Report: Multiple Taxation Stifling Growth of Telecom Sector


By Emma Okonji

Growth of Nigeria’s telecommunications industry is crippled by challenges of multiple taxation; a report has stated.
The report disclosed that telecommunications firms in Nigeria pay over 40 different taxes and levies, imposed by various different state and local governments.

The report was launched at a programme organised by Africapractice, a Strategic Communications firm. The report was on Tax and Enabling Business Environment in Telecoms.

According to the report, “Nigeria’s telecommunications industry is crippled by a multiple taxation challenges. Telecommunications firms in Nigeria pay over 40 different taxes and levies, imposed by various different state and local governments.

“This directly impacts the industry’s ability to innovate; to improve mobile and data network quality, to reduce prices, to drive mobile penetration, and to deploy infrastructure around the remotest parts of the country. This also directly impacts the ability of telecoms operators to support nascent businesses and industries, further stunting economic growth. And when the number of taxes imposed continue to rise even further, as with the recent introduction of the Police Trust Fund Levy, Communications Service Tax, these costs are inevitably passed on to you the consumer.”

The report further said telecommunications operators expend vast amounts of money to construct masts, towers and provide the infrastructure that allows subscribers to connect with your families, friends, colleagues, businesses, emergency response services and even the rest of the world. With penetration levels around 70-80 per cent there is a demand-supply gap that our telecommunications operators must meet.

The report added that the over-taxation of the telecommunications industry is not unique to Nigeria.

“For various reasons, the industry is one of the few, with the unique combination of a degree of relative demand inelasticity, an expanding consumer base peculiar to developing countries and inelastic short-run supply.

“Evidence, however shows that removing or reducing the taxes on mobile connections or handsets has had net positive impacts on the economy and can increase digital inclusion, spurring inclusive growth. “The available evidence indicates that the reduction or removal of telecommunications sector-specific taxes across countries by 2020 could have a sizeable impact on sector expansion, and also on macro-economic growth.

“Studies also show that these measures will not only increase inclusion, but governments can recover higher taxes and fees in the long run, through more efficient and streamlined taxation.

Corroborating the report, the Chairman, Association of Licensed Telecoms Companies of Nigeria (ALTON), Mr. Gbenga Adebayo, said the issue of multiple taxation had been a recurrent decimal that needs Executive Order to address the situation.
According to him,

governments were in the habit of imposing taxes that have no bearing with telecoms operations such as Parking tax, Effluent Discharge tax, Social Service levy, PAYE tax, Right of Way tax, Sewage tax, Environmental/Ecological tax, Hawking levy, Building Fitness levy, among several other taxes and levies.

Speaking on the implications of taxes on telecommunications, Adebayo said it would stifle economic growth.
“Over-taxation has several consequences. Foremost, it necessarily limits Nigeria’s economic growth, because it directly limits telecoms operators’ expansion drive and thwarts sector investment and advancement.

“This then limits digital inclusion and mobile penetration. As some of these taxes are passed on to consumers, the vicious cycle continues, as mobile/data usage falls, the government tax net remains narrow and revenue targets are not met,” Adebayo said.
According to the Africapractice report, the multiplicity of taxes and levies on operators in the telecommunications sector has a direct negative impact on the affordability of telecommunications services.

“To offset some of these costs and remain in business, telecoms operators must pass them on to consumers in the form of higher prices. This is one of the reasons why data is one of the highest costs for Nigerians.

“The recently proposed increase in VAT to 7.5 per cent would have meant that mobile services would now cost 2.5 per cent more. Instead, our legislators are now considering a more troubling Communications Service Tax (CST) at nine per cent, which would make the charge on mobile services nearly twice as expensive as before, leading to a nearly 10 per cent decrease in consumers’ value for money spent on telecoms services,” the report added.

The report however suggested that Nigeria’s current economic realities necessitate a re-evaluation of our fiscal priorities, as a matter of national urgency. It added that evidence from around the world indicates that actually reducing taxes on telecommunications firms will increase penetration, inclusion, mobile usage and government tax revenues.