Telcos may plough back N152bn tax savings in new projects

Nigerian telecommunication firms may boost investment in capital expenditure by up to N152 billion per year if tax cuts promised by the minister of communications technology come to reality.

Omobola Johnson, minister of communications technology, recently indicated that taxes on infrastructure for telecommunication companies in Nigeria would be reduced to encourage spending on more networks.

“For every naira that is spent on infrastructure, about 70 percent of it is spent on taxes. We’re going to bring that down to a much more reasonable level at 30 to 40 percent,” Johnson said in an interview in Abuja last week.

Figures provided by MTN Nigeria show the largest telecoms firm in the country spent N217 billion on property, plant and equipment (PPE) in 2013. Going by the minister’s statement, this implies that N152 billion (70 percent of N217 billion capital expenditure amount) was spent on taxes on telecommunications infrastructure by MTN. MTN Nigeria has a 50 percent share of the Nigerian market.  

Extrapolating the tax amount for the entire industry gives N304 billion spent on taxes on infrastructure projects by telecommunications companies in Nigeria on a pro-rata basis in 2013. Assuming taxes are reduced to 35 percent, the amount that would be freed up for more infrastructure spending is N152 billion, according to BusinessDay estimates.

Currently, it costs about N50 million to build one 90m2 base station, according to data from MTN Nigeria. The funds freed up (N152 billion) correspond to 3,040 additional base stations.

Nigeria needs 33,000 BTS in the next five years, in addition to the already existing 27,000 that are spread across the country, to bring the total number to 60,000 by 2018, Johnson said last year.

The telcos would have more leeway to build and/or rent infrastructure to improve their networks as they invest in 3G, LTE, broadband and optic fibre infrastructure for both the existing customer base and the new markets they intend to penetrate.

Analysts say telecommunications subscribers are to expect better network coverage, better services, fewer dropped or failed calls and better data services, but benefits also accrue to the telcos as fines and other costs for poor service standards are to reduce as they develop and enhance their capacity to deliver better services, and better goodwill/value would be added to their brand.

Nigeria remains a key market for telcos. Research from London-based Informa Telecoms & Media estimates that cellphone user numbers will grow to more than 200 million in Nigeria over the next three years.

Sifiso Dabengwa, CEO, MTN South Africa, has indicated that the operator has had challenges with quality of service driven by “high demand” in Nigeria.

To meet this demand, telcos are investing in the infrastructure in the country, and the relief the infrastructure tax reduction brings is expected to spur them on.

MTN has already indicated plans to spend more than $3 billion over a three-year period to improve its network structure in Nigeria, and to continue doing so in the medium term.  

“We’ll continue to invest at this rate in the medium term, and make sure the overall quality of service is acceptable,” says Dabengwa.

Globacom Ltd., the third-biggest carrier, is spending $1.25 billion to upgrade and expand its network.

YINKA ABRAHAM