President Bola Tinubu’s suspension of a 5% excise tax on the telecoms industry has saved phone subscribers in Nigeria from tariff escalation, two leading industry groups have told Technology Times.
The President suspended the imposition of a controversial 5% Excise Tax on telecoms service as part of new Executive Orders that were announced on Thursday in Abuja.
“The Excise Tax of 5% on telecommunication services,” Tinubu says, “has generated heated controversy. There is also a lack of clarity regarding the status of this tax, just as players in the sector also complain about the imposition of multiple taxes on their operations.”
Nigeria telcoms market and burden of multiple taxation
Nigeria is home to a booming telecoms market, and as of May 2023, the industry accounted for 221,258,372 (115.91%) active phone connections; 159,598,451 internet subscribers and 92,169,176 (48.28%) broadband connections, according to latest data by the Nigerian Communications Commission (NCC).
Tinubu’s telecoms tax reduction has shielded phone subscribers from higher tariff they pay for communications service, the Association of Licensed Telecoms Operators of Nigeria (ALTON), and Association of Telecommunications Companies of Nigeria (ATCON) have told Technology Times exclusively.
“It would have translated to increase in what they pay. Not necessarily increase in tariffs, but it would have translated to increase in the taxes, and in the tax on applicable on service,” Engineer Gbenga Adebayo, ALTON Chairman, who describes the President’s gesture as a “welcome development”, says in an exclusive interview with Technology Times following the announcement of the suspension.
“Don’t forget that we are collecting 7.5% as VAT on such services. So if the 5% Excise Duty was allowed to stay, it would have resulted in 12.5% increase in taxes on service. What it means is that for every N10 call make, the value would have been, the deduction would be N12.20kobo or thereabout on your on your airtime,” Adebayo says.
“So we do believe that this signals some good understanding on the part of government. And we believe that it shows that government recognises what I will call ‘the high cost of living on the average in Nigeria’. So in this regard, the implication would have been that there would have been an upward in the amount of tax applied, and there would have been 7.5% on VAT and 3.5% on services,” the ALTON Chairman explains.
“The burden of collection would have been on us as an industry,” Adebayo says, “but the weight of the tax itself would have been on the subscribers, because we were just going to be collection agents on behalf of government, and remit to government after deduction from subscribers.
“And so it would have been just a burden of we collecting it, but the weight of it would have actually been on the subscribers. So we think that in the interest of subscribers, government has done very well. I must also mention that we are aware that the previous administration had actually given an exemption to the industry. We are aware that there’s been a Presidential directive that the industry should be exempted from that. So the good thing is that that seems to have now been upheld by this Executive Order and it shows consistency in government policy in this regard, which I think is quite good for the subscribers, and it’s good for the industry.”
Speaking in a separate interview with Technology Times, Mr Tony Emoekpere, ATCON President, also says that “the immediate effect would have been the fact that first of all, the subscription prices for different telecoms services would have increased. So the immediate hit would have come to subscribers, and then that would also have affected the telecoms companies in the sense that it might also act almost like a deterrent, or there will be a drop in subscription because of the increasing prices.”
The ATCON President says that if the Excise Tax was not suspended, “it would have had a double-edge impact. One, directly on subscribers; and two, on the companies who in one way or form might lose customers owing to the increase in price.”
Ultimately, Emoekpere says, “the subscribers would have borne the brunt. And it is not just data or phone subscribers. There are also a lot of enterprises that rely on telecoms services as well. Businesses that rely on telecoms services as well, even the banks. It would have had a huge impact on the industry as a whole, and also on the economy as a whole.”
Speaking further on the President’s Executive Order, the ATCON President considers it is a very welcome development. “We had actually been advocating for that to be exempted, and had actually gotten assurances from the former Minister that the telecoms sector was exempted. I think a publication was made in the news by the former Minister. We had actually written to the Ministry to get clarification if telecoms were still affected. So the mere fact that now the current President has actually put a stop to it is very welcome development.”
ALTON Chairman, Adebayo, also says the telecoms tax freeze is a positive signal that represents policy continuity by the new administration under President Tinubu. But more needs to be done in addressing challenges of multiple taxation facing the telecoms industry.
According to the ALTON Chairman, “by last count, we face about 39 different taxes and levies across the country, and we think that that’s quite excessive. That is too much for one industry. We are not an extractive sector. We don’t mine mineral resources. So why should we face so many barrages of taxes and levies from different tiers of government?
“So we do think that this executive Order, one, is speaking to consistency government policy, but the new administration is not duty bound to have upheld the decision of the last administration. But we are grateful that by this Executive Order, that has now been upheld. The Executive Order has been upheld, and we hope that it signals a review of the barrage and array of taxes and levies that the industry is facing across the country.”
As an industry, ATCON’s President, Emoekpere, adds, “we are a bit encouraged by the different steps the current government is taking. We are quite hopeful that all the policy changes that are being put in place will enable the right business environment for businesses to thrive and ultimately for the country to progress as well, because we know that there is a direct relationship with increase in communication services and increasing in GDP.”
The ATCON President, who also sees President Tinubu’s priority focus on the digital economy for job creation under his administration, says that “it’s a very welcome development, and at least shows some form of foresight in terms of the outlook of the current administration towards the development of the economy.”
Definitely, Emoekpere says, “the digital economy is one area that we can easily ramp up in terms of job creation. Don’t forget the country has a very youthful population who are already akin to using digital services. So there is a plethora of activities that such a pronouncement would gear. You know what the government does is actually set the policy, and the policy drives private sector investments in those areas. Once the right policies are put in place, it encourages FDI and people now start looking at the country in terms of where and what they can do. So once the right policies are put in place, definitely the right investment will follow suit and you will see an increased upturn in the industry.
“In terms of ideas as regards to how we can create digital jobs, he adds that, “there are so many areas we can start to look at. Even from, take for example, the fintech and financial inclusion targets that have been said before. Once you start to put some some more traction into that area, you would engage a lot of people who can act as agents, you know, to all these fintech companies and things like that. Remember the boom in POS services for example. A lot of young people were actually engaged in those kind of activities trying to act as a POS agents to the fintech companies, which was a big boost. Only unfortunately, there was a temporary setback when the Naira crisis happened. But I think with this kind of pronouncement, we start to see an upturn in that area, and those kinds of services start to pick up. That is just an example of some of the areas where we can see tremendous growth. So there are many other areas that we can see that, as well.”