Mobile is the main gateway to the internet for consumers, particularly in developing countries. Yet governments are increasingly imposing – in addition to general taxes – sector-specific taxes on both mobile consumers and operators. This poses a significant risk to the accessibility of mobile services, limiting the reach of the social and economic benefits associated with mobile technology.
To effectively deliver high-quality services to consumers, telecommunication providers need an active presence in multiple locations. However, this can generate additional complexities from a tax perspective because government agencies obligate tax authorities to impose multiple taxations on the service provider. The more locations, the greater the taxes. Such taxes and levies affect investment decisions.
The tax liability of a telecommunications provider includes more than just the general taxes imposed on all companies in Nigeria. There are sector-specific and other “tailored” taxes and levies that further reduces profitability and productivity. Sector tax levies include the Annual Operating Levy (AOL), The National Cyber Security Fund, the National Information Technology Development Fund (NITDF) Levy, and the Right of Way Charges. Anticipated taxes and levies are built into service and product costs which are ultimately passed onto mobile subscribers.
In addition, the sector must grapple with duplicated taxes applied by different tiers of government. Telecommunication operators pay levies to specific government agencies: Consumer Protection Council, the Nigeria Lottery Commission, and respective Federal and State Ministries of Environment authorities in every state and local government they operate in.
According to a 2019 report by Global System for Mobile Communications Association, titled “Rethinking Mobile Taxation to Improve Connectivity” sector-specific taxes are not aligned with best-practice principles of taxation. Best-practice specifies taxes should be broad-based and account for sector/product externalities. Following a disinclination to pay inessential and heavy tax levies, some telecommunication operators have been compelled to shut down parts of their operations.
For example, in November 2018, the Association of Licensed Telecommunications Operators of Nigeria (ALTON) disclosed that approximately 150 telecommunications base stations closed in Kogi State and the Federal Capital Territory as a result of unmet tax demands. According to ALTON, the Kogi State Government requested telecom operators pay over 36 statutory and non-statutory taxes and levies through its Ministry of Environment and Physical Planning, Ministry of Environment and Mineral Resources, Kogi State Environmental Protection Board. All of which were championed by the Kogi State Internal Revenue Service.
During the recent Power and Telecommunications Synergy Conference sponsored by IHS Nigeria in Lagos, MainOne, Regional Executive – West Africa, Kazeem Oladepo, stressed that connectivity, economic growth, investment and fiscal stability in Nigeria can only be achieved if taxes levied on telecommunications operators are reduced. He argued, “Governments across the world have recognized the importance of policies that support the telecoms and ICT sector, resulting in digital agendas that set ambitious connectivity objectives. In Nigeria, there has to be a reduction in sector-specific taxes, complexity and uncertainty of taxes and fees on the mobile sector, and consumer taxes that target access to mobile services.”
Governments have the right to enforce taxes on businesses that operate and benefit from public amenities, infrastructure and social services. However, the expectation is that an equilibrium should be struck between the legitimate expectations of a government and a fairness for telecommunication businesses. Currently, Nigeria is far from this.
So, how does the Nigerian Government hope to continue receiving a consistent revenue source from its telecommunications sector when the industry is overwhelmed by multiple taxations from the same government? How does one convince an investor to invest in a system that is running on large losses from multiple taxations? How can the telecommunications sector finance numerous projects which will supplement advanced broadband connectivity in Nigeria when it must deal with unforeseen expenditures in the camouflage of taxation? Ultimately multiple taxations are not just a threat to individual telecommunication companies, but a threat to further investments in the industry as whole and in turn, Nigeria’s economic development.