Teniola: The Communication Service Tax is Counter Productive

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The federal government has proposed a nine per cent Communication Service Tax with projected earnings of N20 billion monthly, but the President of the Association of Telecommunications Companies of Nigeria, Mr. Olusola Teniola told technology reporters that the proposal would rather stifle economic growth. Emma Okonji brings the excerpts:

What exactly in your view is the proposed communication service tax bill all about?

The proposed communication service tax (CST) bill is seeking a nine per cent consumption tax on Internet, MMS, SMS, Voice, PayTV services utilised by all consumers and the Senate is aggressively pushing the proposal. There is another CST Bill at the House of Representatives that proposes a seven per cent tax levy. Both bills are disguised under different names and one has passed at least the first reading.

If the additional nine per cent tax would be borne by consumers, how would the service providers be affected?

Consumers will bear the brunt of double taxation on all communication services currently enjoyed, so what is currently levied at five per cent will now be taxed at 14 per cent. The service providers will also need to factor in additional processing charges to cover the burden of having to process this tax through their systems on a monthly basis to avoid penalties being levied as also proposed in the CST Bill.

One of the provisions of the CST Bill mandates service providers to remit the nine per cent tax to the Federal Inland Revenue Service or risk penalties for non-compliance. What does this portend on operating cost?

It may further lead to SMS, MMS, Internet, Voice and PayTV tariff prices going up by an additional 20 per cent across board to consumers as each service provider will need to engage a tax auditor on a monthly basis to verify remittance to avoid the risk of penalties being applied under the proposed CST Bill.

But clearly this new tax would not in any way impact on quality of operations and service, or would it?

This is not an issue that has to do with service quality. This tax will stifle growth seen in the telecoms industry and may lead to further job losses and consumers reducing their use of these services.

The Communication Minister has admitted that the Communication Service Tax may be counter-productive in the long run for Nigeria’s broadband plan and target. Why then is the National Assembly going ahead to pass the bill into law?

The National Assembly seeks additional sources of income to fulfill current government spending plans and one avenue is via raising additional taxes. We argue that the focus of government is to improve on the numbers of non-paying tax population and widen the net to increase the number of tax payers from 10 million which stands at 14 per cent of the working population to 80 per cent which will generate more income to the government with immediate effect.

How precisely would the tax affect broadband penetration if it comes into effect?

Investors both local and foreign will assess the country to be no longer a business-friendly environment. Currently the investors are faced with 26 separate tax related items and having the CST Bill imposed will take this to 27. This is not only too many, it also means Nigeria will also be sending the wrong signal to the investment community at a time when much needed funds are required to build much needed broadband infrastructure across an expansive geographical landmass.

Sage Africa said recently at a session organised by the Lagos Chamber of Commerce and Industry that the tax could potentially raise the cost of doing business, particularly for entrepreneurs who rely on mobile phones and internet to run their businesses. Do you agree with this position?

Yes, this will definitely increase the cost of doing business by at least 20 per cent, due to the double taxation implications of this CST Bill on every user of a mobile phone in Nigeria.

Businesses in Nigeria have been creative with dealing with multiple taxation and unfavourable policies over the years. However, there have been reports of more organisations downsizing, cutting costs and managing losses in the last two years. Do you envisage adverse implication on prospective investment with the CST?

The effect of this bill means businesses will have no option but to seek cost reductions in the area of human resources to compensate for the cost of introducing this bill. The last two years have witnessed a downturn in the economy and a corresponding year-on-year slowdown in the revenue generated within the telecoms industry. The trend is for this to indicate contraction, going forward with a decline in the national GDP numbers, so inevitably, margins are going to disappear unless the fundamentals change.

Could the bill in anyway be of benefit to the nation’s economic recovery?

It is not an economic tool to stimulate recovery of an economy – it seeks to solve short term issues (i.e. cushion the current budget) without taking into consideration its negative impact over the medium to long term. It is far better for government to create a more favourable operating and business environment that attracts further investments, especially foreign direct investments (FDIs) than to create further obstacles and sending the wrong signals to the international community.

Could one be right to say that the telecommunications sector has not contributed enough to the nation’s GDP which is why government is taxing their consumers so that the industry could live up to its expectation?

Just a little over a decade ago there wasn’t any telecom industry to speak of in terms of revenue contribution to GDP. Now we have seen tremendous growth (the fastest in Africa) of 8.89 per cent as of Q2 2016, according to the National Bureau of Statistics. All of these have been private-led driven and if I were in government , I would seek to increase this further by putting in place measures that further drives this growth and this can be done by building a broadband platform for the future.

In the wake of rising costs of commodities and the need for government to diversify the economy beyond oil, what feasible means of revenue generation would you say is open to the federal government at a time like this?

Diversifying the economy is the only way of not depending on oil and gas to fund government spending. Review current spending that is not necessary, sell national assets that are no longer needed and use the proceeds to fund a new economy that is based on the knowledge society, so this will create a structural adjustment that the next generation can build on.