Why 9% communication tax won’t help the industry

Chukwuemeka Fred Agbata Jnr.

Chukwuemeka Fred Agbata Jnr.

The nine per cent tax proposed in the Communications Services Bill by the Federal Government has attracted more ‘nays’ than ‘ayes’ from different quarters. This is expected owing to the fact that if the bill scales through, 145.4 million active telephone line users (as of June 2016) in Nigeria will be adversely affected.

 Specifically, the “Communications Service Tax” is proposed to be a nine per cent charge for the use of communication services (Section 4 of the Bill), where communication service refers to voice, SMS, MMS, data, and Pay Per View TV.

It is obvious that the tax will push up the cost of services to consumers and impact negatively on Internet affordability.

 

The Minister of Communications, Mr. Adebayo Shittu, had, at different forums, laboured to explain to those who cared to listen, that the goal of the proposed CST is to improve revenue generation as stated in Explanatory Memorandum of the Bill.

In fact, the target is put at around N20bn monthly. It is, however, the opinion of many that government should consider other alternatives to raise revenue and, thus, save the already bleeding citizens and the telecom industry from further harm.

On the other hand, the National Assembly could consider the passage of the CST Bill with a much lower tax rate that will enable the government to achieve its fiscal targets without undermining broadband affordability and access, if the tax must be introduced.

Besides the fact that subscribers are going to bear the cost, telecom operators will definitely become more vulnerable, particularly now that Over-The-Top content providers are already pushing telecom operators, revenues downward. This will make an already bad situation worse, ultimately leading to further job losses. The bill, therefore, sort of robs Peter to pay Paul.

Many people have predicted that subscribers would bear the full brunt. True as that sounds, I align with the school of thought that OTT platforms will provide a leeway.

Yes, instead of paying a fixed amount to send a message via the regular service providers – MTN, Glo, Etisalat, Airtel or NTel, smartphone users will cleave more to apps like WhatsApp, WeChat, Viber, Facebook, Twitter, IMO, etc., all of which boasts of large customer bases and offer innovative features like the ability to send pictures and videos seamlessly.

Telcos own the networks, but companies like Google and Facebook can pull surprises on them should they think of yanking off OTT services from their networks. In other words, the nine per cent communications service tax as proposed spells more doom for telecom operators.

Ajay Sunder, Frost and Sullivan, and analysts, agree that the shift is hitting markets all around the world.

“Definitely in the developed economies we are already seeing a trend of declining SMS revenues but even in emerging economies like Indonesia, some of the operators are already seeing the impact of OTT apps on their voice and SMS revenue. With Thailand, for example, the minutes of usage of the top three voice providers actually declined close to four per cent when Line was introduced in 2011,” they said.

During a recent Facebook conversation, Rev. Sunday Folayan, President of Nigeria Internet Registration Association, pointed towards this direction.

“A lot of people will move to OTT services and the providers will lose significant revenue. Many are not making nine per cent profit right now. They creatively cheat end users. The proposed nine per cent telecommunications tax in Nigeria is the confirmation of the translated Yoruba adage that says. ‘The sheep saw docility before snatching the meat from the carnivore.’

“Communication companies in Nigeria cannot see the need for the proposed tax given the fact that the nascent industry should be cultured to enhance the country’s GDP right now instead of milking it at infancy. Do not be blinded by the MTN infraction.”

Nurudeen Suleiman agreed saying, “True talk. With all this 5GB data for N50 Promo you hear every day, GSM operators are now operating like banks. They give sales target, not just to the marketing staff, even the few technical staff they have left, as most of their infrastructure and switches have been passed over to third parties for operations and maintenance. Kai, wetin these people they think sef, when NCC just announced that telephone operators have lost almost 50 per cent of their subscribers?

“I understand that the minister is very excited that his ministry would be generating N20bn monthly from that tax.

“Apart from the fact that the target is not achievable because end users will drop by a margin unimaginable, whatever money they generate from the nine per cent tax will end up as social security stipend for a sizable number of workers that would be laid off by the same telecom industry that is being targeted.

“It will also be double jeopardy because the normal tax will also drop due to low turnover by the operators. I beg make them think am well.”

Alliance for Affordable Internet Nigeria Coalition, in a document released recently, raised critical issues concerning compliance and how it would impact the telecom operations.

A4AI said, “Compliance and responsibility for collecting payments placed on mobile operators is likely to add a number of operational costs to operators. For example, rather than annually, all service providers are to 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.

“While the nine per cent tax is to be paid by consumers, analysts point to the fact that they will likely become additional burdens placed on operators as their operational costs will further rise.”

While the impacts of the CST on the sector as a whole are major, the above analysis shows the direct, possibly, unintended impact on the consumer and specifically those in the low-income groups and women. Hence, balanced fiscal policy must consider affordability of mobile broadband and should not put in place additional barriers that can make Internet access unaffordable for millions of Nigerians.