CST Bill: Example of Retrogressive Legislation

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Aisha Bello posits that the Communications Service Tax, in all its ramifications, is unfriendly to satellite TV and telecoms subscribers, as well as service providers and is capable of pushing Nigeria further down on the ease of doing business index

The Nigerian government is at the verge of commencing the collection of additional nine per cent tax through the proposed Communication Service Tax Bill, currently before the National Assembly. Services to be affected include voice calls, SMS, MMS, Data, Pay TV as well as other electronic communication services through use of wire, radio, optical or electromagnetic transmission emissions or receiving system.

The new tax in all its ramifications is unfriendly to satellite TV and telecom subscribers as well as the service providers and is capable of pushing Nigeria further down on the ease of doing business index. The World Bank currently ranks Nigeria 169 out of 189 countries examined for trade index for the year 2015.

According to the draft private-member bill sponsored by the Senate Leader, Alli Ndume, the new tax burden will be borne by all users of electronic communication services irrespective of age. It will also mandate service the providers to file monthly tax returns with the Federal Inland Revenue Service while it stipulates strict penalties for non-compliance.

For vast majority of the poor Nigerian masses who are already finding it difficult to cope with the current harsh economic condition in the country, this piece of legislation marks the beginning of a long walk through the dark tunnel and no one can tell when light would appear. Having been exposed to the many benefits and opportunities that the digital age brings, subscribers of both satellite TV and telecommunication services may now have to ration their usage due to the increased cost brought on by the communication service tax.

The Minister of Communications, Mr. Adebayo Shittu, in justifying CST, disclosed that government expects to generate N20 billion monthly revenue from the new tax to enable it fund the 2016 budget. Already, the bill has passed first reading at the House of Representatives. While it is not out of place for government to impose taxes on individuals and businesses to cover operating expenses and finance projects, additional tax on users of telecom services in particular is discriminatory. The new tax –CST- targets only a particular sector that is the broadcast and telecommunication sector to the exclusion of all other sectors of the economy. This is a calculated attempt to force subscribers to contribute more to government’s fund raising activity seeing that communication services is an essential service which people prioritise and pay for as a matter of necessity.

Not having an alternative communication channel, as both voice and internet call will be taxed, people will have no choice but to pay the tax along with the original service cost if they are to remain in touch with the world. So Voice over Internet Protocol such as WhatsApp calls etc. will be taxed without exception meaning there is no way out for the subscriber who needs to communicate. Going by the plan to deepen broadband penetration to 30% by 2018, this tax is not in tandem with the national broadband plan as it will discourage broadband adoption thereby reducing the possibility of meeting the target on the set date.

The resolve of the Nigerian lawmakers to levy more tax on telecom services as a revenue generating means cannot be said to be a well thought out agenda considering the long term adverse consequences not only on subscribers but also on the service providers and the economy. This is the information age and so people need to have easy and affordable access to communication services. The CST will increase the cost of communication services thereby making services unaffordable for millions of Nigerians.

It is common knowledge that additional tax burden reduces people’s disposable income, affects consumption negatively by shrinking the consumption pattern and for businesses it can affect profitability as a result of the reduced consumption rate. The proposed CST amounts to multiple taxation on consumers and will inhibit economic growth. These same subscribers already pay five percent VAT on the same communication services that is being taxed again. The average Nigerian average worker already pays taxes in multiple ways: Personal Income Tax or Pay As You Earn all applying to this same category of persons targeted by this Bill.

In other climes governments sometimes give tax cuts not increase the tax burden during economic recession to encourage spending and stimulate economic growth. In the same vein, the Minister of Finance, Mrs. Kemi Adeosun in a recent statement made at the CBN’s Monetary Policy Committee meeting, called for a reduction in interest rates to support economic growth. Her premise was that high interest rates increases the cost of debt servicing – the analogy can be made for all areas of the economy. Lower operating costs encourage investment and boost economic growth. At a time like this, incentive not impediments like the CST is what is required to encourage investment. From the foregoing reasoning, it is clear that this new service tax on telecom services is a bad piece of legislation.

Many individuals and businesses within Nigeria are not accounted for in the tax base. The Chairman of FIRS, Babatunde Fowler recently announced that over seven hundred thousand companies who had not been paying taxes had been identified. Having made this discovery, one will expect that the focus of government will be to take advantage of this discovery and optimize the tax potential of this category of persons rather than exploit the tax payers who are currently contributors to government’s coffers. The Federal Government and the federal lawmakers must not lose sight of the reality that the new tax is also detrimental to the country’s broadband plan because it will discourage adoption of the electronic communication services especially data usage. This reduction in data uptake will definitely hinder further capital injection into the sector both from existing and prospective investors.

A few years ago, there were about 35 licensed telecoms companies comprising small players, including those in the fixed line, Code Division Multiple Access and GSM operators doing well. Today the figure has come down drastically with just about 15 licensees. Concerned stakeholders have warned that the country may lose about 25 percent of licensed operators if this bill is passed into law. The National Assembly needs to stand down the bill in view of the public outcry and negative impact of the proposed CST Bill and brainstorm on more feasible and sustainable revenue generation solutions.

– Bello, a taxation expert, writes from Kaduna.