GSMA, others reject Nigerian electronic tax bill
By Kokumo Goodie, Lagos, Nigeria
The Global System for Mobile Communication Association (GSMA), Association of Licensed Telecommunications Operators of Nigeria (ALTON), the Association of Telecommunications Companies of Nigeria (ATCON) and the National Association of Telecommunications Subscribers (NATCOMS) have rejected the Bill for the Establishment of a Tax on Electronic Communication Services in Nigeria currently before the National Assembly.
The bill which is seeking to establish a 9% Communication Service Tax to be levied on charges payable by any user of an electronic communication service such as short message service (SMS), voice calls, multimedia service (MMS), and data usage supplied by service providers in the country, they warned 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 Federal Government.
The bill has passed through First Reading in both the Senate and House of Representatives. For the Senate it is not clear when the Second Reading will be until the sponsor, Senator Ali Ndume (who also is a principal officer of the Senate) authorizes the bill to be listed for Second Reading.
In a March 30, 2016 letter addressed to the Minister of Finance, Mrs Kemi Adeosun and her counterpart in the Communications Technology, Mr Adebayo Shittu, they said the socio-economic impact of mobile penetration is now widely recognized. They alluded to a World Bank research noted that a 10% increase in mobile broadband penetration in low to middle income countries such as Nigeria leads to a 1.38 % increase in GDP growth.
“Today, 83 million people in Nigeria have access to mobile services. With over half of the population without a mobile connection, affordability remains a key challenge to connect the unconnected, who are typically lower income population groups. Further taxation on electronic communication services will 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 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 (VAT) on telecommunications services,” the letter jointly endorsed by the stakeholders read in part.
They recalled that in 2014, the mobile ecosystem contributed $8.3 billion to the Nigerian economy, adding that this was set to increase as penetration of voice and broadband services grows with the apparent potential of mobile broadband for the rapid development of the digital economy in Nigeria and is supported by a diverse and growing local ecosystem. Usage of apps, they argue is growing by up to 30 % annually.
“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. 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.
“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 (ARPU), this can make it more difficult for mobile operators to make a business case for investment,” the stakeholders said, warning that the proposal would also further increase the administrative cost burden on telcos to comply with numerous and complex tax regulations, already high compared to other countries.
Executive Vice-Chairman, NCC, Prof. Umar Danbatta, Senate President, Bukola Saraki, House Speaker Yakubu Dogara, Chairman, Senate Committee on Communications, Senator Gilbert Nnaji, House Chairman, Committee on Telecommunications, Hon. Fijabi Saheed Akinade, Chairman, House Finance Committee, Hon. Babangida Ibrahim, Chairman, Senate Finance Committee, Senator John Owan, House Chairman, Information Technology Committee, Hon. Mohammed Onawo and others were sent copies of the letter each.
On the applicability of the tax, ALTON lamented that it seems to be focused mainly on telecommunications, for services that are already being taxed. The tax is to be levied on charges payable by users of Electronic Communication Service [any communication through use of wire, radio, optical or electromagnetic transmission emissions or receiving system or part of these and include interconnection], at nine per cent of the charge for the service.
This proposed bill, ALTON argued, requires a number of clarifications, wondering if it will replace the existing VAT charges. “If not it means the consumers will be made to pay to government 15 per cent more on present tariff this is not fair to our customers.”
In the area of financial reporting, ALTON said it is concerned about how the charge would be applied or captured in the annual reports, because it seems that the tax would clearly be applied to items already being taxed.
“When the government collects this tax on a monthly basis on the revenue generated, would it become tax deductible during the preparation and filing of annual returns?
“The tax is expected to be paid by the consumer to the service provider along with service charge. The direct implication of this being that the service tariff of operators will have to be increased to include nine per cent of the charge for the service. This is definitely likely to cause general discontentment with the consumers in an environment where there is already consumer outcry on tariffs.
“There is also an expectation for tax returns to be filed monthly and where (without approval) this is not done, penalties shall be imposed for late payment including interest of 105 per cent on outstanding amount at the prevailing commercial bank lending rate. This provision seems really steep and unwieldy and the penalty ridiculously high,” the group averred.
The group argued that the timing to file returns is most unreasonable and the penalty for delay is severe, there is a clause where a fine of five per cent of gross turnover is imposed on service provider. The existing AOL (annual operating levy) of 2.5 per cent payable to Nigerian Communications Commission (NCC) is too high and due for review
“Section 6 (5) proposes that the return and the tax due to the accounting period (i.e. calendar month) to which the tax return relates shall be submitted and paid to the FIRS (Federal Inland Revenue Service). We are of the view that this will be impractical and cumbersome.
“Tax returns are usually filed on an annual basis, therefore introducing one to be filed monthly while these organizations still have the obligation to file the monthly returns on PAYE Tax, WHT Tax, VAT, NHF, Pension, on an accrual basis is quite burdensome.
“Also the Bill seems to imply that the organisations would be expected to engage auditors perpetually to keep verifying their records for completeness? This exercise would definitely be expensive and unwieldy,” ALTON said.
The operators complained that the requirement for monthly remittance of the taxes is bound to greatly impact on the organisations’ cash flow.
On access to system/platform (Section 15 [4a & b]):, the group averred that the Minister and FIRS are to be granted powers to make policy to the effect inter- alia, that FIRS, Ministry of Communications, NCC and their appointed agents have unfettered access to operators network especially their billing system/platform. Failure to grant the requisite access will attract a fine of 5% of annual gross revenue of the last admitted financial statement of the service provider and can also lead to NCC revoking an operator’s license.
This in itself poses a security threat to the company’s operations and customer information. In view of the implications of this provision, it will be surprising if NCC actually approves this.
This provision contradicts a similar one following, to the effect that this can only be imposed via a court order after exhausting the administrative process provided therein. Whichever the case may be, this provision is unacceptable and would amount to enforcing a tax by imposing another tax?
On the imposition of sanctions, it said Board of Directors and Management can be penalized jointly with the organization for non-compliance etc. thereby criminalizing non-compliance and introducing more stringent penalties than other existing tax legislation.
“The Bill seems to be interested in penalty laden instead of focusing on how convenient the imposition, charge and payment of the tax would be for the affected industry.
“Our opinion is that the introduction and collection of the tax without the exclusion of the applicability of the Value Added Tax (VAT) (which was introduced by the Value Added Tax Act and is also applicable to services rendered by Service Providers in the telecommunication sector) will amount to double taxation as the proposed tax is an additional tax on communication services rendered to the same end users who already pay a five per cent tax as VAT.
“Also the administration of this tax regime as proposed will be cumbersome and impractical; we must correct this general notion that service providers can absolve any tax without considering the capital and operational cost to the service providers,” ALTON lamented.