The GSMA association, the global body in charge of telecoms regulation, has raised concerns over the proposal to introduce a nine per cent Communication Service Tax in Nigeria, which is currently under consideration by the National Assembly.
Following substantial research into the impact of taxation on mobile communication services, the GSMA said it believed such a tax poses a severe threat to Nigeria’s future economic growth.
In a statement released thursday, the GSMA said: “Imposing a new ‘sector-specific’ tax on communication services would result in increasing price levels for consumers, and as a result, decrease the adoption and usage of broadband services. This will in turn have adverse effects on the industry investment needed to improve and expand mobile connectivity across the country. The proposal departs from best-practice principles of taxation recommended by the International Monetary Fund and the World Bank. These institutions recommend that taxation should be as broad-based as possible and not sector-specific, like the case of the proposed Communication Tax Bill, and should not undermine investment.”
Head of sub-Saharan Africa at GSMA, Akinwale Goodluck, said: “The government’s long-term digital ambitions will be severely compromised if these tax proposals go ahead. The potential of mobile broadband is clear from the rapid development of the digital economy in Nigeria. The mobile ecosystem already contributes over $21 billion to the Nigerian economy and around 16 per cent of total government tax revenue. The focus should be on boosting mobile penetration, and investment in networks to strengthen the economy, rather than undermining this through potentially punitive taxes.”
Goodluck who insisted that the proposed Communications Tax Bill would put the economic impact of mobile services at risk, quoted the International Telecommunications Union (ITU), which said that a 10 per cent increase in mobile penetration in a sample of African countries would yield a 2.5 per cent increase in GDP per capital.
He, therefore, called for the support of sustainable economic growth and fiscal policy in Nigeria that will promote the wider adoption of broadband services and not hamper their adoption, adding that such taxes could also end up having a disproportionate impact on poorer households.
He said despite the fact that Nigeria recently surpassed 100 million subscribers, about half of the population remained unconnected.
“About one-third of the population in Nigeria use a mobile internet service, and the same proportion have a smartphone. Based on this, Nigeria currently lags its regional peers in terms of mobile broadband adoption. Increasing adoption is crucial in a country where fixed-line penetration is at less than one per cent,” Goodluck said.
According to him, “Among the unconnected, affordability is cited as the main barrier stopping them from getting a connection. Based on GSMA analysis of the total cost of mobile ownership, a 1GB basket in Nigeria costed around seven per cent of average income in 2018. This is significantly above the United Nations Broadband Commission’s affordability target of 1GB of mobile broadband data available for two per cent or less of gross national income per capita. The affordability barrier is particularly evident for lower income citizens in Nigeria for whom access to a 1GB basket would cost around 24 per cent of income. The new tax, even if only partly reflected in prices, will exacerbate an already significant affordability barrier and hamper the uptake and usage of services, especially for lower income citizens.
“To support its digital agenda, the government should take steps to remove any barriers to affordability, increasing mobile penetration, and investment in Nigeria’s digital infrastructure. This will, over time, lead to much faster economic growth together with higher fiscal income for the government from a broader tax base.”