Before the tax on phone calls

Reports of the introduction of a tax on telephone calls in Nigeria have dominated public discuss lately. The reports have it that the tax was contained in the National Health Insurance Authority Bill 2021. However, findings have shown that by the time President Muhammadu Buhari signed it into law on May 19, 2022, the provision […]

Reports of the introduction of a tax on telephone calls in Nigeria have dominated public discuss lately. The reports have it that the tax was contained in the National Health Insurance Authority Bill 2021. However, findings have shown that by the time President Muhammadu Buhari signed it into law on May 19, 2022, the provision of the phone tax, which was contained in the previous version, had been expunged. Consequently, the NHIA Act that came into existence does not contain the telephone calls tax of one kobo per second, which would have amounted to an effective tax rate of 9 per cent on phone calls made in the country, given the existing call rate of about 11 kobo per second, in general.

Before it was signed and the tax provision expunged, the NHIA, which replaced the National Health Insurance Scheme, had provided in Section 26 (1c) for a “telecommunications tax, not less than one kobo per second of GSM calls” being one of the sources of funding for a Vulnerable Group Fund. The vulnerable group, according to the Act, includes children under five, pregnant women, the aged, physically and mentally challenged persons, and the indigent “as may be defined from time to time”. And just last week, some reports had it that some of the additional revenues from the phone tax will go into increased funding for universities.

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These are both compelling policy ideas and we support the government in principle. Some Nigerians have argued that this is not the time to raise taxes on phone calls, given the crunching economic conditions in the country, and the increasing significance of phone calls in facilitating business and social interactions among Nigerians at a time when airfares have shot through the roof and the roads are no longer safe. Others claim that Nigerians are already paying Value Added Tax (VAT) on phone calls, so the proposed tax amounts to multiple taxation on the same service. These are genuine arguments, but they are rather misplaced.

One reason why life can be so difficult for millions of Nigerians is the near-complete absence of social safety nets that work well for the poor, particularly in the areas of education and health. The Vulnerable Group Fund is a commendable initiative to address some of these. If the increased revenue that will derive from the tax on phone calls is appropriately and effectively utilised according to the prescriptions in the Vulnerable Group Fund, it will go a long way in providing a highly needed safety net to children under the age of five, for pregnant women who suffer unbearable risks of high maternal mortality rates, and for the aged and the infirm who are often simply neglected in the overall distribution of social resources in this country. And it will come at very little cost to the tax payer or phone user. An additional cost of 1k per second will scarcely make any difference to the user, except perhaps to the poorest phone users among us. But it is this very category of Nigerians—the poorest—that stands to benefit the most from the tax on phone calls through the safety nets provided in the Vulnerable Group Fund.

However, the proposed tax raises other important issues for concern in Nigeria’s overall tax regime. The first is corruption and a lack of accountability for the taxes collected. Corrupt transactions, which dominate political and business life in Nigeria, naturally go untaxed, causing the government and the people to lose much revenues. And what little is taxed is often uncounted for as citizens hardly know where their taxes are going. Secondly, Nigeria’s tax regime works against the poor and those who earn incomes in the formal sector of the economy. While the average employee in the public or organised private sector have their taxes deducted at source, many Nigerians in the informal sector—some of whom earn much higher incomes than those in the formal sector—hardly pay any taxes to government. Third, the federal and state governments have failed to systematically go after and tax the big dodgers, including high net-worth individuals and corporate organisations, in the country and compel them to pay their fair share of taxes.

All of these issues make the overall tax regime lopsided and weigh heavily against the poor and legitimate income earners in the formal sector. So, as the federal government prepares to extract yet more taxes from Nigerians through the proposed tax on phone calls, it must be reminded of its responsibilities to the people. We call for an open and transparent administration of whatever additional revenues would accrue from the tax on phone calls to ensure that they are utilised effectively and efficiently for the specific purposes for which the new tax is now being proposed. We also call on the federal and state governments to find a way to reverse Nigeria’s lopsided tax regime. Otherwise, the proposed tax on phone calls will only worsen the current general taxation system of robbing Peter to pay Paul. Taxation should not just be for the purpose of balancing the government’s books. Taxes must not only benefit the tax-payer and the citizenry more broadly; they must be seen to do so.