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Can Stakeholders’ Stop NASS in passing CST Bill?

Certainly, the massive drop in oil revenue coupled with dearth of business enabling facilities have crippled government’s income base since the beginning of this administration. The development is now forcing government to scout for taxable entities in an economy that is riddled with multiple taxation but weak harmonization and tax data base. NIGERIA BUSINESS HILIGHTS looks at stakeholders’ and government positions on the Communications Service Tax (CST) being debated now at the National Assembly.

 

Since May this year, when Senator Ali Ndume brought before the Senate, the proposed Communication Service Tax (CST) Bill, consumer rights advocates and stakeholders in the telecommunications industry have risen against the spirit of the Bill.

Promoters of the Bill seek to impose on communication service users 9 per cent service charge for electronic communication service, including voice calls, short message service (SMS), multimedia service (MMS), data usage and Pay TV. The Bill, if enacted into law, will also mandate the service providers to file monthly tax return with the Federal Internal Revenue Service (FIRS) with strict penalties for non-compliance.

Already, the Chief Executive Officer of Airtel Nigeria, Segun Ogunsanya has revealed that the planned tax bill would lead to increase in call charges resulting in less minutes of use on the networks and further frustration of the sector.

According to Mr. Kunle Obembe, a consumer rights campaigner and member of the League of Consumer Advocates, the new Bill would amount to nothing but multiple taxation of the consumer who are already agonising over the current harsh economic condition. “The National Assembly ought to realise that whichever way it looks at the CST Bill, it will add more pressure to the purchasing power of the communication service user and lead to possible increase in charges by the service providers.”

Besides, Alhaji Hassan Tukur, another consumer rights activist, has appealed to right-thinking members of the National Assembly to reject the proposed Bill in its entirety. He said it would serve no purpose except to shore up the revenue base of the government at the expense of the socio-economic life of the people.  He further said: “The proposed Bill is not in the interest of the poor and vulnerable in the society who required incentives for social inclusion, which is what access to communication services provides.”

But in a report recently released by PriceWaterCoopers (PwC) on the proposed Bill, it said the consideration of the CST reflects the Federal Government’s appetite to increase revenue through taxes. The world renowned audit firm said: “However, the introduction of new taxes without harmonising existing ones will put pressure on the Nigerian tax system which will be unattractive to investors. It may also be counter-productive in the long run for targets on broadband penetration. The focus instead should be on stimulating the economy and ensuring that the tax system is efficient by widening the tax net and creating an effective framework for tax compliance.”

At the international scale, Telecommunications groups worldwide have also kicked against the CST Bill given that multiple taxation already exists in the information telecommunications industry in Nigeria. These include IT Tax on Profit, Annual Operator Levy on Turnover, VAT on consumption of their services and sundry taxes and levies by state and local government authorities.

Recently, a petition was submitted to the government by the Global System for Mobile Communication Association (GSMA), Association of Licensed Telecommunications Operators of Nigeria (ALTON), the Association of Telecommunications Companies of Nigeria (ATCON) and the National Association of Telecommunications Subscribers (NATCOMS). They all rejected the Bill as it would lead to increase in prices for consumers and be counter-productive to the longer term national digital strategy objectives set by the Federal Government.

In the observations of PwC as presented by the Head, Tax Services, Mr. Taiwo Oyedele, the group explained that “The Bill seems to mirror the Ghana Communication Service Act. The reference in the Bill to National Health Insurance Levy, which is not applicable in Nigeria, shows that Bill was perhaps developed through a direct “cut and paste” approach”.

Oyedele also noted that “Although the CST is borne by the users of the electronic communication service, it imposes significant compliance burden and costs on the service providers,” stressing that “The Bill does not provide for penalties for the Government monitoring agents for abuse or data protection violation”.

On the other hand, PwC also argued that pursuant to the emerging law, “the confidentiality of the customers using the infrastructure has to be guaranteed and any consequential claims for damages should be borne by such agents or government officials”.

PwC further observed that the Bill does not clarify whether there will be a charge if the subscriber of the telecommunication or television service is outside Nigeria, or for foreign interconnect charges billed from Nigeria to foreign telecommunication providers.

It noted that the 7 days period for service providers to object to a request by the Government to introduce an equipment or software into the subscriber’s network may not be sufficient to determine the risk associated with such interference as this may require technical expertise at a significant cost and time.

Besides, the CST Bill still imposes the payment of 5% of annual revenue tax after a court upholds the introduction of the Government monitoring equipment into the network.

This will discourage service providers from challenging the Government where it merely suspects that such introduction may create risks and affect the quality of service enjoyed by subscribers. Interestingly there is no compensation to the service provider where the court rules otherwise.

PwC also noted that the use of independent consultants could lead to unprofessional behaviour by consultants/agents who are motivated solely by commission for work done.

Further observations of the PwC indicated that multiple taxation already exists in the information and telecommunications industry such as IT tax on profits, Annual Operator Levy on turnover and VAT on consumption of their PwC Page 3 services. The introduction of the CST therefore increases the tax burden on both service providers and their customers.

Oyelede disclosed further that whereas the consideration of the CST reflects the Federal Government’s appetite to increase revenue through taxes, “However, the introduction of new taxes without harmonizing existing ones will put pressure on the Nigerian tax system which will be unattractive to investors. It may also be counter-productive in the long run for targets on broadband penetration”.

Going forward, PwC opined that “The focus instead, should be on stimulating the economy and ensuring that the tax system is efficient by widening the tax net and creating an effective framework for tax compliance.

If any tax must be introduced on communication services, care must be taken to protect the poor and vulnerable in the society who nonetheless has to use telecommunication services for social inclusion and financial services among other

But speaking recently at a stakeholders’ meeting organised by the Lagos Chambers of Commerce and Industry, LCCI, Minister of Communication, Alhaji Bayo Shittu said the Federal government is proposing to introduce CST bill which seeks to levy nine per cent on subscribers for the use of the various communication services.

He added that introduction of new taxes without harmonising existing ones would put pressure on the country’s tax system thereby making it unattractive to investors.

According to Shittu, the outcome of deliberations on the bill would form the basis of his advice to the President.

He said “This may also be counter-productive in the long run for our targets on broadband penetration. Our ICT Roadmap gives fresh impetus for implementing existing policies and reviewing any that is inimical to the growth of the sector.

My focus on any tax regime will be to align any process that will stimulate the economy and also ensure that the tax system is efficient by widening the tax net. It is also to create an effective framework for tax compliance to protect the poor and vulnerable in the society who nonetheless has to use telecoms services for social inclusion and financial services.”

He said that the government’s efforts at increasing its revenue made the bill worthy of consideration.

Shittu said “I have been reliably informed that the projected earnings from this effort is over N20 billion every month, which is an attraction to the government for funding our budget deficits. I must be quick to say that this government has a human face twined around its decisions.”

The minister said that the government would provide an enabling environment for the ICT and telecommunication sector to thrive through the enactment of relevant legislation.

Mrs Nike Akande, President of LCCI called for a friendly tax environment especially in view of the difficult business environment.

She said “We know that the government is seeking to diversify its revenue base in the light of dwindling oil revenue. But it is also true that the private sector players will like to see an investment friendly tax environment, especially in the light of the prevailing high cost of doing business in the country. It is important to balance these two positions.”

In a presentation by the President of Association of Telecoms Companies of Nigeria (ATCON), Engineer Teniola Olusola in Lagos recently, he made it clear that “ATCON believes any calculated actions that have potentials to stifle further contribution of the telecoms industry to our GDP must be avoided by all tiers of government in Nigeria as the perceived benefits of imposing a Communication Service tax on telecoms subscribers has the potential to erode if not destroy the achievements that have been made since the telecoms sector was liberated. We therefore advise the national Assembly to discontinue with the bill”.

Explaining on the background of ATCON position, Olusola said “Taxation is one of the many ways through which governments all over the world generate income to be able to discharge their duties to the citizens”.

“The general rule of investment or principle of investment is that institutional Investors will take their investible funds to countries where the tax rate is low or lowest.

“ATCON considers the proposed Communications Services Tax bill unnecessary and prohibitive because the operators in the sectors are already faced with multiplicity of taxation. Imposition of Communications Services Tax bill could stifle innovation and creativity in the sector and this would automatically reverse the gains already made in the past decade. This might lead to increase in unemployment, decrease in revenue accruable to government which would heighten the county’s poverty level.

“The Return on Investment (RoI) would be badly affected as a result of the above illustrations. As we know that Nigeria’ telecom industry still needs circa 50,000 base stations to be able to improve on Quality of Service and to reach the unserved and underserved parts of the nation.

Besides, the national president of National Association of telecoms Subscribers’ (NATCOMS), Chief Deolu Ogunbanjo told reporters in an interview that his group will soon begin the mobilization of all subscribers nationwide, civil society groups, labour groups and all Nigerian phone owners for a showdown should the bill becomes a law.

 

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