Authorities to reduce taxes on infrastructure to encourage telecoms investment

Nigerian tax authorities are revisiting tax duties imposed on telecom operators and are considering reducing taxes on infrastructure to encourage investment.

The main infrastructure challenges for telecom operators in Nigeria and Africa as a whole are road access and security of transmission sites, reliable power supply and limited and costly access to international data connections, which are often controlled by the state and charged at higher than internationally accepted rates. These add an additional cost overlay to operating in these countries, lowering their operating margin and in some instances limiting the attractiveness of investing in of some of these countries according to Moody’s report on Telecommunications – Africa.

Weak infrastructure drives costs higher for telecom operators, leading to operational challenges which pressure operating margins. “We expect operators such as MTN, Bharti Airtel and Etisalat will continue to contain cost pressures via asset optimisation strategies such as network sharing, tower sales and outsourcing to specialised third parties”, the report stated.

Multiple taxations has taken a more pernicious turn over the past few years, quickly emerging as one of the most critical risks to the growth of the industry.

The federal, state and local governments all have tax-raising powers, leading to multiple taxations of telcos in the country.

“The ‘Golden Goose’ effect has fuelled demands for larger social spending, taxes,” MTN Nigeria said in a statement to Reuters.

“The cost of disruption to our industry runs into millions of dollars annually,” MTN added.

Etisalat Nigeria, an affiliate of Abu Dhabi-listed Etisalat, told Reuters it wants the federal government, through the National Communication Commission (NCC), to be the sole sector regulator.

“It is common to have government agencies trying to impose duties and enforce regulatory functions similar to that of the NCC,” said Etisalat Nigeria. “There are levies and other charges that are demanded by government institutions which have all the characteristics of a tax.”

In some cases, a new tax is as a result of multiple and overlapping regulation, with government agencies creating a state or local version of a federal tax often without regard for relevance or applicability.   

Telcos in Nigeria have stated that their expectations of the incoming administration include a better regulatory environment, with predictable policies to move the industry forward. At a general meeting of the Association of Licensed Telecommunications Operators of Nigeria (ALTON), they said businesses can only thrive on sustainable policies and implementable regulations, according to reports.

ALTON president Gbenga Adebayo said that for Nigeria to be competitive, the enabling environment must be created to maximise private sector investment in the ICT sector. Adebayo said while investment in the sector is significant, government actions are increasingly becoming a disincentive. He said to address the situation, there is need to present to the government empirical evidence that will show clear indisputable statistics of the sector’s contribution to the economy.

Growth in the African telecoms sector has in many cases spurred further economic growth because improved telecoms infrastructure has generated other economic activity through improved regional connectivity for corporates and government. However, increasing the cost of renewing licenses, issuing new ones in conjunction with allocating spectrum or imposing new or revised tax regimes could create regulatory barriers to entry.

Airtel Nigeria CEO Segun Ogunsanya said the country’s telecoms market offers multiple growth opportunities, stating that with 78 percent mobile penetration in December 2014, there is massive untapped market potential.

Ogunsanya said Nigeria offers exciting opportunities for telecoms investors as a large population with rising incomes positions the country as one of the most attractive destinations for investment on the African continent. He said Nigeria has massive bandwidth capacity from the four undersea cables, which has yet to be exploited. This will provide opportunities to domestic and international investors to take advantage of the growing broadband and data industry.

He added that key issues must be urgently resolved, though, for the Nigerian telecoms industry to reach its full market potential. These include spectrum availability and adequacy, government commitment to the National Broadband Plan, multiple taxation, reliable and cost-effective power supply, protection of infrastructure from vandalism, and mobile money restrictions.

DAN OJABO