Catch up with the news!

By Prince Osuagwu,

Palpable fear has continued to grip the technology sector over consistent talk of a nine percent tax on communications services.

The new tax bill which has already been submitted to the National Assembly, however keeps common telecommunications and other communications consumers at a loss to what it is all about and why it is necessary to be introduced.

At the same time, it has generated argument between government and ICT sector practitioners over the gains and destructions it is capable of bringing to the sector. While government sees it as capable of generating N20 billion monthly to help in running the economy, technology experts say it will deter Foreign direct investment, drop sector’s contribution to GDP, frustrate telecom operators and finally cripple the economy.

The bill

The new Bill,  referred to as Communications Tax Bill, seeks to impose, charge and collect Communication Service Tax (CST) on service fees payable by users of electronic communication services at 9%.

If the Bill is enacted into law, it will mandate service providers to file monthly tax returns with the Federal Inland Revenue, FIRS with strict penalties for non-compliance.

The categories of communication services liable to the tax include voice calls, SMS, MMS, Data and Pay TV.

Although the bill is seen as imposed on service providers, it will invariably be paid by the customers, considering that in most cases, the service providers will spread the cost among various services they offer to consumers

The Bill provides that levy should be imposed on the electronic communication services including Voice calls, SMS, MMS, Pay per View TV stations (supplied by service providers, Data usage from Telecommunication Services Providers and internet service providers licensed by the Nigerian Communications Commission, NCC.

All service providers are expected by the bill, to comply to the tax law and file tax returns and pay the tax due not later than the last working day of the month immediately after the month to which the payment relates.

There are strong penalties for default, including N50,000 for failure to file returns on due date and a further N10,000 for each day the tax returns are not submitted

If the bill receives favourable consideration from the National Assembly, The FIRS will be responsible for the collection of the tax and pay together with any interest and penalty into the Federation Account.

Monitoring

The bill mandates the FIRS in collaboration with the Minister/ Ministry of Communication and the Nigeria Communication Commission (NCC) to appoint an agent who will establish both electronic and physical monitoring mechanisms to monitor, analyse, verify, save all necessary data and information both electronic and physical.

In addition, the FIRS, the ministry of communications, NCC and such appointed agents must be given access to the network nodes of service providers at an equivalent point in the network where the network providers billing systems are connected.

However, a service provider who objects to a request for the introduction of an equipment or software to its physical nodes, shall within 7 days of the request report in writing stating reasons for the objection to the FIRS and other relevant authorities. If after 14 days the issues are not amicably resolved, the service provider shall within 7 days apply to the high court. Where the high court upholds the request for the introduction of equipment to the service provider’s network, the service provider will still be liable to the 5% penalty on its annual gross revenue

Experts react

However, several advocacy groups in the sector, including the Association of Telecommunications Companies of Nigeria, ATCON, Association of Licensed Telecom Operators in Nigeria, ALTON and now a multinational professional services firm, PricewaterhouseCoopers, PwC, have taken a swipe at the bill saying that the destruction the bill will bring to the industry will far outweigh the gains.

President, Association of Telecommunications Companies of Nigeria (ATCON), Mr Teniola Olusola, has hit out at the bill saying it would compound the woes of the telecom operators who he described as being already overburdened with multiple taxation and other levies.

He argued that the necessary thing to do was for the government to discontinue the bill, knowing that it would reduce the inflow of FDI into the sector, reduce subscribers level of data consumption and affect contribution of the sector to GDP.

His counterpart at ALTON, Engr Gbenga Adebayo, said that unless the government had the plans to kill the goose that lays the golden egg, the most appropriate thing would be to withdraw the bill.

PwC , however, was graphic with its own observations. In its 8-point observation, the group said 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.

* Although the CST is borne by the users of the electronic communication service, it imposes significant compliance burden and costs on the service providers.

* The Bill does not provide for penalties for the Government monitoring agents for abuse or data protection violation. 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.

* 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.

* 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.

* 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.

* The use of independent consultants could lead to unprofessional behaviour by consultants/agents who are motivated solely by commission for work done.

* 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 services. The introduction of the CST therefore increases the tax burden on both service providers and their customers.

It added that “the consideration of the CST reflects the Federal Government’s appetite to increase revenue through taxes. 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. If any tax must be introduced on communication services, care must be taken to protect the poor and vulnerable in the society, who nonetheless, have to use telecommunication services for social inclusion and financial services among others”.

We’ll consult widely before implementation – shittu

Meanwhile, the Minister of Communications Technology, Adebayo Shittu, in Lagos recently, promised that even if the law would be finally introduced, it would go through wide and thorough consultation for stakeholders to make serious input.

He admitted that introducing new laws without harmonising existing ones could be counterproductive but claimed that the new bill if allowed could generate over N20 billion monthly to the government.

“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

Shittu promised that the outcome of deliberations on the bill would form the basis of his advice to the President.