Telecom: Removal of 5% excise duty and Nigeria’s economy

President Muhammadu Buhari last week approved exemption of telecom sector and from 5 percent excise duty. The Minister of Communications and Digital Economy, Prof Isa Ali Ibrahim  Pantami, disclosed this in Abuja while briefing newsmen on the outcome of the meeting of the Presidential Review Committee on Excise Duty.  Pantami listed members of the Committee […]

President Muhammadu Buhari last week approved exemption of telecom sector and from 5 percent excise duty. The Minister of Communications and Digital Economy, Prof Isa Ali Ibrahim  Pantami, disclosed this in Abuja while briefing newsmen on the outcome of the meeting of the Presidential Review Committee on Excise Duty. 

Pantami listed members of the Committee as himself, the Minister of Finance and Economic planning,  the Chairman of the Federal Inland Revenue Service, (FIRS), the Executive Vice Chairman of the Nigerian Communications Commission (NCC),  the representatives of Nigeria Customs Service, Mobile Network Operators, amongst others.

He expressed the appreciation of all stakeholders in the digital economy and telecoms sector to the President,  saying the decision to exempt the sector was in recognition of its contribution to Gross Domestic Product (GDP) of the country in the past three years. 

The minister said the exemption was imperative considering the fact that the telecoms sector alone had become over burdened with 41 categories of charges, taxes and levies. 

Pantami recalled that on September 5, 2022, the federal government suspended the imposition of a 5 per cent excise duty on the telecoms sector, asserting that President Buhari had on 6th of March 2023 approved the exemption of the sector from payment of excise duty as far as the implementation of the Financial Act law is concerned. 

He maintained that the exemption was in exercise of the powers repose on the President by the Constitution, pointing out that the argument relied upon by the proponents of the tax was in respect of subsidiary legislation and not a principal legislation from their regulatory obligations. 

Pantami who expressed confidence that the in coming administration of President elect,  Bola Ahmed Tinubu would consolidate and continue with the policy and programmes of the present government,  said the future of the country is about Nigeria’s growth and development, not about an individual. 

The minister said the summary of the exemption was a challenge to other sectors to generate revenues to the coffers of the government just like his Ministry has done in the past three years in spite of the huge challenges in the telecoms industry. 

“We increased revenue generation by 594 per cent from N51 billion quarterly to N481 billion quarterly. 

“This is the only sector where the prices of services have been reduced drastically despite the fact that Mobile Network Operators (MNOs) pay huge sums of money to maintain 32,800 generators to power their infrastructures. 

“In 2019, the price of data per Giga-Bite averaged 1,200 naira, but today it is about 350 naira. So there is no justification for the government to impose more burden on its poor citizens because if it imposed the tax, the MNOs would only pass the burden to the citizens, “ Pantami said. 

Pantami added that President Buhari should be commended also for recognising that the Small and Medium Enterprises (SMEs) in Nigeria depend on the telecoms sector for survival, stressing that imposition of additional taxes on the sector would impact negatively on businesses. 

The Executive Vice Chairman of the Nigerian Communications Commission, NCC, Prof Umar Danbatta, in his remarks reiterated the commission’s commitment to improving the telecoms industry. 

Danbatta said with the removal data prices in the telecoms sector are expected to reduce due to availability of data and competitions. 

He said the reduction of data had been the main target of the commission, stressing that with availability of data and competition in the industry, the prices of data would continue to reduce. 

He said the average 1 gigabit of data has dropped to between N350 from N335 from 1,200 naira in 2019.

Danbatta said the NCC would continue to maintain the standard and integrity of the industry based on International Telecommunications Union (ITU) standards, and urged Nigerians to report to the Commission,  operators charging beyond floor prices approved for services.

Daily Trust reports that the plan to implement five per cent excise duty on telecom services, despite 7.5 per cent Value Added Tax (VAT) that Nigerians are already paying for goods and services, generated serious controversies in the telecom sector last August when the idea was made public by the Minister of Finance Zaynab Ahmed. 

But due to the controversies, the federal government in September bowed to pressure and suspended the planned imposition of the five per cent excise duty on telecom operations. 

It announced the suspension of the proposed five per cent excise duty and inaugurated the committee chaired by the Minister of Communications and Digital Economy, Dr. Isa Ali Ibrahim Pantami, to immediately review the policy.

Pantami, who inaugurated the Committee on the directive of President Muhammadu Buhari, with the Minister of Finance, Budget and National Planning, Dr. Zainab Ahmed as member, said the decision to suspend the policy would be made after the committee completes its report.

Pantami said the suspension of the policy that was directed by Buhari, followed his petition as the Chairman of the Presidential Council on Digital Economy and eGovernment. According to him, the five per cent levy has the potential to impact negatively on the digital economy sector, and particularly, telecommunications, which is already overburdened with a plethora of taxes totalling about 41 categories.

He said some of them were multiple taxations because other tiers or levels of government were imposing same levies that mobile network operators (MNOs) had already paid to the federal government.

Pantami had earlier faulted the timing and process with which the proposed duty announced. He had insisted that part of the responsibility of a responsive government was not to increase the problems of the citizens.

Pantami had said: “If you look at it carefully the sector contributes two per cent excise duty, 7.5 per cent VAT to the economy and you want to add more to create additional hardship. This cannot be tolerated at this time and it will be resisted.”

But while inaugurating the committee, Pantami listed the contributions of the telecom sector to country’s Gross Domestic Product (GDP) and gave reasons why the sector should be encouraged to do more.

Pantami recalled several positive developments in the sector that needs to be sustained through support of the government.

“Three unprecedented positive developments have occurred in the digital economy sector in the last three years. In the last quarter of 2020, ICT alone, without including digital services, contributed 14.70 per cent to the GDP.

“In the second quarter of 2021, we saw another record where the sector contributed 17.90 per cent to the GDP. The last record was in the second quarter of 2022 where ICT contributed 18.44 per cent to GDP. By implication, this sector has been contributing a lot to the economy,” Pantami said.

Daily Trust analysis shows that If the policy had been implemented, telecom subscribers would have paid five per cent of the total cost of the voice call they made. The payment would have been deducted from the subscribers’ account by the telecom operator, who would be remitting same to the government. This would have increased voice call and data tariffs by 100 %. 

However, Minister Ahmed had said the five per cent excise duty had been in the Finance Act 2020 but hadn’t been implemented. 

She had said: “The duty rate wasn’t captured in the act because it is the responsibility of the president to fix rate on excise duties and he has fixed five per cent as the duty rate for telecommunication services, which include GSM services.

“It is public knowledge that our revenue cannot run our financial obligations, so to that effect we are to shift our attention to non-oil revenue. The responsibility of generating revenue to run the government lies with us all.” 

The chairman of the Association of Licensed Telecom Operators of Nigeria (ALTON), Gbenga Adebayo, however expressed satisfaction of operators that the excise duty has been finally removed. 

 Adebayo said had the duty not removed, the telecom operators would not have been able to subsidise the five per cent excise duty on telecom services as a result of the 39 multiple taxes that they were already paying, coupled with the epileptic power situation that had compelled operators to spend so much on diesel.

Similarly, the president of the Association of Telecommunications Companies of Nigeria, (ATCON), Ikechukwu Nnamani, said commended the federal government for removing the excise duty on telecom operations. 

Nnamani said,  “The five per cent excise duty on telecom services was not in tandem with present realities,” adding that the industry was bleeding.  He said had been implemented, many jobs would have been lost in the telecom industry.

Also, NCC’s director of Public Affairs, Mr Reuben Mouka, said the NCC was solidly behind the minister Pantami in his fight for the removal of the excise duty. The minister had made his position public and that is also the position of NCC”, he had told Daily Trust. 

Mouka said NCC had always been ensuring the call and data tariffs go down. 

The NCC spokesman told Daily Trust that the commission had been a vanguard of consistent reduction in telecoms services even despite rising cost of operation by the operators. 

“The NCC has been consumer-centric in all its activities,” he said.

Through effective regulatory efforts, he said the commission had ensured that the cost of making calls has crashed from around N70 per a minute a few years ago to around N20 per minute now. 

“We have been preventing the mobile operators from just increasing tariffs anyhow. Tariff increase and promotion of any kind that may lead to traffic increase are reviewed by NCC to ensure they are fair to consumers,” he added.

He explained that NCC consults widely; it carries out cost-based studies to ensure evidence-based regulatory interventions that help the consumers to access telecoms services at moderate prices.

The NCC, he said, is presently working to crash the cost of data to N390 per a gigabyte of data by 2025, as contained in the Nigerian National Broadband Plan ( NNBP). 

On multiple taxation, he said the NCC had gone into agreement with many states in the country on reduction of taxes on telecom operators. 

“That is why NCC does not allow any operators to just impose tariffs arbitrarily. 

He said telecom is the only sector where the cost of getting services had been going down since liberalisation of the sector despite rising cost of operations incurred by the operators. 

He said this was linked to effective regulations of the sector where NCC ensures robust and healthy competition among the licensees.