Why did State Governors in Nigeria renege on the covenant for the elimination of multiple taxes? In this report, Olubayo Abiodun delve into the implications of multiple taxes and the effort of the telecoms chief regulator to reverse the ugly trends
IF there is one painful goitre on the neck of the Executive Vice Chairman/Chief Executive Officer of the Nigerian Communications Commission (NCC), Umar Danbatta, which he needs surgeons to immediately remove; it is the challenge of multiple taxes in the telecoms operating environment. It is an inherited burden for the CEO of the nation’s telecoms regulator. Though, it would seem that the issue had been resolved in the past, but recent experiences of the operators point in a different direction to the assumed resolution.
The question now agitating the mind of Danbatta is how to make Governors of the 36 states of the federation respect the Memorandum of Understanding (MoU) on the right of ways and the illicit taxes by agents of the state governments. As if that is not enough, the industry are recently slammed with a proposed bill for the establishment of a tax on electronic communication services in Nigeria. The bill seeks to establish a nine per cent Communication Service Tax to be levied on charges payable by a user of an electronic communication service (i.e., SMS, voice calls, MMS, data usage) supplied by service providers. Worried stakeholders say that this bill will result in a double taxation for consumers who already pay Value Added Taxes on telecommunications services.
Danbatta, has however taken the Bull by the horns, hence he paid a courtesy call on the Kaduna State Governor, Nasir El Rufai. The main purpose of the visit was to woo the governor to his side in the effort to make El Rufai’ and his colleagues overseeing other states respect the MoU signed with the Commission for protection of Information Communication Technology (ICT), infrastructure in their domains.
The MoU was entered into during the regime of the immediate past President Goodluck Jonathan. The choice of Rufai by Danbatta to re-launch the campaign against multiple taxes in the telecoms ecosystem is, perhaps, a tactical strategy.
El Rufai is, perhaps, the only governor in the current regime led by President Mohammadu Buhari, who is well versed in the opportunities, potentials, threats and dangers inherent in the telecoms business corridor. He was once the Director-General of the Bureau of Public Enterprises (BPE) where he took fundamental steps in the privatization programme of the federal government midwifed by the National Council on Privatisation. During the period, he had vigorous dealings with the attempt to privatize the pioneer national carrier; the Nigerian Telecommunications Limited (NITEL) and its mobile arm MTEL.
The governor must be acquainted of where the shoe pinches having previously collaborated with his elder brother; Bashir Ahmad El Rufai in overseeing the network rollout of Intercellular Nigeria Limited, one of the foremost Private Telephone Operators that executed the almost extinct CDMA technology in Nigeria.
Picking El Rufai to spearhead the battle on the elimination of double taxes by the recalcitrant chief executive of states across the country might just be the round peg in the round hole because of his robust influence within the ruling party; Alliance for Progressive Change (APC) and his supposed closeness to President Buhari. Besides, the diminutive governor is said to enjoy swirling influence among a sizeable number of the states chief executives.
What are the issues in contention? Stakeholders have always insisted that a double tax is a disincentive for foreign investment inflows. The issue of multiple taxes had been a sore point with stakeholders expressing worries at the indiscriminate levies by the states, local councils, social miscreants and traditional rulers. Operators have been seeking a one-stop shop to ease administration of taxes in Nigeria. The operators have had to suffer arbitrary enforcement actions and thereby resulting in service disruptions by parties working on behalf of tax-raising bodies. Such disruptions have accounted for costs running into millions of dollars annually industry wide.
The crux of Danbatta’s message is the incessant vandalisation of telecoms facilities as well as the recurring cases of multiple taxes. And he did not mince words in asking the Governor to prevail on his colleagues in the northern sphere of the country via the Nigerian Governors Forum (NGF). While reiterating that telecoms is the goose that lays the golden eggs, Danbatta said stakeholders must ensure the protection of the facilities in the interest of the country’s economy. In the past, some of the states like Bauchi placed a demand of N755 ($4.2 million) on Airtel Nigeria for branding and advertising, Imo asked for N262.4 million for pest control charge and Delta requested for N276m ecological tariff.
The telecoms chief regulator is worried that if the situation is not put in check, Quality of service will continue to drop. Making his presentation to the governor, he said, “Just before I assumed duties on August 4, 2015, I used to read about the series of problems plaguing the telecom sector in general and operators in particular. There have been recurring cases of multiple taxation especially at State levels which operators have to bear. There have also been cases of Right of Way (RoW) whereby operators have to deal with this at different levels – from local council to the state level.
“Besides these, there have been incessant vandalism of telecom equipment and theft of optic fibre cables in various states of the federation. Base stations have not been spared as many operators have had their base stations shut down by some state government agencies for one debt or the other. These are real issues that require pragmatic solutions if quality of services are to improve beyond where it is today. Certain agencies in some states have also threatened to shut down operators’ facilities in these states.
“Sadly, your Excellency, despite the Memorandum of Understanding (MoU) signed by the former Communications Minister with the Nigerian Governors’ Forum (NGF) to address these challenges, the covenant is not respected.” He pleaded with the governor “to prevail on your brother Governors to have an understanding with the situation. We do this because of our firm belief in you as a technocrat with a very good grasp of the importance of ICT in national development and how this will crystalise in Gross Domestic Product (GDP) of our dear nation, Nigeria. “If you do this for us, your Excellency, posterity will remember you and Nigerians will celebrate you.
Danabtta promised that the commission was prepared to take the revolution further by the initiatives put in place in its 8-point agenda that will guide the activities of the Commission in the next five years.
El-Rufai assured that Kaduna had already harmonized its taxes thereby eliminating the incidences of multiple taxes. “We will never allow base stations to be shut down because of debt owed us because we have abrogated all tax laws in Kaduna, enacted a new tax code and also centralised tax collection, so that telecom companies will not be taxed by state government, local government.”
It remains to be seen how El Rufai will carry the same templates to his colleagues in the north, perhaps, across Nigeria via the NGF in order to eliminate multiple taxes in the telecoms ecosystem. While the stakeholders will be watching to see how El Rufai will take this mandate forward to his colleagues, the stakeholders with bathed breathe, will be monitoring the bill at the National Assembly.
If the bill should sail through and eventually becomes law in its current template, stakeholders said that the tax will result in an increase in prices for consumers, which will have adverse impacts on the adoption of mobile services and industry investment, as well as counter-productive to the longer term national digital strategy objectives set by the government of Nigeria.
In recent time, pundits have celebrated the 11 per cent contributions of ICTs to the Gross Domestic Product of Nigeria’s economy. But in their narrative on the new bill, the amalgam of stakeholders further stated that: “the socio-economic impact of mobile penetration is now widely recognized. According to research conducted by the World Bank, a 10 per cent increase in mobile broadband penetration in low to middle income countries leads to a 1.38 per cent 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.
In their conclusion, 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 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.”
The group noted that the 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, 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”