How communication service tax will cripple ICT sector

Over the past decade, the number of mobile
connections in sub-Saharan Africa (SSA) has
increased nearly 10 fold, and over 350 million
people in the region are now covered by
mobile phone networks.

Last year, reports had it that 1.13 billion,
(estimated to be 67 per cent of Africa’s
population), now have mobile phones.
Besides, about 26.5 per cent (297, 885, 898) of
the population is on the Internet, with 50.3
million active on social media platform,

Nigeria alone is home to about 240 million
connected lines with 154 million of them
being active. There are 93 million Internet
users in the country, and about 16 million of
them visit Facebook regularly.

This development and further growth in
Nigeria is currently being threatened by some
unfriendly government policies, especially
the plan to impose a new form of tax—

Communication Services Tax (CST) on the
people. The bill, which has passed first
reading at the National Assembly, if passed
into law, will require consumers of voice,
data, Short Message Service (SMS), Multi
Media Service (MMS) and pay television
services to pay a nine per cent tax on fees
paid for the use of these services.

To make things worse for the sector, the
Central Bank of Nigeria (CBN) Governor,
Godwin Emefiele, had also suggested that
telephone calls above three minutes should
be taxed.

These plans are coming at a time when some
African countries including, Ghana, Liberia,
Kenya and even South Africa have slashed
taxes or mulled the plan.

The CST Bill
Earlier in 2016, industry groups including the
Association of Licensed Telecommunications
Operators of Nigeria (ALTON); Association of
Telecommunications Companies of Nigeria
(ATCON) and the National Association of
Telecommunications Subscribers
(NATCOMS), jointly wrote to the ministers of
Finance and Communications, Kemi Adeosun,
and Adebayo Shittu, stating the dangers the
new tax system portends for the industry, if
it becomes a law.

The Global System for Mobile
telecommunications Association (GSMA), the
body, which represents mobile operators
worldwide, also joined them in the March 30,
2016-dated letter.

In it, they asked government to jettison the
move on the basis that it portends a great
danger to the industry. Findings further
revealed that the CST Bill 2015 is a private
member bill. For CST purpose, a “user” is
defined as “a customer or subscriber of any
electronic communication network, or
broadcasting service (ECS) and includes a
customer that is an operator, or provider of
electronic communications network or

In effect, customers who purchase ECS solely
for resale (middlemen) are also required to
pay CST on their purchases. As contained in
the bill, providers of ECS are required to
collect CST upon supply of services and remit
the tax to the Federal Inland Revenue
Service (FIRS) no later than the last working
day of the month, following the month of
transaction. However, this timeline may be
extended in certain circumstances, according
to the bill.

Possible impact of the tax on development
Adebayo had at a function in Lagos State,
disclosed that the Federal Government hoped
to generate more than N20 billion monthly
from CST.Indeed, while it is understandable
that government needs to raise revenue in
order to meet its growing funding demands,
questions are being raised by stakeholders
regarding the economic impact of the
proposed tax, given that the established size
and growth potential of the ICT sector could
unintentionally be stifled by the impact of
the bill.

Key areas likely to be affected include the
desired broadband penetration across the
country, and the progress made so far on
social and financial inclusion of the less
privileged and unbanked public.
Buttressing this perspective, the Alliance for
Affordable Internet (A4AI), which is chaired
by pioneer Minister of Communications
Technology, Dr. Omobola Johnson, warned
that the new tax being considered by the
National Assembly would prevent over 50
million Nigerians from being able to afford
basic broadband connection.
A4AI noted that if passed, the bill would
make basic Internet connection unaffordable
for an additional 20 million Nigerians.
“Broadband penetration stands at just 14 per
cent right now. Imposing the tax may reduce
this figure further,” it stressed.
According to the letter sent to the Finance
and Communications ministries and signed by
Director Africa, GSMA, Mortimer Hope;
Gbenga Adebayo of ALTON; Lanre Ajayi, the
then president of ATCON, and Chief Adeolu
Ogunbanjo of NATCOMS, the bodies stressed
that if introduced, such tax will lead to
increase in prices for consumers. It will also
impact adversely on the adoption of mobile
services and industry investment, and be
counter-productive to the long-term national
digital strategy objectives set by the
Commenting on the matter, the Chief
Executive Officer of Airtel Nigeria, Segun
Ogunsanya, said the planned tax bill would
lead to increase in call charges, which would
result in less minutes of use on networks.
Ogunsanya is therefore seeking the sector’s
engagement with the National Assembly,
with a view to rejecting the tax bill, and the
communications bill.
The bodies in reminding the lawmakers of
the socio-economic impact that mobile
penetration has made in the country, made
reference to a research conducted by the
World Bank, which predicted that a 10 per
cent increase in mobile broadband
penetration in low to middle income
countries, led to a 1.38 per cent increase in
GDP growth.
According to them, to connect the yet to be
connected Nigerians (who are typically lower
income population groups) to the mobile
platform, affordability remains a key
challenge, just as they further posited that
further taxation on electronic communication
services would hit lower income consumers
the most, as they are already struggling due
to the adverse economic situation. Affordable
access to information and communications
technology is critical to the social and
economic inclusion of this class of people.
Partner, West Africa’s Tax Leader at PwC,
Taiwo Oyedele, noted that the timing and the
concept behind the bill could have been
better, saying that making decisions without
empirical evidence will only lead to wrong
decisions.He added that engagement with
stakeholders in the industry and the users of
the services has not been taken into
consideration, noting that stakeholders must
give their views before such a bill is passed
into law.
“We need to have a rethink on how we deal
with tax matters in Nigeria. We have a
national tax policy that was never
implemented since 2010, and everything we
seem to be doing seems to be the direct
opposite of what we said we will not do in
the national tax policy,” he said.
Oyedele said the way out is for the country
to seek ways to deal with tax and fiscal
issues, calling for clarity in tax policies to be
respected as tax policies anywhere in the
world are executed through engagements
with experts, surveys, empirical evidence and
analysis of positive impacts on the society.
ATCON wants tax slashed to 0.2%
Meanwhile, ATCON has urged the Senate to
use its legislative powers to reduce the
proposed CST to 0.2 per cent from the nine
per cent already proposed by the Federal
Government.Besides, the body
recommended, as an alternative, a tax reform
that increases the current Value Added Tax
(VAT) by a new one per cent for the purpose
of development of communication services.
The President of ATCON, Olusola Teniola,
who led a delegation of members on a
courtesy visit to the Senate President, Dr.
Bukola Saraki, in Abuja, reiterated that the
new tax on ICT services would result in the
exclusion of 20 million Nigerians, which
represents 10 per cent of the country’s
population, from accessing
telecommunication services.“The proposed
nine per cent on ICT services is capable of
excluding 20 million Nigerians from accessing
the Internet and other ICT services,” he
Teniola noted that the survival of the
Nigerian economy is tied to attracting more
citizens to access Internet and therefore ICT
services, stressing that it doesn’t add up if
whatever the government does ends up not
bringing more people into access.
According to him, the reality of Internet
access in Nigeria is that it’s all about mobile,
stressing that only about 13 per cent of
Nigerians get broadband access via mobile,
while less than one per cent does from fixed
services.He explained that one of the main
reasons the rate of Internet adoption and use
is rather slow in Nigeria is the high cost of
data subscription.
While urging the Federal Government to
make the best of its tax efforts, which
certainly are key components of
strengthening the economy and sustaining
industries, Olusola said the truth is that there
is severe over-taxation in the
telecommunications industry, which explains
the slow penetration of services into
unserved areas of the country.
“The truth is that, contrary to popular belief,
telecommunication operators and service
providers are barely sustaining existence in
these times. There are reasons to suggest that
the desire to widen the tax net is laudable
and that as things stand, telecommunications
is about one of the few areas where the net-
capture may be widened,” Olusola stated.
Saraki in his response assured ATCON that
the senate would only make laws that would
get the economy going, adding that the
telecommunications sector is critical to
Nigeria economy.
“The ICT sector is critical to the Nigerian
economy, as a result, the Senate would never
make laws that would push the sector to
negative performance, rather it would make
laws that would increase its performance to
generate revenue and create jobs,” he said.
GSMA, TUC, OPS perspective
GSMA recommended that mobile phones are
a vital socio-economic necessity in modern
Africa, stressing that it is therefore
incumbent upon governments to view their
proliferation across all societies as a priority.
“Imposing luxury taxes on mobile consumers
is no longer appropriate. Poorer sections of
society are hit hardest by the regressive
taxes that widen the digital divide.
Governments that levy luxury taxes on
mobile consumers should urgently review
such policies in consultation with the
industry and other economic and taxation
experts,” it stated.
According to the body, by removing luxury
taxes on mobile consumers and moving to a
more optimal tax structure, millions of
Africans will afford connecting to, and
communicating through mobile networks for
the first time; governments will reap
incremental increases in tax payments from
the industry and wider economic and social
benefits will be enjoyed by all.
President, Lagos Chamber of Commerce and
Industry (LCCI) Dr. Nike Akande,
acknowledged the fact that the government
is seeking to diversify its revenue base in the
light of the dwindling oil revenue, but
stressed that private sector players would
like to see an investment-friendly tax
environment, especially in the light of the
prevailing high cost of doing business in the
She said the ICT sector is very strategic to
sustainable growth and development, adding
that the sector has witnessed an impressive
growth over the last one decade.
The Trade Union Congress of Nigeria (TUC),
on its part also condemned the CST, querying
the rational behind such at a time Nigerians
are going through a very difficult phase. TUC,
in a statement, said: “If we sufficiently
understand the minister, we wonder how he
expects such a tax to be paid by any worker
in a country where the national minimum
wage is N18, 000 and at a time when workers’
take-home pay no longer take them home.
Apart from exploiting the already
impoverished masses, the policy would also
discourage investment and lead to loss of

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