Communication Service Tax: A tax burden Nigeria could do without
We contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.” – Winston Churchill
The Finance Minister recently admitted, during an appearance before the Nigerian Senate, that Nigeria is “technically” in a recession. It is common knowledge that the fall of global crude oil prices in the last two years has drastically affected Nigeria’s economy and this has been further exacerbated by sabotage to oil and gas facilities in the oil-producing Niger Delta region. It is therefore no surprise that the Federal and State Governments have, during this time, focused on generating additional revenue through taxation. Perhaps, the need for increased government revenue was the driving factor in the introduction of the Communication Service Tax Bill, 2015 (the Bill). The Bill, when passed into law, will establish a tax on users of electronic communication services in Nigeria.
Over the last six years, the telecommunications industry contributed about 8% to Nigeria’s Gross Domestic Product (GDP). The first quarter (Q1) of 2016 saw an annual growth rate of over 7% to bring the industry’s contribution to the Q1 GDP to 8.7% (N1.9trillion). The telecommunications Value Added Services (VAS) market alone is currently estimated to be worth over N300billion, with about 200 licensed players under the auspices of the Wireless Application Service Providers of Nigeria. It is little wonder why the National Assembly sees the telecommunications industry as the proverbial cash cow that should be milked in order to generate much needed government revenue; hence the introduction of the Bill which has passed first reading in the Senate. A similar bill is also being considered in the House of Representatives and recently passed second reading in June 2016.
With the introduction of the Bill, it appears that the Nigerian Legislature is trying to tax the country out of recession and into prosperity. However, a fundamental issue with this Bill is that the National Assembly wishes to place an additional tax burden on individuals and businesses who make use of electronic communication services, especially in these difficult economic times. This is a key reason (among others) why we believe that the Communication Service Tax (CST) is one tax too many!
What does the Bill contain?
The Bill seeks to impose CST at the rate of 9% on the fees paid by users of electronic communication services (ECS), other than private users. The tax is to be levied on ECS defined as “a service providing electronic communication, a closed user group service, a private electronic communication service, a radio communication service, and a value added service”. The Bill lists ECS to include voice calls, short messaging and multimedia messaging services, data usage from telecommunication service providers and internet service providers, pay-per-view television stations, and so on. The tax is to be charged by the service providers in addition to the fee for these services.
The Bill also provides that the Federal Inland Revenue Service (FIRS) will be responsible for the collection of the tax, together with any applicable penalty and interest. The tax is to be remitted into the Federation Account.
All service providers are required to file a tax return to account for the tax collected and pay the tax due not later than the last working day of the month immediately after the month to which the payment relates. However, this timeline may be extended in certain circumstances. In the event that a service provider fails to submit CST returns by the due date, this failure would attract a penalty of N50,000 plus N10,000 for each day of default, and monthly interest at the rate of 150% of the average prevailing commercial bank lending rate published by the Central Bank of Nigeria. Furthermore, failure to pay the interest due on default within one month, would attract additional interest on the unpaid interest.
The Bill further provides that relevant sections in the Value Added Tax (VAT) Act with respect to records, offences and penalties will apply to the management of the CST. In addition, the procedure for objections and appeals for CST will be similar to that contained in the VAT Act.
In a rather bizarre attempt to monitor service providers, the Bill proposes that the Minister of Communications and the FIRS, in collaboration with the Ministry of Communications and the Nigerian Communications Commission (NCC), will appoint agents to establish both electronic and physical monitoring mechanisms that will provide unfettered access to the service providers’ network and billing platform. This, the Bill contemplates, is for the purpose of accurate computation of tax due to the government. Failure to grant this access after 30 days following the request attracts a fine of 5% of the annual gross revenue in the service provider’s last submitted financial statement. Where the failure persists after 90 days, the NCC may revoke the operating licence of the service provider! The service provider does have the option to submit to the above-listed parties, an objection to the request for access to its network and can seek redress at the Federal High Court (FHC) where its objections are not resolved satisfactorily with the parties. However, should the FHC uphold the request for access, the service provider will still be liable to the penalties prescribed above.
Written By Ibeneme Ebenezer, Manager, and Temitope Obademi, Senior Tax, Regulatory and People Services, KPMG Nigeria
 The Nigerian Bureau of Statistics: Nigerian Gross Domestic Product Report, Q1 2016.