With elections looming and the need to deliver on earlier campaign promises, there is renewed revenue generation drive by all tiers of government. The telecommunications industry is a major source of tax revenue for governments and operators are frequently subjected to audits by tax authorities to confirm compliance with their tax obligations. It is reported that about $13billion was raised by governments in the Sub-Sahara region of Africa in the form of taxation in 2016. MTN Nigeria claims to have paid over 2 trillion naira to the Nigerian government since 2001.There is however an intrinsic link between high taxes and levies and investments in infrastructure and equipment by operators, quality of services and the affordability of the service by the subscribers.
As a result of the nature of their services, telecommunications services providers have presence in different locations across the country in order to provide services and support to their subscribers. This therefore brings them under the jurisdiction of various states and local governments, different governmental agencies, communities and tax authorities and sometime leads to conflicts in relation to taxes and levies payable on their operations. The taxes and levies (approved list for collection) Act 1998 provides a list of taxes and levies that the various tiers of governments in Nigeria can collect. In 2015 the minister of finance published a schedule to the Act which, even though was expected to simplify taxes and levies, further compounded issues by increasing the list of taxes from 39 items to 55.
The tax burden of a typical telecommunications service provider includes not just the general taxes and levies imposed on all companies in the country, but also a myriad of sector-specific and other “bespoke” taxes and levies. These taxes include Companies Income Tax, the Capital Gains Tax, Withholding Tax Personal Income Tax, Stamp Duty, National Industrial Training Fund (NITDF),Employees Compensation Scheme, The Tertiary Education Trust Fund (TETFUND) National Housing Fund Contributory Pension Scheme, Customs Duties, Tenement Rates/Land Use Charge, Business Premises Registration Fees, Town Planning and Building Permits, Infrastructure Maintenance Charges, Signages and Mobile Advertisement, Aviation Clearance Permit Fees, Environmental Impact Assessment/ Audit fees.
In addition to the general taxes and levies certain sector specific taxes and levies are further imposed on operators. An Annual Operating Levy (AOL) of two and a half percent (2.5%) of a network operator’s net revenue is to be paid to the NCC; a levy of 0.005 per cent of all electronic transactions undertaken by telcos is required to be contributed to the cyber security fund; operators with a turnover of one hundred million naira and above are required to contribute one percent their profit before tax to the National Information Technology Development Fund (NITDF).
There have been several unsuccessful attempts by the Federal government to have an effective, standardized national Right of Way (RoW) acquisition process and fee. In an attempt to provide certainty the Federal Government in 2012 approved Right of Way fees for access to federal highways. Amongst the states however, there are wildly differing rates. In addition, states have continued to insist on a right to demand and receive RoW for federal highways, bridges and similar infrastructure running through their states.
Further complicating matters are the frequent disputes between the federal ministry of works and the National Inland Waterways Authority (NIWA). The latter demands RoW fees on bridges and other infrastructure built by the former, and on which the former has already charged RoW fees, on the grounds that such infrastructure passes over waterways over which they have jurisdiction. Added to the mix is the fact that State Waterways Authorities often bill for the same routes as NIWA. So to install network infrastructure on bridges running across federal highways, operators might be required to pay RoW fees to the federal government, state government, NIWA and state waterways authorities.
The operators allege that there are over 38 different taxes and levies on their operations by the various tiers of government in Nigeria and different government agencies. This they consider a threat not only to their businesses but also to further investments in the industry. Government clearly has a right to impose taxes on businesses that operate and benefit from the public amenities, infrastructure and social services it provides. The expectation however is that a balance can be struck between the legitimate expectations of government and the certainty and fairness businesses expect for them to pursue and achieve their business objectives. Taxes in the telecommunications industry should be aligned with other industries and in line with international best practices. Uncertainties over taxes and levies affect investment decisions and the anticipated taxes and levies are expectedly built into the cost of services and products and ultimately passed on to subscribers.
Akapo is Partner/Head, Telecommunications, Media & Technology Practice Group, Advocate Law Practice