Operating under the yoke of multiple taxes

Festus Akanbi captures the dilemma of telecom operators faced with multiple taxes and pressure to deliver quality services in an environment where subscribers’ purchasing power has already been eroded by the current economic crisis

Nigeria’s telecoms sector has been hit by a barrage of taxes, which operators say are crippling their growth potential and hindering access to essential services.

There are complaints that in addition to legitimate taxes imposed by the competent authorities, according to the necessary procedures, there are also other irregular, often duplicated and sometimes hastily imposed taxes and levies imposed by some bodies seeking short-term revenue gains.

With the burden of proliferation of these taxes reportedly exceeding 49, stakeholders are warning of dire consequences on connectivity and economic development in the country.

Harvest of taxes

Reports showed a list of some of these taxes, levies and fees imposed by the federal, state and local government, including aviation height clearance, environmental impact tax, business premises tax, sanitation tax, ecological surcharges, levy on sanitary facilities, signage and advertising tax. , corporate tax, Nigeria Police Trust Fund levy, National Agency For Science and Engineering Infrastructure levy, tertiary education tax, industrial training fund, output VAT, non-refundable VAT and customs duties.

Other taxes paid by network providers in Nigeria include sewerage charges, radio and TV, taxes, wayleave tax, water levy, annual operating levy, NITDA contribution, PAYE, effluent discharge levy, annual renewal of priority levy, hawking permit, audit fees and building permit.

The list also includes building permits, rents, infrastructure maintenance, building suitability, right-of-way tax, bridge crossing levy, employment development levy, withholding tax, infrastructure maintenance and community access fees, among others.

In the first quarter of 2023, the National Bureau of Statistics (NBS) revealed that the information and communications sector was one of the largest contributors to corporate income tax (CIT), as telecommunications consumers, companies and other players in the information and communications sector paid in the quarter under review, N119.87 billion in taxes.

According to the Executive Commissioner of Stakeholder Management at the Nigerian Communications Commission (NCC), Mr. Adeleke Adewolu, who spoke at a workshop: “Taxation provides guaranteed and sustainable sources of finance for social programs and public investments; it also serves as a government-composed instrument to effectively and efficiently divide our commonwealth. So it is clear that taxation is crucial to make growth sustainable and equitable

Despite the potential to accelerate economic growth through taxation, multiple taxation, or nuisance taxation as the World Bank has termed it, has been and will continue to be an impediment to Nigeria’s economic development.

Adewolu underlines this point when he said: “Supporting tax initiatives by the various levels of government includes identifying where a category of taxes has become a cancer on economic development. These types of taxes usually manifest themselves in the form of multiple taxes and by design they stifle growth, stifle innovation and discourage investment. In parabolic terms, they are the scarecrows set up by the government to discourage development.”

While a level of multiplicity is expected in a federal system of governance, the imposition of a particular tax on the same person/entity in respect of the same liability by more than one state or local government council should be avoided, the Executive Commissioner advised. .

For example, some operators question the imposition of different taxes for the same purposes, such as clean-up contributions, clean-up levies and waste water discharge levies. Other double taxes include the annual renewal of the right-of-way levy, the bridge crossing levy and community entrance fees.

Stakeholders said the incidence of multiple taxes in the telecommunications industry affects the cost of voice, data and short messaging (SMS) services, as telecom companies pass on the taxes to consumers through their services.

According to the Chairman of the Association of Telecommunication Operators of Nigeria (ALTON), Tony Izuagbe, the Nigerian telecom sector often faces multiple regulations that usually lead to multiple taxes.

Izuagbe, who recently lobbied the Senate Committee on Telecommunications to quickly address the issues of multiple taxation to avoid revenue losses in the sector, said: “As of today, our members pay taxes to federal government agencies, state government agencies and local government agencies. .

“All these taxes negatively impact our members because money intended for network expansion must be used to pay illegal taxes.”

His position was echoed by Adewolu, who identified several taxes as major obstacles to the sustainable development of the telecom industry in the country.

Adewolu said multiple taxes and regulations are hindering the development of telecom infrastructure, the foundation on which the entire digital economy relies.

“This does not refer to legitimate taxes imposed by the competent authorities after necessary due processes, but to the many irregular, often duplicated and sometimes hastily imposed taxes and levies by some agencies seeking short-term revenue gains,” he said.

According to Adewolu, some agencies are ignoring the larger long-term impacts of their actions on investor confidence, the socio-economic well-being of the people and overall national economic growth.

“Multiple taxes and regulations imposed on infrastructure maintenance, environmental impact fees and waste collection fees, in addition to value added tax and sales tax paid simultaneously, add to the cost of services enjoyed by consumers,” he said .

Adewolu noted that certain state and local government agencies were enforcing taxes and regulations without proper legal authorization. This unwarranted imposition had a negative impact on the telecommunications industry, leading to a domino effect on overall production.

According to him, the lack of appropriate legal support for these taxes and regulations raised concerns about their legitimacy and highlighted the need for a more structured and legally sound approach to regulating such matters at regional and local levels.

The Commissioner stressed the need for immediate action and emphasized the importance of finding sustainable solutions to this problem, recognizing this problem as a significant obstacle to the smooth functioning of the telecommunications industry.

He said these proactive measures would not only ease the burden of multiple taxes and regulations, but also pave the way for a more stable and favorable environment for the telecom sector.

Presidential Commission on Tax Reform

“I am therefore pleased to note that one of the most crucial actions taken by President Bola Tinubu upon assuming office was the establishment of the Presidential Commission on Tax Reforms.

“We have presented our recommendations to the committee and we are confident that it will make the necessary recommendations to definitively address the various dimensions of the problem of multiple taxes and regulations.

“We believe that prioritizing comprehensive tax reforms will unlock the full potential of the Nigerian economy.

“These reforms should aim to simplify the tax system, eliminate redundancies and promote transparency.

“Government at all levels must work together to create a harmonized tax structure that promotes economic growth rather than suppressing it,” he said.

Multitude of taxes

Industry analysts say the multitude of taxes in Nigeria could significantly impact telecom companies in many ways. These include the financial burdens responsible for the poor performance of some of their networks.

Telecom operators must pay multiple taxes imposed by various levels of government, including federal, state and local authorities. This can lead to a heavy financial burden, reducing their profitability and their ability to invest in infrastructure and services.

It can also pose operational challenges, as managing and complying with different tax regulations from different jurisdictions can be complex and time-consuming for telecom operators. It may be necessary to hire additional staff or engage outside consultants to effectively navigate the regulatory landscape.

The ultimate effect is higher costs for consumers. To offset the financial impact of multiple taxes, telecom operators can put pressure on subscribers, who are already at loggerheads with service providers due to poor service quality.

As things stand, ongoing efforts to turn around the economy need to be complemented by concrete measures to facilitate the functioning of existing players in the economy. This therefore makes it imperative to streamline the existing taxes, levies and levies in a manner that solves the problem of duplication of efforts. Until this happens, telecom companies will have no choice but to pass on the additional burden to consumers, with the associated threats to the economy.