumers who already pay Value Added Taxes on telecommunications services”, they stressed.

 

 

According to findings, the bill, titled, “The Communication Service Tax (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.

Though, the bill is still a proposal, failure to pay the interest due on default within one month would attract additional interest on the unpaid interest.

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 (ATCON) and Chief Adeolu Ogunbanjo (NATCOMS), the bodies stressed that if introduced, such tax will result in an increase in prices for consumers, 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 NASS to dock the tax bill and the communications bill, 2016 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 recognized.
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.

The truth remains that further taxation on electronic communication services would hit lower income consumers 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 the most.

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.

“Moreover, this will result in a double taxation for consumers who already pay Value Added Taxes on telecommunications services”, they stressed.

They recalled the impact of mobile services on the long-term development of the digital economy, which in 2014 contributed about $8.3 billion to the Nigerian economy, which is set to increase as penetration of voice and broadband services grows.

In addition, they stressed that the potential of mobile broadband is apparent from the rapid development of the digital economy in Nigeria and is supported by a diverse and growing local ecosystem, with usage of apps growing by up to 30 per cent yearly for example.

They reminded the government that the development of a competitive digital economy, boosted by mobile penetration and investment in networks will, over time, strengthen the economy as a whole leading to faster economic growth together with higher fiscal income for the government from a broader tax base.

According to them, by impacting usage of communications services and in turn industry revenues, this proposed tax will have adverse effect on the industry investment needed to improve and expand mobile connectivity across the country.

They stressed that mobile industry investment in Nigeria is already constrained by multiple level of taxes and fees set by local and regional authorities, in addition to fees to the national telecommunications regulator and high costs of right of ways.

“In a context of declining average revenue per user, this can make it more difficult for mobile operators to make a business case for investment. The proposal would also further increase the administrative cost burden on service providers to comply with numerous and complex tax regulations, already high compared to other countries.

“In view of the above, we respectfully request your urgent intervention to prevent the adoption of a new tax on electronic communications services. We remain available to meet with you to progress dialogue and to ensure the digital economy delivers its full potential in Nigeria”, they stated.

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