As the conversation swirl on the propriety or otherwise of the proposed Communication Service Tax (CST), Olubayo Abiodun looks at the implications for the consumer at the bottom of the pyramid; the MNOs in the wake of declining average revenue per user; and the damning impact to ICT contributions to the GDP and infrastructure expansion in Nigeria.
IT is often taken for granted that elected representatives in Parliament are primarily engaged to make laws for good governance in the overall interests of the people that they represent. But the proposed Communication Service Tax (CST) bill initiated by Senator Ali Ndume (same legislator behind the infamous anti-Social Media bill) is clearly not in the interest of the people.
By the time the proposed CST bill, defined as “communication through the use of wire, radio, optical or electro-magnetic transmission emissions or receiving system”, is passed into law in Nigeria, the growing tribes of ‘digital citizens’ and ‘digital migrants’ in Nigeria would have been bogged down with the weight of excessive costs of services. The proposed CST bill introduced in 2015 is currently before the Senate and House of Representatives and has scaled the first reading. This bill would require consumers of voice, data, SMS, MMS and pay TV services to pay a 9 per cent tax on the fees paid for the use of these services.
Curiously, stakeholders have often complained of multiple taxes and the National Assembly would seem to be playing more than lip service to convince the state apparatus to harmonise their tax regimes in order to minimize the impact of too many taxes on communications service delivery in the country.
But by the time this new tax becomes law, Nigerian consumers will have to contend with such loathsome tax over and above the current regime of the 5 per cent Value Added Tax (VAT) on the purchase of devices and communication services. This is also in addition to the 12 per cent custom import duties on ICT devices, and the 20 per cent tax levied on SIM cards.
Apart from the taxes, operators also cope with levies and permits on Annual Operating Licence (AOL), Right of Way (RoW). Local authorities also demand levies and taxes on premises, permits on the installation of masts and towers, events, promotions, advertisement and branding. Such sundry taxes will ultimately increase the costs of service delivery to the end users; the consumers. Another major concern in the proposed CST Bill is that communication service providers will collect this tax from the subscribers and remit to the Federal Inland Revenue Service on a monthly basis. “Mobile operators and service providers will be responsible for collecting consumer payments and must fulfill additional reporting obligations that are likely to increase operational costs and therefore service fees for consumers,” Nigeria’s Communication Minister, Adebayo Shittu said.
Experts have said that increasing access to and use of the Internet and communication technologies is central to Nigeria’s development agenda. Statistics provide robust attestation to this. For example, Nigeria can currently claim to have some of Africa’s most affordable Internet prices (500MB priced at 5.4 per cent of average income in 2014), broadband penetration stands at just 12 per cent. Surprisingly, 40 per cent of Nigerians earn less than half of the average income; this means that a basic mobile broadband plan actually costs the majority of Nigerians anywhere between 7-18 per cent of their monthly income. By imposing this CST, the cost of service delivery will jump sharply and affordability diminished significantly among women and low-income populations.
The nation also has determined target for its economic trajectories. Nigeria is aiming to becoming one of the leading twenty economies by the year 2020. And it is believed that the driver of such ambitious plan is the integration of the economy into the digital ecosphere. Broadband is deemed the most critical mass in getting Nigeria to the desired destination in the digital economy space. This is the reason for the formation of the National Broadband Plan which seeks to achieve 30 per cent broadband penetration by the year 2018.
Shittu affirmed this target: “The ITU gave Nigeria the mandate to achieve 30 per cent broadband penetration by 2018. This is only two years away. In spite of the huge investment by government and industry operators, Nigeria has achieved only 10 per cent broadband penetration at the moment. If we are to catch up with lost ground and meet up with the expectations of the global community in the area of affordable broadband service, we have to incentivize the populace by helping to aid access to low cost data service subscription.”
But Shittu told participants at the Communication Service Tax Stakeholders’ Meeting organised Wednesday, 17 August by the Lagos Chamber of Commerce and Industry (LCCI) in Lagos that “Our appetite as a government to increase revenue makes this bill worthy of our consideration as I have been reliably informed that the projected earnings from this effort is over N20 billion every month, which is an attraction to the government in funding our budget deficits. I must be quick to say that this government has got a human face twined around its decisions.”
On the one hand, the Minister sees the opportunity of government reaping massive revenue to fund the deficit budget; however, on the other hand, the CST bill could be an impediment to the realisation of government’s desire to achieve ubiquitous broadband access in Nigeria because of the prohibitive cost of delivering services to the consumers in the final analysis. Besides, the Minister is also fully conscious that the new tax like others could be a disincentive to the government’s avowed drive for investments. According to him, “the introduction of new taxes without harmonizing existing ones will put pressure on the Nigerian tax system, making it unattractive to investors. This may also be counter-productive in the long run for our targets on broadband penetration. “
What will be the impact of the CST on the robust contribution of ICTs to the GDP which currently stands at 10 per cent? Many analysts are of the opinion that the bill would have a natural consequence of dwindled contributions of the sector to the GDP. The Minister also concurs with the assumption. “Additionally, many have also concluded that the proposed bill will also discourage further investment in the communication industry due to reduced returns on investment, and ultimately drastically reduce the sectors huge contributions to the national GDP. Some have concluded that the proposed CST bill is an ill wind that would blow the country no good,” Shittu said without equivocation.
Other stakeholders have similarly opposed the CST bill. The National Chairman of the Association of Licensed Telecommunications Operators of Nigeria (ALTON), Gbenga Adebayo, was point-blank in condemning the CST. He said the bill will not only be detrimental to the telecom industry, but also to the poor masses who benefit from telecom services. According to him, “the industry faces today not less than 26 taxes and levies, including governments of states taxing operators whose infrastructures are in the forest land. So I think we should have a rethink on this Bill, we should have a rethink.”
In condemning the CST, he said: “In my opinion, the communication service tax bill is not consistent with the national broadband plan”, “I have been privileged to see the national broadband plan and lucky to be serving on the committee that is implementing that bill. I can say to all of us here present that the spirit of the broadband bill and the spirit of this present tax bill, is like something coming from the north and the other going from the south, they are completely different.”
The ALTON Chairman recommends that the Federal Government should give attention to expanding the number of those paying tax rather than focusing on the telecoms industry to provide the tax fund supposed to be raised alongside other sectors of the economy. “According to what is said, there are only 10 million people paying tax, and we are almost 200 million people. So maybe the work to do is to find more people to join that 10 million and let’s do the work that about 50 million people would be paying taxes, then telecoms will be in the back burner, we wouldn’t be in the front burner,” he said.
President of the Association of Telecommunications Companies of Nigeria (ATCON), OlusolaTeniola, said that its members are already overtaxed by all tiers of government through fees on Annual Operating License (AOL), VAT, RoWs, Levy permits, duties among others. He quipped that that the industry which is heavily taxed already would prefer the Bill is stepped down. According to him, “There is no doubt that the emergence and liberalization of this sector has also impacted positively on revenue accruable to government, employment generation (both Direct and Indirect), Foreign Direct Investment and a host of other positives”.
Also, President, National Association of Telecommunication Subscribers (NATCOMS), Adeolu Ogunbanjo said the proposed CST Bill will impact negatively on the National Broadband plan. He said that the proposed bill would also make telecom services expensive. “Already, subscribers are battling with very low purchasing power as well as very low discretionary income.” According to him, “The proposed communications services tax bill is anti-people, anti-masses and totally against the low income earners, who are not even enjoying the benefit of our abundant oil and gas endowment.”
If the legislators are truly representing the interests of the people, then the overbearing call of the people for the step down of the CST bill should be respected by the National Assembly. President LCCI, Nike Akande made a tacit support on this while urging government to ensure investment friendly tax environment, especially in the light of the prevailing high cost of doing business in the country. She said the ICT sector is very strategic to sustainable growth and development, adding that the sector has witnessed an impressive growth over the last one decade.