How excess taxes on telecom operators hurt consumers

Nigerians enjoy some of the world’s cheapest data plans with 1GB sold for less than $1 (N200), and the country is eighth on the list of top 10 countries in Africa where data is sold for below $1 ($0.88)), according to a report by World Mobile Data Pricing 2021.

But cheap data does not equate to quality data. In other words, the quality of the internet has not kept pace with fallen prices nor has it led to a reduction in the digital divide. Nigeria is languishing somewhere at 148 out of 164 countries on the 2022 Internet Accessibility Index published recently by comparison site Broadband Choices.

The site ranks 164 countries and territories on the quality of their broadband and mobile infrastructure to find the world’s most connected countries. Leading Africa in quality internet are South Africa (34), Egypt (41), Morocco (53), Tunisia (82) and Botswana (102).

The quality of the internet is mostly dependent on the level of investment in broadband infrastructure. For example, to improve connectivity, the GSMA estimates in its latest mobile economy report that global telecom operators will invest $620 billion in their networks between 2022 and 2025.

But investment in broadband in sub-Saharan Africa is not at the same level compared to other parts of the world due to issues that include multiple taxation, which adds to the huge capital expenditure the operators face on the continent as a result of rising inflation.

“The operators in the Nigerian telecommunications industry pay more than 32 taxes to states and local governments. The operators in this sector are overtaxed and this has really contributed to the slow pace of telecommunications infrastructure in Nigeria because the monies that were set aside for the development and spread of telecom infrastructure were being used to pay all these illegal taxes demanded by states, local and agencies,” said Ajibola Olude, executive secretary and chief operating officer of the Association for Telecommunication Operators of Nigeria.

It is the consumers that bear much of the brunt of the lag in broadband investment. Here are five ways it affects consumers.

Low digital infrastructure investment

“Multiple taxation has been a major issue in the Nigeria telecommunication sector, and this really discourages investments and denies the government long-term revenue as well as destroying the foundations of future growth,” said Wole Abu, CEO of Liquid Telecom Nigeria.

Multiple taxation contributes to telecom investors’ decision not to push more capital into broadband infrastructure, which affects the quality of internet users get.

The latest capital importation report by the National Bureau of Statistics (NBS) showed that the telecom industry did not record any capital investment in the fourth quarter of 2021. The total capital import into the industry was $107 million.

This is a far cry from what the industry recorded in 2020 and 2019. Although the industry saw a decline in 2020, it managed to pull in approximately $417 million, compared to $942.8 million in 2019.

The GSMA in their Mobile Economy 2022 report recommends the adoption of a balanced approach to collecting revenues through taxes and fees on the mobile sector, without jeopardising medium-term investment and economic growth.

Read also: Achieving financial inclusion in Nigeria and the role of the telecommunications industry

Over-concentration of capital investment in urban areas

“The implication of multiple taxes has manifested in areas such as poor access to digital technology in the rural areas, the poor spread of telecom infrastructure, lack of access to financial inclusion, and a lot of others,” Olude said.

Due to the nature of their business, telecom service operators are supposed to be in every state of the federation and provide equal services to users in those states. But operators often are in conflict with states and LGAs due to incessant demands for taxes and levies.

Hence, although urban areas like Lagos and Port Harcourt are not exempted from the multiple and illegal taxes problem, they still receive more capital from operators because of the large concentration of consumers that are able to pay for broadband service.

Widening digital gap

The consequence of low investment in infrastructure and the concentration of much of the infrastructure in urban areas is a widening digital gap between those in the rural and urban areas of the country.

According to the Nigeria Communications Commission (NCC), there are still over 100 communities without access to telecom service. Experts say it is unlikely that operators will prioritise these places any time soon, given that there is still a lot of infrastructure needed to be deployed in areas with relative connectivity.

It should also be noted that while Nigeria’s internet data is relatively cheap, it is still too high for many existing and potential users – one of the reasons Nigeria is not among the top five countries in Africa with the cheapest data. The GSMA report on mobile taxation found that the purchase of 1GB of data represents 5.37 percent of income in sub-Saharan Africa.

In its latest report, the NCC showed that broadband penetration is still at 41 percent, which means that about 59 percent of the population has no broadband coverage. Experts say this can be partly addressed by reducing discriminatory taxation on the mobile sector to improve affordability.

Fractured digital economy

Without sufficient telecom infrastructure providing the digital backbone, Nigeria’s digital economy drive will face huge challenges. The World Bank recognises that a 10 percent increase in broadband penetration increases GDP per capita growth between 1 and 1.5 percentage points in low-middle income countries.

A key channel through which mobile connectivity delivers growth is enhanced productivity. The GSMA also found that a 10 percent increase in mobile penetration increased productivity by 4 percentage points in developing markets.