Why Nigerians oppose proposed Communication Service Tax bill

Nigerians, particularly the telecom industry practitioner have refused to come to terms with the proposed ICT Tax that is set out to introduce of nine percent tax on calls, MMS, SMS, data and have viewed it the most unwelcome initiative.

The Communication Service Tax (CST bill) which seeks to levy nine percent on subscribers for the use of the various communication services is seen as quite worrisome especially now the economy has gone from bad to worse, while ICT firms are dying by installment.

It is a kill-joy to note that about 35 licensed telecoms companies comprising some small players, those in the fixed line, Code Division Multiple Access and Global System for Mobile communications players three years ago were plying their trade and doing well, but currently just about 15 licensees are still operating.

Tagged ‘Communication Service Tax’, though, still a bill, is currently before the Senate and House of Representatives and has passed its first reading. It’s becoming a law 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 percent tax on the fees paid for the use of these services.

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

Although 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.

Adebayo Shittu, minister of Communication has rightly pointed out that the introduction of new taxes without harmonising existing ones would put pressure on the country’s tax system thereby making it unattractive to investors.

Earlier in the year, industry groups  according to  the letters 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.

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 defaultwithin one month would attract additional interest on the unpaid interest.

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 percent increase in GDP growth.

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 percent right now, imposing the tax may reduce this figure further,” it stressed.

At the recent Lagos Chamber of Commerce and Industry (LCCI) meeting on the proposed nine percent tax in Lagos, 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.

On its part, 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.

Sunday Alhassan, President, National Union of Postal and Telecommunication (NUPTE), recently told newsmen in Lagos that the proposed CST would amount to double taxation, adding that the bill was anti-workers and if allowed to sail through, would lead to loss of jobs.

Investigations have shown that the tax bill The bill which copied extensively from Ghana Communication Service Act without taking into account the country’s peculiarities imposes significant compliance burden and costs on the service providers.

It may also be counter-productive in the long run for the country’s targets on broadband penetration, as right now; multiple taxation is a major impediment to the growth of the Information and Communications Technology (ICT) sector.

Various tiers of government, including local councils and state government agencies have created enormous challenges to the sector and some of the agencies often threaten to shut down base transceivers stations over alleged refusal of the Telecoms’ companies to comply with a tax regime which the operators see as grossly excessive.

PwC observed that the Bill does not provide for penalties for the Government monitoring agents for abuse or data protection violation.

Confidentiality of the customers using the infrastructure has to be guaranteed and any consequential claims for damages should be borne by such agents or government officials.

The Bill does not clarify whether there will be a charge if the subscriber of the telecommunication or television service is outside Nigeria or for foreign interconnect charges billed from Nigeria to foreign telecommunication providers.

The 7 days period for service providers to object to a request by the Government to introduce an equipment or software into the subscriber’s network may not be sufficient to determine the risk associated with such interference as this may require technical expertise at a significant cost and time.

The CST Bill still imposes the payment of 5 percent of annual revenue tax after a court upholds the introduction of the Government monitoring equipment into the network.

This will discourage service providers from challenging the Government where it merely suspects that such introduction may create risks and affect the quality of service enjoyed by subscribers. Interestingly there is no compensation to the service provider where the court rules otherwise.

The use of independent consultants could lead to unprofessional behaviour by consultants/agents who are motivated solely by commission for work done.

The only needful thing to do is for government to discontinue the Bill, knowing that it would reduce the inflow of FDI into the sector, reduce subscribers’ level of data consumption and affect contribution of the sector to GDP.