A Legal Analysis of Telecommunication Taxation in Nigeria

By Oyetola Muyiwa Atoyebi, SAN FCIArb. (U.K)

INTRODUCTION

In December 2020, President Muhammadu Buhari approved the Finance Bill 2020, now known as the Finance Act 2020. This legislation brought about modifications to 14 tax and fiscal laws in Nigeria, and among these changes was the incorporation of telecommunication services into the category of goods subject to excise duty[1].

This amendment was met with mixed reactions, as, excise duty had earlier earned the moniker “sin tax” due to its imposition on specific categories of goods such as tobacco, cigarettes, wines and spirits. In light of the recent decline in crude oil prices however, the government has shifted its attention towards non-oil revenue streams to bolster the budget and stimulate economic growth and development hence the several amendments to tax legislations and taxable goods.

The basis for this initiative is rooted in section 21 of the Customs and Excise Tariff, Etc. (Consolidation) Act 2013, as amended by section 37(2) of the Finance Act 2020. According to this section, telecommunication services offered in Nigeria are subject to excise duties at rates outlined in the schedule, as the President may prescribe by Order in accordance with section 13 of the Act[2].

According to information supplied by the National Bureau of Statistics, the telecommunications sector constitutes the largest portion of the Information and Communications Technology sector, contributing more than USD 75 billion, accounting for approximately 17% of Nigeria’s Gross Domestic Product. This statistic implies that anything that affects the telecommunication sector has a huge effect on the Gross Domestic Product of the nation. There is therefore a need to carefully examine telecommunication taxation in Nigeria and its impact on the industry, investors and consumers particularly in light of these introductions.[3]

IMPACT OF TELECOMMUNICATION TAXATION

The impact of telecommunication taxation can be viewed from several standpoints, including its effect on the service providers, the economy and the consumers.

As earlier noted, the telecommunications services sector stands as a significant contributor to government tax revenue. Nevertheless, the imposed taxes and levies on telecommunications companies have repercussions on various aspects of their operations, including pricing, investment trajectory, and the quality and affordability of services. The correlation between high taxes and levies and the investment in infrastructure and equipment by operators and investors directly influences service quality and affordability for subscribers. This implies that the existence of multiple taxes not only increases tariff prices for customers but also lowers the profitability of the venture to service providers as well as the investment desirability which directly affects the nation’s economy[4].

Understandably, in response to the significant decline in revenue from crude oil sales and the persistent increase in the country’s debt burden, Nigerian economic authorities appear to believe that a reliable approach to generating funds is by raising tax rates and expanding the scope of taxed items.  Unfortunately, this strategy threatens telecommunication outlets already grappling with numerous tax burdens and unbridled increases in the cost of doing business within the country[5].Top of Form

Currently, telecommunication service providers contend with numerous charges, including Right of Way Charges, National Information Technology Development Fund Levy, National Cybersecurity Fund, and Annual Operating Levy, in addition to existing statutory taxes such as Companies Income Tax, Tertiary Education Tax, Value Added Tax, and others[6].

The introduction of excise duty further complicates the challenge of dealing with multiple taxes already prevalent in the industry. This is quite baffling as recent trends have lent credence to the assertion that the government is tirelessly working to promote ease of doing business in Nigeria, thereby promoting Foreign Direct Investment and Foreign Portfolio Investment[7]. As expected, these factors create a more challenging environment for businesses to thrive.

It is essential to add that the Value Added Tax (VAT) rate increase from 5% to 7.5% was also implemented in 2020. Alongside the excise tax, the same 7.5% VAT applies to GSM calls, text messages, and data usage. Consequently, the cumulative tax on calls, text messages, and data usage amounts to 12.5%[8].  This excludes other levies and taxes required to be paid by service providers and levies that accrue from associations and industry-specific unions. Notably, it is a uniform and comprehensive imposition which connotes that none excludes the other.

The declaration of the reintroduction of excise duty on telecommunication caught many by surprise, considering that in September of the previous year, the Federal Government had put a halt to the proposed excise duty on telecommunication services and eventually exempted the sector from the duty in March. Many attributed this to the influence of the then Minister of Communication, Isa Pantami, who emphasized that the industry faced a threat from an excess of multiple taxes.

According to him, taxes paid by Information Communication Technology firms generally, at both the federal and state levels, surged from 39 in August to 41 in September 2022, and in March 2023, he announced the sector’s exemption from tax duties, following his persuasive argument[9]. Amazingly, fiscal policy measures for 2023, as outlined in a circular dated April 20, 2023, and signed by the then Minister of Finance, Budget, and National Planning, Zainab Ahmed and the recently published 2024-2026 Medium-Term Expenditure Framework and Fiscal Strategy Paper show one of the strategies the government plans to adopt to enhance customs revenue collections involves the complete implementation of excise duty on telecom services[10].

It is no longer news that operators within the industry have faced considerable pressure in recent times, primarily due to the challenging economic conditions in the country, and multiple taxations further intensify pre-existing challenges. MTN and Airtel, the two leading operators in the industry, posted losses in their 2023 half-year results.

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Airtel had a disclosed loss of $13 million after tax for the half-year ending on September 30, 2023, in contrast to the $330 million profit after tax reported in the corresponding period of 2022. Airtel posted a $12 million profit before tax in H1 2023, marking a 97.7 percent decline from the $516 million reported in H1 2022, with total finance costs escalating to $873 million from $358 million[11].

MTN Nigeria’s nine-month net profit also experienced a decline due to the consistent devaluation of the naira. The telco’s foreign exchange loss increased to N232.8 billion during the period, compared to N27.9 billion a year earlier[12].

In the wake of all these near crippling losses, little wonder that stakeholders in the telecommunications sector are strongly averse to multiple taxation. While it can be garnered that the end result is an increase in revenue generation, at what expense? The final brunt is borne by the consumers who are expected to pay increased tariff rates for services that are steadily reducing in quality due to lack of investment owing to heavy taxation. All of these are coupled with the hundreds of billions of USSD debt owed to telecom operators by banks and other financial institutions.

RECOMMENDATIONS

A major turning point for telecommunication taxation would be the harmonization of taxes and levies inclusive of federal and state taxes. This can help reduce tax burdens and in turn, promote affordable and quality network service whilst encouraging foreign investment.

There is also a need to facilitate dialogue and collaboration between the government, telecommunication operators, and relevant stakeholders to better understand the challenges faced by the industry and the development of mutually beneficial solutions.

CONCLUSION

Implementing these recommendations requires collaboration between the government, regulatory bodies, and industry stakeholders to create a balanced and conducive environment for the telecommunications sector in Nigeria. This has become increasingly necessary in the face of looming losses and the threat of greater economic setbacks envisaged by telecommunication operators.

Keyword: Telecommunication, Taxation, service providers, Stakeholders, tariff, Excise duty, Value Added Tax

Snippet: Understandably, in response to the significant decline in revenue from crude oil sales and the persistent increase in the country’s debt burden, Nigerian economic authorities appear to believe that a reliable approach to generating funds is by raising both tax rates and expanding the scope of taxed items.

AUTHOR: Oyetola Muyiwa Atoyebi, SAN FCIArb. (U.K)

Mr. Oyetola Muyiwa Atoyebi, SAN is the Managing Partner of O. M. Atoyebi, S.A.N & Partners (OMAPLEX Law Firm).

Mr. Atoyebi has expertise in and vast knowledge of Taxation Law and this has seen him advise and represent his vast clientele in a myriad of high-level transactions.  He holds the honour of being the youngest lawyer in Nigeria’s history to be conferred with the rank of Senior Advocate of Nigeria.

He can be reached at atoyebi@omaplex.com.ng  

CONTRIBUTOR: Tobenna Mogbo

Tobenna is a member of the Dispute Resolution Team at OMAPLEX Law Firm. He also holds commendable legal expertise in Taxation Law.

He can be reached at tobenna.mogbo@omaplex.com.ng

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[1] Mazars ‘ Finance Act 2020; Introduction of Excise Duty on Telecommunication Services’ . Available at https://www.mazars.com.ng/Home/Insights/Mazars-Insights/Finance-Act-2020-Excise-Duty. Accessed on 21^st January 2024

[2] Section 37(2) of the Finance Act 2020.

[3] Anika, E. A., & Obidimma, A. E. ‘Taxing Telecommunications Companies in Nigeria: Legal Challenges in the Telecommunications Industry’ (2021).. IRLJ, 3 Page 206. Available at https://www.nigerianjournalsonline.com/index.php/IRLJ/article/download/1522/1498. Accessed on 21^st January 2024

[4] Rota-Graziosi, G., & Sawadogo, F. ‘The tax burden on mobile network operators in Africa’. (2022).  Telecommunications Policy, 46 No 5, P 102293. Available at https://ferdi.fr/en. Accessed on 21^st January 2024

[5] Pwc Tax Relief. Available at https://www.pwc.com/ng/en/assets/pdf/new-excise-duties-on-telecom-services-what-you-need-to-know.pdf. Accessed on 21^st January 2024

[6] Businessday ‘What to expect as Nigeria pushes for tax on digital transaction’ published on 23^rd September 2021. Available at https://businessday.ng/technology/article/what-to-expect-as-nigeria-pushes-for-tax-on-digital-transaction/. Accessed on 21^st January 2024

[7] Ndukwe, O. J., & Allison, P. ‘Good Governance and Ease of Doing Business in Nigeria: Problems and Prospects’. (2021). International Journal of Academic Management Science Research (IJAMSR)’, 5(1), Page 88-96. Available at http://eprints.gouni.edu.ng/3444/1/Go%20uni%20Ndukwe%20and%20Allison%20ijeais%20jan%202021%20%202.pdf. Accessed on 21^st January 2024

[8] Alfred, A. K., & Heman, D. ‘IMPACT OF VALUE-ADDED-TAX (VAT) ON THE ECONOMIC GROWTH OF NIGERIA (1994-2020)’. (2022) TSU-International Journal of Accounting and Finance, 1(2), Page 169-181. Available at https://www.researchgate.net/publication/372394559_IMPACT_OF_VALUE-ADDED-TAX_VAT_ON_THE_ECONOMIC_GROWTH_OF_NIGERIA_1994-2020. Accessed on 21^st January 2024

[9] Thisdaylive ‘Telecoms, Excise duties And avoidable controversies’ published on 10th May 2023. Available at https://www.thisdaylive.com/index.php/2023/05/10/telecoms-excise-duties-and-avoidable-controversies . Accessed on 21^st January 2024

[10] Budget office of the Federation Available at https://budgetoffice.gov.ng/index.php/revised-2024-2026-medium-term-fiscal-framework/revised-2024-2026-medium-term-fiscal-framework/viewdocument/958. Accessed on 21^st January 2024

[11] This day live ‘Airtel Africa Reports $13m Loss After Tax in H1 2023 published on 1^st November 2023. Available at https://www.thisdaylive.com/index.php/2023/11/01/airtel-africa-reports-13m-loss-after-tax-in-h1-2023. Accessed on 21^st January 2024

[12] Businessday ‘52 taxes, unresolved N200bn USSD debt squeeze telcos’ published on 20^th November 2023. Available at https://businessday.ng/technology/article/52-taxes-unresolved-n200bn-ussd-debt-squeeze-telcos/. Accessed on 21^st January 2024.