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Telcos weigh strain as 5% airtime tax starts June

Starting from 1 June, every airtime recharge will attract a 5 percent tax that will go to the government, and telecommunications companies (telcos) are weighing the impacts it would have on the industry and consumers.

Experts say the implementation of the tax will increase the burden of taxation that operators in the telecommunication industry are facing and could see consumers paying more for telecoms services.

The 5 percent tax on airtime was recently added and approved in the Finance Act 2021, which took effect from January 1, 2022. The tax was part of a new excise duty list that included beverages, non-alcoholic drinks.

Excise duties are internal taxes that are levied on sale of specific goods and services, such as alcohol, fuel, and tobacco – often goods the government wants to discourage the use of. It is an indirect tax that is not paid by the customers directly – instead, the excise tax is imposed on the supplier or the producer, who then includes it in the product price.

The inclusion of telecommunication services provided in Nigeria is the most recent change to the excise duty regime in the country. In the case of airtime recharge, the government would impose it on the network operators, which will in turn pass it on the subscribers. President Muhammadu Buhari reportedly approved the 5 percent tax on airtime in May 2022.

“Yes, it will affect the consumers of telecommunications services because the telecom companies are already asking for an upward review of the price paid by the consumer,” said Ajibola Olude, chief operating officer of Association Telecommunication Companies in Nigeria (ATCON).

The proposal for 40 percent upward review of the price of telecom services was championed in a letter written by the Association of Licensed Telecommunication Operators of Nigeria (ALTON) on May 4, 2022, a day before President Muhammadu Buhari approved the 5 percent tax.

The 40 percent hike implies the price floor of calls will rise to N8.95 from N6.4, while the price cap for SMS increases to N5.61 from N4.

“We are not proponents of the request but we supported it because it is obvious that there has been a general increase in the price level of everything,” Olude said.

According to the government, part of the proceeds from the tax will be used to fund free healthcare for the vulnerable group in Nigeria. This is included in the National Health Insurance Authority Bill 2021 signed into law by Buhari last week.

Section 26 subsection 1c of the new health law states that the source of money for the Vulnerable Group Fund includes “telecommunications tax, not less than one kobo per second of GSM calls.”

The health law describes the Vulnerable Group Fund as money set aside to pay for healthcare services for vulnerable Nigerians who cannot pay for health insurance. It is intended to subsidise the cost of provision of healthcare services to vulnerable persons in Nigeria. Nigerians under the vulnerable group include children under five, pregnant women, aged, physically, and mentally challenged persons, and indigent people as may be defined from time to time.

Gbenga Adebayo, chairman of ALTON, said the imposition of 5 percent tax on the industry constituted an additional burden on operators who are already grappling with multiple taxation.
“The behaviour of the government is not helping things for anyone. As at today, we have about 36 levies and taxes against operators,” Adebayo said in an interview on Channels Television. “An additional 5 percent excise tax has now been considered effective for the first of June. All of these affect the sector, and that’s why we want the regulators to see that this is where we are.”

Read also: Telcos’ planned 40% hike threatens digital inclusion drive

Rotimi Akapo and Quasim Odunmbaku, in their book, ‘Nigerian Telecommunications Law and Regulations’ published in 2021, identified 47 taxes and levies paid by telcos to the three levels of government in Nigeria. States and local government areas are involved in the collection of 32 taxes and levies.

Telcos such as MTN have seen their tax contribution balloon in recent years as the government increases the number of taxes and levies. In 2021, for example, MTN paid N757 billion in taxes to all Nigerian government agencies and N618.7 billion to the Federal Inland Revenue Service (FIRS), representing about 10 percent of the total N6.3 trillion remitted by the service in 2021. This is a significant increase from the N46.9 billion and N95.5 billion MTN paid in 2019 and 2020 respectively for company income tax to the FIRS.

The government is expecting to fund the Nigerian budget for 2022 from the proceeds of the 5 percent excise duty. At a function in 2021, Ben Akabueze, director-general of the Budget Office of the Federation, said Nigeria was lagging behind most of Africa in implementing the excise tax on the sector.

“Last year, we found that 51 countries in Africa have excise on airtime charges; so we are looking at that as well as an area (to tax),” said Akabueze.

However, while it benefits the government, it increases the cost of production for the industry which is not good for capital importation.

“I think the government should not base its revenue generation on the telecom and ICT industry more than necessary,” Olude said. “Government should direct the taxes collected to develop other sectors that have potential to give them further revenue.”

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