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Communications Service Tax: Last Straw That Will Break The Camel’s Back?


Since Nigeria attained democracy in 1999, one major ace has been the Information and Communications Technology (ICT) sector particularly the telecoms arm. The ICT sector continues to sustain its position as the fastest growing industry in the Nigerian economy.

It is widely reported that the sector has grown at an average of 34% per annum over the last 10 quarters, driven largely by the rapid expansion in telecommunication following the deregulation of the subsector in 2001. The industry’s contribution to the Gross Domestic Product (GDP) has grown from less than 0.5 per cent in 2001 to about 11 per cent in 2015.

Despite the many contributions of the sector to economic growth, government at various levels continue to see the ICT sector more as a “Cash Cow” and this has led to exploitation from all quarters resulting in multiple taxation. The taxes currently levied on the sector include IT Tax on Profit, Annual Operator Levy on Turnover, VAT on consumption of their services and sundry taxes and levies by state and local government authorities, thus making the proposed Communication Service Tax (CST) Bill “the last straw that may likely break the Camel’s back.”

The CST Bill 2015, currently in front of the National Assembly, if enacted into law, will require consumers of voice, data, Small Messaging Service (SMS), Multi Media Service and pay TV services to pay a nine (9) per cent tax on the fees paid for the use of these services.

This tax would be collected on top of the five (5) per cent Value Added Tax that consumers already pay when they purchase devices and communication services, the 12 per cent custom import duties paid on ICT devices, and the 20 per cent tax levied on Subscriber Identification Module (SIM) cards.

According to a ‘Tax Alert’ publication by PricewaterHouseCoopers, PwC, Nigeria, if the Bill was enacted into law, it would mandate service providers to file monthly tax returns with Federal Inland Revenue Service ( FIRS), failure of which will attract strict penalties.

The controversial Tax Bill is said to have passed the first reading at the House of Representatives and it will, upon passage and assent, compel communication service subscribers to pay additional tax on services rendered by their providers.

According to the Alliance for Affordable Internet (A4AI), the new ICT tax being considered by the National Assembly would prevent over 50 million Nigerians from being able to afford basic broadband connection. If passed, the Bill would make a basic Internet connection unaffordable for an additional 20 million Nigerians. Broadband penetration stands at just 12 per cent right now imposing the tax may reduce this figure further.

The reality is that 40 per cent of Nigerians earn less than half of the average income; this means that a basic mobile broadband plan actually costs the majority of Nigerians anywhere between 7 and 18 per cent of their monthly income. The addition of this tax will increase the cost to connect across the board, with women and low-income populations likely to be the hardest hit.

This analysis suggests that the passage of such a tax was likely to threaten Nigeria’s ability to achieve its goal of 30 per cent broadband penetration by 2018 and to undermine the socio-economic progress spurred by increased connectivity.

Nigeria is far behind the more developed countries of the world when it comes to broadband use, and the introduction of the CST will only widen this gap. The National Assembly must reconsider the passage of the CST and its impact on the development of broadband in Nigeria.

Nigerians are already agonizing over the current harsh economic condition in the country, the National Assembly ought to realize that whichever way it looks at the CST Bill, it will add more pressure to the purchasing power of the communication service user and lead to possible increase in charges by the service providers. The CST Bill, to say the least, is retrogressive for an economy.

At a time when the drive should be intensified to attract investors – local and foreign – to commit their resources into rescuing the troubled Nigerian economy, it is sad that our lawmakers are seeking to enact laws that will introduce disincentives to investors.

This proposed CST Bill at its best would serve no purpose except to shore up the revenue base of the government at the expense of the socio-economic life of the people.  It is not in the interest of the poor and vulnerable in the society who required incentives for social inclusion, which is what access to communication services provides.

This Bill is certainly not what Nigeria needs now, we must throw out the CST Bill and create a more tax-friendly environment for investors.

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