Why the proposed 9% Communication Service Tax is all shades of wrong for Nigeria

The Federal Government recently proposed a Communication Service Tax Bill which will impose additional charges on users of electronic communication services in Nigeria. By virtue of the bill, the tax will be charged at the rate of 9% of the fees payable by users of electronic communication services in Nigeria and will be borne by the customers. Electronic communication service in the Bill include service providing electronic communication, close user group, private electronic service, radio communication service and valued added service.

The extra tax will be applied on voice calls, SMS, MMS, Data from telecommunication service providers and internet service providers and Pay TV viewing etc. This means that asides from VAT charged on these services, you will also pay for your data for browsing on your phones and devices, for cable services like DSTV and even for value added services like purchasing caller tunes, sms alerts, mobile newspaper services, bank alerts etc. It is interesting to note that the Bill also gives a wide net to the Ministry of Communication and the FIRS which are vested with the powers to make administrative directive and policy to give effect to the bill to add extra categories of operator and persons liable to pay CST. So with digitisation of broadcast in Nigeria, this may be expanded to include other services. The conferment on this power on the Ministry of Communication Technology for PayTV providers rather than the NBC or Ministry of Information also seems to be some subtle form of convergence of telecommunications and media via the tax law

Service providers will collect this tax from the subscribers and remit to the Federal Inland Revenue Service on a monthly basis. The proposed law stipulates penalties for failure to remit the tax to the government coffers. A fine of N50, 000 is to be imposed on any service provider that fails to remit the funds by the prescribed date, plus an additional N10,000 per day until remittance is confirmed.

The aim of the Bill is to act as a tool to help diversify the economy and contribute to economic development. Considering the multiple taxes already levied on the telecommunication industry, this bill may rather achieve the reverse. Nigeria’s telecommunication sector, one of the most lucrative sectors in the country, already has about 26 different taxes and levies according to the Association of Licensed Telecommunications Operators of Nigeria (ALTON). This includes 5% VAT on purchased devices and communication service, 12% import duties paid on ICT devices, and 20% tax levied on SIM Cards. In view of the afore-mentioned taxes, it therefore means that in addition to paying VAT for instance a recharge card bought, the consumer will still need to pay additional 9% for voice calls, SMS and MMS. This clearly amounts to double taxation. The legislature should be working to make the business climate more conducive for operators and investors and not more difficult.

 Ultimately, the cost of these taxes is borne by the consumers in Nigeria who are already disadvantaged in terms of internet connectivity and affordability. According to a report by Alliance for Affordable Internet (A4AI), the proposed 9% CST will reduce the ability of approximately 20 million Nigerians to afford broadband. Broadband penetration in Nigeria stands at just 12% which is way off the mark of the target of 30% broadband penetration by 2018 set by the ITU.

The CST will additionally reduce the rate of internet penetration in Nigeria. Affordability as defined by the UN Broadband Commission is where the price of a broadband plan is less than 5% of income. Currently in Nigeria, 500 MB costs about 5.4% of average monthly income. Nigeria is therefore yet to become one of the countries with affordable internet and imputing a further cost via CST will only serve to further reduce affordability.

The Bill also contains some onerous provisions. It gives very burdensome provisions of a monthly interest rate of 150% in default of the payment. This same rate is payable as interest on the unpaid interest if default persist for more than a month. This provision is highly punitive and has the potential to scare away investors. It also makes the directors or partners of a body corporate personally liable for the service provider’s tax default after a written demand contrary to principles of corporate personality. It gives powers to 'a monitoring agency' for unfettered access to service providers network nodes and it also gives blanket powers of data retention and analysis to the agency which may lead to unnecessary surveillance and increased operation cost.

These provisions smack of a bill that was improperly thought out and ill-considered. Tax can be assessed and collected as done with other taxes such as the Petroleum Profits Tax Act (PPTA) without such active monitoring and data retention. All of these onerous provisions will increase the operational and compliance cost of operators in Nigeria.

The CST is clearly going to work at cross purposes with the stated intention of helping the economy. The additional tax and increased operational cost will ultimately also be borne by consumers which will affect affordability and access to communications services in Nigeria. The government should instead fashion out creative ways to make the tax system more efficient for telecommunication operators. They should also find ways to use fund accrued in the Universal Service Fund which these operators contribute to, for developmental projects in ICT and ensuring access which may be a better path for spurring growth.