TechInAfrica — Nigerians may face the increasing of internet costs due to a new tax on electronic communications. The Communications Service Tax bill, which is already being adopted in Ghana, was introduced by the communications minister, Adebayo Shittu.
Although this bill was thrown out by the National Assembly in 2016 due to outcry by stakeholders, it has now resurfaced under the current Senate.
Senator Ali Ndume re-introduced the bill that will make consumers pay a 9% tax on voice calls, data consumption, SMS, MMS, and pay-TV, to counter the proposed increase of Value Added Tax from 5% to 7.2%.
Currently, the bill has passed first reading to second and states, “The tax shall be levied on Electronic Communication Services supplied by service providers. For the purpose of this clause, the supply of any form of recharges shall be considered as a charge for usage of Electronic Communication service.”
Babatunde Fowler, Chairman of the Federal Inland Revenue Service, was regarded with a statement that Nigerians talk a lot on the phone, as part of the justification for the tax. Fowler says, “I will put it this way, Nigerians talk a lot on the phone; they even talk more than is required, so for them to have capacity or revenue to talk that much, I don’t see any harm in paying a little bit more to government.”
While the Federal Inland Revenue Service (FIRS) collects the tax from service providers and remit to the Federation Account, it will be collected together with the providers’ charges. All service providers are expected to file monthly returns, with penalties for failure to file returns.
The affected services, if this bill becomes the law, will either become more expensive for consumers, or the providers will charge similar rates while still absorbing the tax, as was the current situation in Ghana until September.
Another possibility is that the providers redesign their rates to allow both providers and consumers to share the burden of the new tax.
Tax experts at Deloitte, a consulting firm with operations in Nigeria, brings up the question, “Considering that telecommunication services still need to be extended especially to the rural areas, will the Bill not be perceived to be a deliberate attempt to stall the growth of this particular sector?”
The CST together with the value-added tax system will increase the cost of services to consumers in a market where certain providers already struggle to drive adoption of their products. This may discourage investors that were initially looking to participate in the sector.
Even without this tax, Nigerians have already paid relatively high costs for data services. This proposed tax will further increase the cost and will stall broadband penetration. A counterintuitive step, if the government wants to achieve its target of 70% penetration by 2021, which according to the Nigerian Communications Commission, penetration was at 33% in March.
Additionally, telecommunications and information services are the backbone of the tech scene in Nigeria, also with other sectors, from agriculture to health care and education. It all relies on technology to improve their offerings and efficiency. The CST will effectively increase the cost of operations for all such businesses as the effect.