Tough times ahead for Nigerians as FG prepares to implement 5% excise duty on telco services

Godfrey Elimian
…expert faults FG policies inconsistencies
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The Federal Government of Nigeria is set to implement the 5% excise duty tax on mobile telephones, fixed telephones, and Internet services it previously removed earlier in the year.

The additional tax on telecom services is part of new Fiscal Policy Measures (FPM) for 2023, announced via a circular dated 20 April 2023 signed by the Minister of Finance, Budget, and National Planning, Mrs Zainab Ahmed.  

Last month, Prof. Isa Pantami, the Nigerian Minister of Communications and Digital Economy, announced that the government exempted the telecoms sector from excise duty tax in line with the recommendations of the Presidential Review Committee that reviewed the applicability of the Duty to the telecom sector which is considered already overburdened with taxation and sundry levies.

FG implements 5% excise duty on telecom service operators despite initial exemption

Prof. Isa Ali Pantami at that time stated that it was part of the government’s commitment to reviewing the amount of taxes that operators in the telecom business are subject to. But now, the FG is reneging on that to uphold the country’s 5% excise duty for telecom operators.

The 5% telecoms excise duty and matters arising

The Federal Government announced intentions to impose a 5% excise duty tax on telecom services in July 2022 in an effort to boost its revenue sources. Zainab Ahmed, the minister of finance, budget, and national planning, explained, “It is public knowledge that our revenue cannot run our financial obligations, so we are to shift our attention to non-oil revenue.”

At the time, telecom companies insisted that regular Nigerians would bear the extra cost, stating that telecom consumers would pay the tax, as they would increase the consumption tax on telecom services to 12.5 per cent.

To counter this, telecommunication consumers under the aegis of the National Association of Telecoms Subscribers sued the Federal Government in court.

The government later suspended the implementation of the tax and set up a committee to review it. Prof Pantami announced the suspension during the inaugural meeting of the Presidential Committee on Excise Duty for the Digital Economy Sector.

According to the minister, the Information, Technology and Communication sector, especially the telecom industry, is already overburdened by excessive and multiple taxations, which will likely adversely affect the sector if the government fails to take any precautions.

“The ICT sector is being overburdened with so many categories of tax,” Pantami stressed, adding, “If care is not taken, this is going to jeopardize the achievements and gains we have recorded so far in the sector.”

Minister of Communications and Digital Economy, Dr. Isa Pantami
Isa Pantami

Following months of uncertainty regarding implementing the new tax on calls, data, and other telecom services, Pantami declared in March 2023 that the government had decided to exempt telecoms from excise duty because it cared about the suffering of Nigerians.

Pantami, the Chairman of the Committee, specifically set up to review the proposed excise duty, said the Committee had carried out its national assignment and accordingly submitted its report to the President, justifying why the sector should be exempted.

Telco operators already pay a lot of taxes

Following the committee’s review of the excise duty, Prof Pantami explained that the operators in the Nigerian telecommunication sector already pay a lot in taxes, charges, and levies.

First is the fact that operators in the telecoms sub-sector of the digital economy industry currently pay no fewer than 41 different categories of taxes, levies and charges, Prof. Isa Alli Pantami explained in the press conference explaining President Buhari’s decision to remove the excise duty.

Commenting on the proposed reimplementation of excise duty tax on telecom services, the President of the Association of Telecommunications Companies of Nigeria, Mr Tony Emoekpere, told The PUNCH that this move would set the industry back to its many challenges.

He said, “If it is reintroduced, the advantages of its removal will be eroded. This sets us back, we have always been complaining about multiple taxation, and the removal of excise duty was a relief from the Federal Government on the challenges we were facing.

“Do not forget that some of these multiple taxations we are facing are in areas where the Federal government does not have a direct impact like in the states, the FG didn’t have control over that. The removal helped the industry, but putting it back just sets us back to the challenges we have been facing all this while.”

It is worthy noting that telecoms have continued to be a major contributor to the Nigerian economy regarding Gross Domestic Product Contribution (GDP).

Another ground for contesting the Excise Duty in the telecom sector is the fact that, despite the increase in the cost of all factors of production across the sector, naturally leading to an increase in costs of products and services, the telecom sector is the only sector where the cost of service has been stable and in many cases continued to go down over the past years and therefore, adding more burden will destroy the sector,” the Minister said in March

Naira scarcity and recovering economy

The first few weeks of 2023 were characterised by the economic strain brought upon by the Naira scarcity due to the CBN’s redesign policy. Many Nigerians felt the brunt of the cash crunch and are only just recovering from that and other policies implemented by the CBN -including the 18% interest rate.

Read also: Why CBN’s new 18% interest rate could spell doom for Nigerian businesses

As many Nigerians have turned to cashless transactions, there is an increased need for telecommunication and internet services. Making Nigerians pay more for these services would not be welcomed with open hands.

In March, Prof Pantami explained that the desire to ease the sufferings of Nigerians was part of why President Buhari suspended the excise duty at the time.

….additional burden on telecom sector will increase the sufferings of Nigerians and that other sectors that are not making as much contribution to the economy should be challenged to do more and pay the 5 per cent excise duty“, he added.

PUNCH also reports that Adeolu Ogunbanjo, the President of the National Association of Telecoms Subscribers, believes that the latest attempt by the government to add excise duty on telecom services will not only increase the cost of telecom services but affect businesses.

“If this new attempt succeeds, it will complicate many things. Alcohol is a luxury, but mobile phones are now companions. They help businesses and network operators are doing a lot to make access cheaper for many businesses. This new move will frustrate consumers. It will cause a lot of confusion, complicate matters, and cause the price of telecom services to go up,” he said.

The Minister assured Nigerians, who are telecom consumers that the incoming administration shall sustain the presidential exemption given to the telecom sector as “the decision by the President is not about any political party or any administration but about Nigeria and welfare of Nigerian citizens.”

What the latest circular says

Fiscal Policy Partner and Africa Tax Leader at PwC, Taiwo Oyedele, posted the circular on Linkedin. The circular, with the number HMFBNP/MDAs/CIRCULAR/2023 FP/04, was titled “Approval for the Implementation of the 2023 Fiscal Policy Measures and Tariff Amendments.”

FG implements 5% excise duty on telecom service operators despite initial exemption
Zainab Ahmed, Minister for Finance, Budget and National Planning

In the circular, the Minister confirmed the implementation of the excise duty on telecommunication services earlier introduced via the Finance Act 2020 and prescribed in the Official Gazette No. 88, Vol. 109 of 11 May 2022, approved by the President.

It says that the tax is applicable on mobile telephone services (GSM), fixed telephone and internet services, both postpaid and prepaid at the rate of 5%. 

The policy further introduces additional excise taxes ranging from 20% to 100% increases on previously approved rates for alcoholic beverages, tobacco, wines, and spirits, effective 1 June 2023.

It read in part, “The revised excise duty rate on alcoholic beverages and tobacco products in line with existing excise regime implementation period shall take effect from 1st June 2023 and reviewed upwards in line with the new regime by 1st June 2024.

These are further increases over and above the 2022 FPM’s approved Roadmap for 2022-2024 in the form of new and higher ad valorem excise duties and specific rates. The excise duty rate on non-alcoholic beverages is however retained at the rate of N10 per litre.

“The excise duty on Single Use Plastics shall also take effect from 1st June 2023. While on the other hand, the excise duty rate on Telecommunication Services remains as approved by Mr President and published in the Official Gazette No. 88, Vol. 109 of 11th May 2022.”

“The tax is applicable on mobile telephone services, fixed telephone, and internet services, both postpaid and prepaid at the rate of five per cent.”

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