Telcos sink under burden of multiple taxes
On 7 March 2022, officials of Onigbongbo Local Council Development Area (LCDA, in Lagos, served a notice to a Base Tower Station (BTS) operator for allegedly failing to pay fumigation, parking, and Radio, TV levies.
Citing Section 12(1) of Local Government levies approved collection law of 2010, the LCDA claimed the operator was indebted to the sum of N450,000.
BusinessDay gathered from other operators that the fumigation levy is not only common for BTS sites it is also being asked for by other states across the country. By implication, an operator with two or more sites in the same or multiple LCDAs or LGAs faces millions of naira in costs.
On Tuesday, 29 March 2022, telecom operators under the aegis of the Association of Licensed Telecommunications Operators of Nigeria (ALTON), said there was a possibility that telecom facilities in Kogi, Abuja, and other nine states could be shut down over disputes arising from unusual taxes and levies demanded by the state governments.
A statement signed by Gbenga Adebayo, Chairman of the association, and Gbolahan Awonuga, Chairman, Head, Operations, warned that the issue was likely to lead to a total communications blackout in the entire Kogi State, parts of Abuja and possible impact on service availability in some parts of Nasarawa, Benue, Enugu, Anambra, Edo, Ondo, Ekiti, Kwara, and Niger states. These are states sharing borders with Kogi State.
In Nasarawa State, telecom operators are required to pay N20 million every year as a development levy and the state will still charge each employer resident in the state the same levy.
Experts told BusinessDay that the development fee levy has been going on for a long time and gets worse every election cycle when politicians are looking for money for elections. In Kogi, Niger, and Rivers states there is an employee development levy charged on telecom operators. The fee ranges from N200 per employee to N35 million on total employee assessment.
“Most operators challenge the illegal ones. Of course, the court process takes forever and unless you get a court order they seal up the site or the office,” said Rotimi Akapo, Partner and Head, Telecommunications, Media and Technology Practice Group, Advocaat Law Practice.
However, there have been some court wins for operators who took the legal route. For example, in one case brought by a telecom operator against the Akwa Ibom State government and Uyo Local Government in 2020, the Court of Appeal declared the Taxes and Levies (Approved List for Collections) Act, 2004 as void and unconstitutional due to the fact that its Sections 1 and 2 purported to override the CFRN 1999 (as amended). The implication, Akapo explains, is that each level of government is restricted to collecting taxes and charges only on the matters in respect of which they can legislate pursuant to the Legislative Lists specified in the constitution.
An executive in one of the telecommunication companies who would not be named because he is not the official spokesperson of the company said at the last count, operators were saddled with about 32 different taxes and this is choking the life out of investment in infrastructure.
“How do you keep investing in a community that does nothing but slap you with frivolous taxes and levies? If you fail to pay they destroy the same infrastructure you installed to ensure they get quality service,” the executive said.
Classification of telecom taxes
Taxes and levies in the telecommunication sector are broadly categorised into customs and general taxes. Custom taxes are the taxes imposed on goods when they are transported across international borders. In other words, they are levied on the import and export of goods. The government uses this duty to raise its revenues, safeguard domestic industries, and regulate the movement of goods.
Wole Abu, CEO of Liquid Telecom Nigeria explains that the rate of customs duty varies depending on where the goods were made and what they were made of. The federal government levies customs on most imports into Nigeria. The import duty may vary from 5 percent to 60 percent and on average is about 12 percent. Imports are also subject to a 7 percent port charge and a 7.5 percent value-added tax (VAT). Telecoms custom tax is levied on all equipment imported into the country such as cells, towers, antenna, etc. Custom taxes are administered by the Nigeria Customs Service. Excise duties are charged for domestic and imported handsets.
General Tax in the telecoms sector includes transactional taxes other than yearly taxes in the course of the ordinary business. Transactional taxes include VAT at 7.5 percent on all services rendered, Withholding Taxes at various rates between 5 percent to 10 percent depending on the nature of transactions, Capital Gain Tax at 10 percent if any upon sale of the company’s assets. Yearly taxes include Company Income Taxes at 30 percent on the company’s profit for the year (adjusted) and education taxes of 2.5 percent on similar profits resulting in a total annual exposure of 32.5% taxes on yearly profits. General taxes are administered by the Federal Internal Revenue Services.
47 telecom taxes
Rotimi Akapo and Quasim Odunmbaku identify 47 taxes and levies paid by telcos to the three levels of governments in Nigeria in their new book ‘Nigerian Telecommunications Law and Regulations’.
Usually, the law establishing the tax will state the collecting authority. For example. The Companies Income tax act states that it is to be collected by the FIRS. so the tax goes to the federal government and the Pay as you Earn (PAYE) is collected by the state tax authorities and so goes to states.
The other collecting authorities include states inland revenue services, Nigerian Social Insurance Trust Fund (NSITF), Nigerian Pension Commission (PENCOM), National Office for Technology Acquisition and Promotion (NOTAP), Nigerian Communications Commission (NCC), National Information Technology Development Agency (NITDA), Federal Ministry of Works, National Inland Waterways Authority (NIWA), Nigerian Customs Service, Federal Ministry of Environment, National Civil Aviation Authority, NESREA, other ministries and departments in federal and state governments.
The Federal Inland Revenue Service (FIRS) is solely responsible for collecting four out of the 47 taxes and levies. The taxes the FIRS collects include the Companies Income Tax (30%), Withholding Tax (5%-10%), Value Added Tax (7.5%), and Capital Gains Tax (10%). The FIRS and states revenue services collect Stamp Duties (2.25% dependent on the transaction).
The states and LGAs are involved in the collection of 32 taxes and levies, including Personal Income Tax, Right of Way charges, business premises, planning permit, site inspection fees, location plan/site analysis report fees, plan approval fees, building permit, environmental fees, tenement rates, signage and advert fees, fire service fee, parking permits, effluent discharge, social services levy, employee development levy, operational permit, building fitness, capitation fee, infrastructure maintenance, hawking permit, way levy, shop rate, radio & TV licence, environmental/ecological fees, sewage fees, state environmental impact assessment, audit fees, gaseous emission, industrial generators & toxic emission, and installation of new telecommunication mast.
In many cases, the collection of payments – often through intimidation and harassment – by state and local governments agencies are done without appropriate legal backing. The schemes are carried out through the sale of stickers, mounting of roadblocks, and the use of revenue agents, consultants including motor park touts. Experts say that while the schemes have been going on for a long time, it gets worse every election cycle when politicians are looking for money for elections.
Government collects while consumers suffer
During the COVID-10 pandemic when other sectors shut down, the telecommunication industry proved to be the goose that lays the golden eggs. The pandemic made telecom services so critical to business survival that nearly every company now has or is in the process of developing a digital strategy.
The industry contributed over 81.5 percent of the total 15.5 percent of the ICT sector’s contribution to the GDP. VAT collection in telecommunications has been a major contributor to government revenue in the sectors of which they are disallowed from claiming VAT input on their output. All services rendered by telecommunications are subject to VAT of 7.5 percent, which is administered by FIRS.
Telecom’s sector importance and potential for revenue is the reason why it is highly regulated by the Nigerian government.
“Recently, major tax reforms are made in the country through the Finance Act 2020 and 2021 in tune with economic realities for respective industries and to generate more revenues for the government and bring taxpayers in the Tax net of the government,” Abu told BusinessDay.
But multiple taxes hurts the government’s digital plan. Most are transferred to the consumers one or the other contributing to growing digital divide and constituting a drag on financial inclusion.
Ajibola Olude, Executive Secretary and Chief Operating Officer of the Association for Telecommunication Operators of Nigeria (ATCON) identifies the impact on poor access to digital technology in the rural areas and poor spread of telecom infrastructure.
“The Nigerian Tax System needs to be looked at and structured in a way that it would earmark the taxes that the telecom industry is supposed to pay,” Olude said.