It is a season of taxes in Nigeria. First, it was the increase in Value Added Tax, VAT, a proposed tax on online transactions, the expected return of toll gates and now the proposed Communication Service Tax Bill. The bill, if passed, will impose a nine per cent charge on you when you make a call, browse the Internet or watch your DSTV, GOTV and Startimes. BABAJIDE OKEOWO in this report takes a look at this bill and how it will affect the average Nigerian.
A few days ago on the sideline of the 25th Nigerian Economic Summit Group conference, the Chairman, Federal Inland Revenue Service (FIRS), Babatunde Fowler, dropped a hint that there is a probability that the Nigerian government will introduce communication tax.
The FIRS boss maintained that due to how much Nigerians often talk on the phone, it won’t be a bad idea to impose a communication tax on them.
“I will put it this way, Nigerians talk a lot on the phone; they even talk more than is required. So, for them to have capacity or revenue to talk that much, I don’t see any harm in paying a little bit more to government,” he said.
Perhaps, he is making allusion to the proposed bill currently being debated on the floor of the Nigerian Senate. The ‘Bill for an Act” proposed by Senator Ali Ndume seek to establish the Communication Service Tax’ which will see consumers pay a 9 per cent charge when they make a call, consume data or subscribe to a cable TV platform. The bill has scaled the first reading on the floor of the Senate.
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In layman terms, what this means is that if the bill is passed, you, yes, you will have to pay a nine per cent tax to the Federal government whenever you make a call, browse the internet, or even watch Africa Magic on your DSTV or GOTV depending on which you watch. This is not the first time this bill will be proposed, it was first proposed in 2016 and failed.
A season of taxes
Amidst dwindling oil revenues and rising debt profile, Nigeria is a country on the precipice. This is aptly put by Taiwo Oyedele, The West Africa Tax Leader at PriceWaterHouse Cooper, PwC.
According to him: “Nigeria is broke, that is where we need to start from. If you take a look at the first-half performance of the 2019 budget, the expected collection from non-oil revenue was down by almost thirty per cent while revenue from oil went up by 5 per cent which is not enough to offset the decline. In terms of expenditure, the government has spent 30 per cent more than it budgeted for and has not spent a dime on capital project. When you put all these together, you will see that the deficit has gone up including the cost of servicing our debts which has also gone up. Even from the Medium Term Expenditure Framework, MTEF, the projection for the next three years show that the country’s debt is still going to keep rising because the deficit is still going to be around N2tr for each of those three years. If you put all those together, it tells you that the government needs to do something differently. It is expected that the government in this kind of dire situation must do something. Whether what the government is trying to do and the approach is right is another thing entirely.” he said.
CST, not the way out, will further impoverish Nigerians, say experts
Stakeholders, Experts and economic analysts are of the opinion that this latest move by the government is a wrong approach and will go a long way in further impoverishing average Nigerians who are already over-burdened as it is.
According to leading Financial service provider, Afrinvest, CST would overburden consumers who already bear 5.0% Value Added Tax (VAT) on telecommunications services.
They said for the telecommunications sector, the proposed CST worsens the issue of tax multiplicity. In addition to existing taxes, companies would bear increased costs of compliance and lower patronage, as consumers react negatively to the new tax.
“We believe that this approach towards taxes could affect economic growth and dampen the investment climate, with negative implications for tax collections. We do not expect the CST to generate as much as the proposed VAT of 7.5% which we conservatively estimate to bring in additional N545.1 billion as VAT revenue. Revenues from the CST of 9.0% would clearly fall short of the FG’s expected increase in VAT, even without considering the changes to consumer demand and growth in the sector” Afrinvest noted.
On his part, Oyedele posited that this current approach overall is wrong. “The perception that if this bill is passed it is a better alternative to the increase in VAT is also totally wrong. We need to stop this attitude of Nigeria needs money and we want to make it happen immediately, taxes do not work that way, you have to sit down and have a plan and that plan will include taking a look at what sector of the economy that should be concentrated on, which sector do we want to promote, which sector is more sensitive, which sectors are the one that is needed for employment generation. We should not concentrate on solving a revenue challenge and creating an unemployment challenge” he said.
Speaking further, Oyedele posited that instead of concentrating on a tax rate increase, it should in the true sense be the last thing to be considered. Rather, tax net expansion and base should be the focus.
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“Take, for example, if the compliance rate of VAT is around 20 per cent, you should focus on how to get it up. In Nigeria, the top one per cent is not paying their fair share of taxes. In other countries, you find the top one per cent paying more than the remaining 99 per cent of the population which is not the case in Nigeria. You can raise revenue in such a way that is not counterproductive to the economy, otherwise, you solve one problem and create a bigger one. In the last few years, those captured in the tax net have increased by over a 150 per cent but the revenue generated has gone up by less than 20 per cent, if you have the wrong people in the tax net, revenue generation will not go up. It is that simple. We have a lot of poor people, micro businesses that we place too much burden on them in the tax net which is counterproductive because those people cannot comply, the taxman is spending too much to enforce compliance and there are leakages in between. So, what government needs to do is to identify the right people who are supposed to be in the tax net but are not there, are they paying the right amount and those who are most guilty are found in the MDAs, the presidency and the national assembly” he said.
Some MDAs have not remitted taxes collected in five years -Auditor General
According to the report of the Auditor General of the Federation, many Ministries, Department and Agencies, MDAs are yet to file financial returns and remit taxes they deducted from contractors and employees for as long as five years. For us to be seen as a serious country, we need to set the tone from the top.
We also need to clean up our tax laws, many of them were inherited from the British before independence. We currently have about 300 taxes in Nigeria and 98 per cent of the income generated by FIRS last year came from four taxes, Petroleum Profit Tax, Company Income Tax, Value Added Tax and Educational Levy. At the state level, only one tax produced over 90 per cent of the revenue generated and this is the Personal Income Tax. So, instead of introducing different taxes like this CST, there is still a list of over 150 taxes that we do not need, let us repeal them. There should also be a provision that the taxes collected should be used for infrastructures, this will send the right signal and messages to Nigerians. The government should look inward into how to cut down the cost of running the government, you cannot be collecting money from the people to pay salaries, overseas tours for a selected few and to buy big cars for senators, it is just not fair.
CST Bill, dead on arrival -Stakeholders
According to Dr. Bosun Ayeni, Director, Digital Africa, the proposed CST bill is fraught with a lot of challenges that will make the implementation difficult.
“This tax has a bunch of challenges, the bill is looking at FIRS doing the administration and working with Nigerian Communications Commission, NCC and collecting revenues from Telecommunication Companies, Telcos who are licensed by NCC, on the other hand, you still want to collect taxes from pay per view service providers who are licensed and regulated by the National Broadcasting Commission, NBC. You want to collect taxes from some people who are licensed and regulated by a different body while relying on another body to seize and withhold their licenses, In the past, FIRS had tried to work with TELCOS to improve the collection of VAT by asking for access to the Telcos billing systems, call records, call logs and so on and they have met with a stiff resistance because of the sensitive nature of their dealings with consumer’s data which the law did not clearly make provision for. This new bill is asking for access to sensitive materials and will give the Telcos cause for concern. There is already a consensus that there was really no sufficient level of engagement and collaboration before this bill was proposed,” he said.
He added that Ndume was off the mark when he said the proposed bill will not affect the poor.
“For the senator to say this bill will not affect the poor is nothing farther from the truth. The Telcos are not the one footing this bill. It is a consumption tax that will be passed to the end user because any and everyone who subscribes to electronic communication services will pay the nine per cent unless the Telcos decides to pay on the behalf of the consumers which is highly unlikely” he added
Concluding, Oyedele posited that the bill in its current format does not have the interest of Nigerians. “This senator in my view does not have the correct data; he is driven by self-interest. When the bill was first proposed in 2016, it was accompanied by a welfare scheme, this bill is not in the interest of Nigerians, at least not in its current format” he said.
In the words of Winston Churchill, “For a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle”. It is hoped that those in authorities will take a second look at this bill.