Telcos N979bn network upgrade caught in web of state taxes

Since the failure to agree on binding national legitimate taxes and charges for telecom operators in Nigeria by the different MDAs at federal, state and local levels, the best that can be said of the telecommunications companies is that they have at least kept alive-just-the aspiration to deliver on their quality drive and expansion programme.

Investigations by BusinessDay show a raft of multiple taxes being imposed on the operators by the federal, and various state governments and their agencies across the federation. Operators are oftentimes forced to pay such taxes as permitting tax, annual renewal taxes, miscellaneous fees, development levies, tenement rates and even sanitation fees, in one base station, sometimes running well above N200 million, depending on the state.

These taxes, fees and charges are those payable to the MDAs of the federal, states and local government agencies. There are also myriad charges imposed by non-governmental bodies such as community development areas, resident associations and ‘Area Boys’.

All of these taxes and charges are often generally aggressively pursued, and according to an industry watcher, through the illegitimate use of law enforcement agencies, shutting down and occasionally vandalising sensitive telecommunications equipment.

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Analysts told BusinessDay that overlapping and often conflicting jurisdictions between the different agencies of government often lead to these multiple layers of taxes, charges and fees.

This huge tax burden, according to industry analysts, has taken away a lot of value from the industry. Operators in Nigeria’s highly competitive market are expected to spend an estimated $6.2 billion (N979bn) on network expansion initiatives this year.

But if taxes levied on operators are not harmonised, and arbitrary right-of-way charges abolished, industry watchers say, operators might hold back in terms of making necessary investment on network expansion this year.

“Telecoms subscribers will continue to experience poor quality of service because many of the networks cannot complete network expansion initiatives due the issue of multiple taxation. Operators spend significant amount of resources meeting the financial obligations of these states. It is a recurrent problem which affects the growth of the industry, Usen Udoh, director, high communications, Accenture Nigeria, told BusinessDay in an interview.

Analysts estimates that for every N1 invested by operators in network deployment, 40 percent goes to state governments and their agencies, in the form of spurious taxes and levies.

“The minister of communications technology is engaging state governors on the impact of multiple taxes on telecoms. The telecom regulator is also engaging the various state governments. But, the problem still lingers. It just shows you that the entire country is in disarray. Everybody does what he or she wants. We do not have a government. IFRS is the only body responsible for collecting taxes,” Udoh said.

In some respects, Lagos offers a welcome model for the management of multiple taxation. By virtue of the local government (Approved Taxes and levies) Law of Lagos state, the specific levies/charges that can be levied by the LGAs have been defined. As such, the spectre metre of MTR is largely managed. Operators have however recommended this model to other state governments.

But investigations show that Abuja charges for towers and other site-build approval permits are the most expensive in the world. In 2007 – 2011, The Abuja Metropolitan Management Council (AMMC) had requested for N351.5 million for Annual Revenue Charges, in addition to N1.14 million per site, for approval of sites within city limits; and N959, 000 per site, for those in satellite towns.

Specific incidences of multiple taxation were recorded in some states of the federation earlier this year. The Ondo State Internal Revenue Service imposed about N252 million on operators as taxes without any legal basis. The figure includes levies such as mast power permit, EIA report, sanitisation charge, local government charge and urban planning permit. Last year, the Osun State Town Planning Authority asked operators to pay N747, 000 per site, as taxes without any legal framework backing the demand. In 2012, telecoms operators were expected to pay annual arrears of N175 million to FCT Abuja.

In 2012, telcos received request from the Edo State Town Planning Authority to pay N750, 000 per telecoms site, as permit fee without any legitimate justification.

In Abia State for instance, their Infrastructure Development Fund charges development levy of N100,000 per site, their fire service charges compliance fees of N180,000 per site, their town planning charges permit fees of N650,000 while all LGAs charge tenement rates of N150,000 per site, while one LGA, Ugwumagbo LG charges inspection, application approval fees N1.52 million.

These types of levies are replicated across the country. This, according to operators BusinessDay spoke to, has grave implications on the already deteriorating quality of service levels.

“Multiple taxation is a huge threat to investment in network expansion”, Osondu Nwokoro, director, regulatory services, Airtel Nigeria, told BusinessDay. “No matter how much telecoms operators invest, if the enabling environment is not in place, the output will not be seen.

“Subscribers will feel operators are not making any effort to address the issue of poor service”.

Telcos are lining up big budgets and signing new contracts for network expansion with high optimism that multiple taxation will soon be resolved. United Arab Emirates’ (UAE) Etisalat announced plans to spend $500 million in network expansion this year. MTN Nigeria obtained a medium-term loan facility of $3 billion from a consortium of 17 local and seven foreign banks. Second National Carrier, Globacom signed contracts with two Chinese firms, Huawei ($750mn) and ZTE ($500mn) totaling $1.2 billion for network optimisation and upgrades. In the last 30 months, India’s Airtel Nigeria said it has invested $1.5 billion in network upgrades and expansion.

It is estimated that there are little over 22, 000 Base Transceiver Stations (BTS) in Nigeria to meet the communications needs of Nigeria’s 114 million active mobile lines. To meet the QoS mandates of the telecoms regulator, industry analyst say operators will need to deploy additional 60, 000 BTS sites by 2018. The telecoms regulator has also expressed concern over the spate of multiple taxation and its adverse effects on the growth of the industry.

“Tax is a disincentive for investment”, Tony Ojobo, director, public affairs, NCC, told BusinessDay. “Once, the tax regime in any country is not friendly; capital will indeed take flight. Telcos want to expand their network.

“They want to build out more base stations to address the issue of quality of service. But they are constrained by the huge taxes and levies from federal, local and state governments. So, what is the incentive for operators to make such investments? How long will it take to recoup their investment? That explains why operators are holding back in terms of making necessary investment in network deployment”, he explained. Here are some cases of telecoms site closure to compel payment of taxes.