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[EDITORIAL] Zainab Ahmed Should Listen to Pantami: Stop Proposed 5% Tax on Telecoms Services

We want to remind the Finance Minister that Nigeria has set target for commercial launch of the fifth generation (5G) technology later this month which will require massive investments in billions of dollars. Is the Minister guaranteeing the availability of forex to the telcos?

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Telecoms Services Tax, Zainab Ahmed and Pantami
Telecoms Mask: Prof. Isa Pantami and Zainab Ahmed

Zainab Ahmed, Nigeria’s Minister of Finance, Budget and National Planning, has insisted on the implementation of the proposed five percent (5%) Tax on telecommunications services: Calls, SMS and data.

There is no gainsaying Nigeria’s economy, like many others in the world, has been hit by the COVID-19 pandemic, and lately the ongoing Russia-Ukraine war.

There is impending economic recession, looming food shortage; and the perennial oil theft continues to compound the issues, leaving the somewhat mono-economy gasping for breath.

The 36 State Governors have raised the alarm that they may not be able to pay salaries in the coming months as a result of dwindling revenue from the federations account.

Following these concerns and more, the Finance Minister has seen telecommunications as a sub-sector with a magic wand to rescue the erring economy.

The Minister speaking through Mr. Tanko Abdullahi, the Special Adviser on Media cited the Finance Act 2020 as the enabling legislation for the tax on all voice calls, SMS and data services, in addition to the existing 7.5 percent Value Added Tax (VAT) paid for goods and services across all sectors of the economy.

Truly, the Ministry is empowered constitutionally to collect and disburse government revenue; formulating policies on taxation, tariffs, fiscal management etc., preparing and managing the annual budget, preparing annual accounts for ministries, departments and agencies, managing federal debt, etc. However, the present economic indices (of Nigeria) have made the duties more tasking for the Minister.

But, we strongly believe that Zainab Ahmed, the Minister of Finance, Budget and National Planning should pay close attention to Professor Isa Pantami, the Minister of Communications and Digital Economy’s submission. He has described the proposed tax as “ill-timed”.

“I have not been officially informed about it and we at the Ministry are not satisfied with any effort to introduce excise duty on telecommunications.

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“We will definitely challenge the decision,” Pantami said at the maiden edition of the Nigerian Telecommunications Indigenous Content Expo (NTICE) organized by the Nigerian Communications Commission in Lagos.

Why Minister Zainab Perceives the Telecoms Sector as a Cash-Cow

The Nigerian telecommunication sector is the largest segment of the Information and Communication sector. Nigeria has one of the largest telecom markets in Africa. In less than 25 years, the telecommunications sector has seen over $75 billion in investment and a massive 250 million connected lines. This is up from NITEL’s 400,000 pre-GSM auction.

The sector includes a strong multinational presence. The leading players are MTN, a South African based multinational Company, Airtel (an Indian based multinational telecommunication), Glo (a Nigerian multinational company) and 9mobile (formerly Etisalat).

The sector over the years has contributed immensely to Nigeria’s economy and the lives of Nigerians. In fact, by the fourth quarter of 2020, telecom was one of the sectors whose performance lifted the country out of recession by contributing 12.45 percent to the country’s Gross Domestic Product (GDP).

The sector has experienced rapid growth and helps in e.g. easier banking services (bank mobile apps) and access to e-learning platforms to Nigerians, but not without multifaceted challenges.

Why proposed tax (increase) on telecom voice and data services should be dropped:

Two months back, President Muhammadu Buhari inaugurated a 27-man Council on Digital Economy tasking them on improved ranking of Nigeria on Ease-of-Doing-Business which has been the albatross to business growth in recent time.

With that move, it implies the President understands the place of National Digital Economy in diversifying the economy from oil of which the telecom sector plays major roles.

Sadly, the Nigerian telecommunication sector has witnessed stalled foreign direct investments leading to delays or deferrals of expansions and upgrades to networks and this trend has continued overtime.

The Finance Minister should know that the cash-cow needs care now. The sector is faced with low consumer purchasing power, currency movements and the recent loss of global investors. The inaccessibility of the dollar in the economy resulted in weak macroeconomic conditions. Nigeria’s weak macroeconomic conditions have led to weak labour market dynamics (high unemployment and underemployment), reduced disposable income and poor corporate performance.

To ensure long-term growth and sustainability, the Nigerian government should be rolling out incentives to support the sector which will lead to the Mobile Number Operators investing their assets in more creative services that focus primarily on meeting consumer needs and establish a regulated minimum market price. These will create new streams of income for operators and mitigate the decline in their traditional revenues.

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Prior to 2014, Nigeria was attractive to both local and foreign investors due to a stable currency and rise in oil prices. However, since 2016, there was a significant fall in oil prices which resulted in the shortage of dollars and depletion of external reserves, revenue shortfalls, high inflation and ultimately a recession. The naira’s severe devaluation to N419/$ losing about 70% of value since 2015, pushed up the costs of imported items such as RF Coverage Equipments (Node B) and Transmission Equipment (Optical Fibre) which stifled expansion plans of most network operators from expanding their service capacity. The sector has also been affected by a reduction in consumer demand due to lower disposable income in consumption.

We want to remind the Finance Minister that Nigeria has set target for commercial launch of the fifth generation (5G) technology later this month which will require massive investments in billions of dollars. Is the Minister guaranteeing the availability of forex to the telcos? Is she aware that the Central Bank of Nigeria under Mr. Godwin Emefiele, at a time, removed telecom equipment from the list of forex-worthy items for importation? How much of the equipment is manufactured in the country?

Is the Finance Minister aware that a company like MTN has powered its Cable Landing Station (CLS) with generators in the past 10 years and counting? Remind us of the price of a litter of diesel, presently.

Is the Minister aware there are Bills on the floor of the Senate targeted at the telecommunication companies to deduce some percentages of their revenues to sponsor the provisions of these bills?

What is the Minister’s contribution towards resolving the Right-of-Way (RoW) impasse between the telcos and State governments? There are over 42 taxes and levies paid by telecom operators in Nigeria. As Federal government agencies are cutting their bounds of flesh, State revenue officers are readying their knives for cuts too. To make matters worse, local government revenue officers have made life miserable for telcos; down to street urchins who insist on collecting their own ‘taxes and levies’ before generators powering cell sites are re-fueled.

The Federal Government can set an example: Declare zero charges on Right of Way to telcos laying fibre optic cables along Federal highways. With this, you have set an example on how to drive the digital economy through support to businesses.

Many have argued that these telcos declare billions of naira in revenue yearly, but are we saying that investors do not deserve profits or shareholders should forfeit their dividends?

The truth is that with low incomes, more GSM mobile subscribers will move away from traditional cellular services to data bundle packs, which allows them to use Over the Top (OTT) services.

Telecom operators and Internet service providers are currently at loggerheads to deliver data at relatively cheaper prices. The fierce price competition among telecom operators on their voice and internet data has led to the contraction in the sector revenue over time. Consumers benefit from temporary low prices only in the short run. The sector has also contended with OTT players that utilize technology to convey voice/video calls at a fraction of traditional voice call costs. While Nigeria’s data bundle prices are the lowest in subSaharan Africa, they are priced below actual costs which can harm the sector and puts long-9term customer benefits at risk.

Smaller mobile network operators find it hard to survive in the market which leaves an industry dominated by few players. These few players will increase their market share and have the power to influence prices. Prices can more than double which can have a negative effect on the levels of consumption.

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Solutions

The Minister of Finance should not reverse the changes made under the Nigeria National Digital Economy Policy which has committed the present administration in creating an enabling environment for the private sector to contribute innovative solutions to allow consumers to benefit from Information Communication Technology (ICT) advancements.

This will in turn bring about efficiency and productivity in the telecom sector and eventually enhance economic growth which is why the proposed tax is counter-productive.

The industry regulator, the Nigerian Communications Commission (NCC), should ensure that the quality of service provided by telecom operators is enhanced through an emphasis on the strength of their signals and the quality of their data services.

Customers can also play a part in regulating prices by valuing and promoting services that offer the best customer experience and not those that offer only the cheapest price. 

To ensure long term growth and sustainability there is a need to stop the proposed excise duty on telecoms services. This will result in increased investors’ confidence and will enable operators to serve multinationals including Small and Mediumsized Enterprises (SMEs) that are dependent on their internet services (better quality service). The sub-sector needs more government’s support and protection as it provides the infrastructural backbone for the new digital economy that drives socioeconomic development across all sectors in the economy (ecommerce, Mobile banking).

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@TechEconomyNG connects past-present-emerging technological impacts on Businesses, People and Cities. All Correspondence to: [email protected]

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